extending cert consultation

8/14/2019 Extending CERT Consultation

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Extending the Carbon EmissionsReduction Target

Consultation on a CERT framework for the period April 2011 to December 2012

URN 09D/845 December 2009


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Extending the Carbon Emissions Reduction Target

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Foreword

The energy we use to heat our homes is responsible for 13% of the UKs totalgreenhouse gas emissions. The Carbon Emissions Reduction Target, in drivingsubsidised energy efficiency measures at scale into Great Britains households,not only plays an important role in the fight against climate change but also helpsmillions of households enjoy warmer homes and lower energy bills.

CERT has been a proven success in terms of delivering significant carbon dioxidereductions cost effectively. It has helped get energy efficiency measures into

homes at scale - for example almost two-thirds of cavity walls are now filled in theUK and 35% of lofts are insulated to at least 150mm. It is imperative that we dontlose the momentum we have built over the last seven years. The proposals herelook to build on CERT but also provide a bridge to our longer-term environmentaland social ambitions.

The proposals for the CERT extension will escalate the delivery of insulationmeasures as a major contribution to our 6 million homes insulated commitmentand our ambition for all homes to be insulated with cavity wall and loft insulation,where practicable, by 2015, so that we remain on course to meet our carbon

budgets.

The proposals aim to enhance an equitable distribution of benefits to lower incomevulnerable households, and thereby reinforce the strategy to alleviate fuel poverty.

CERT will facilitate the transition to a new Household Energy Managementstrategybeyond 2012, which will ensure the remaining standard insulationmeasures are completed in all households while continuing to promote investmentin innovative products and more broadly encouraging consumers to understandand act on increasing their energy efficiency so as to save carbon and save

energy.If we are to avoid the worst effects of climate change, we need to ensure that by2050, the UK has reduced demand for energy and decarbonised the energy weuse in our homes almost totally. This means we all need to become smarter in theway we heat, power and insulate our homes, and the CERT extension proposalswill ensure that consumers are offered a head start to this brave new world.


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Contents

Executive summary

Consultation questions

Chapter 1 Introduction

Chapter 2 CERT extension ambition

Chapter 3 Increasing equity and assistance for the most vulnerable households

Chapter 4 Scaling insulation delivery

Chapter 5 Innovation, evidence and reporting


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Exec utive s um ma ry

In the Low Carbon Transition Plan published July 20091

extend the Carbon Emissions Reduction Target (CERT) to the end of December 2012 atno less an ambitious target;

, the Government committed to:

increase the focus of CERT on those vulnerable, lower income households who are more

likely to be in fuel poverty;

increase the scale of insulation delivery.

This document is the Governments statutory consultation on the CERT framework for theextension period (April 2011 December 2012) to meet these central ambitions.

Po licy c on text

CERT started on 1st April 2008 and is part of a broader framework of policies acting to drive CO2savings across Great Britain. It has been successful, delivering insulation to more than twomillion households in its first 18 months, building on the 5 million households insulated by

predecessor schemes from 2002. There is evidence that UK household energy demand reducedas a result domestic gas sales fell three years running 2004 2007, with energy efficiencyprogrammes thought to be responsible for half this fall 2

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. Like all policies, CERT needs to evolveto take account of changing policy ambitions and an evolving regulatory and policy landscape.

Since CERT began, the 2008 Climate Change Act has introduced a legally-binding commitmentto reduce green house gas emissions by 80% by 2050, putting pressure on our policies todeliver greater savings than ever. To plot a course to meet this target, carbon budgets for eachsector were drawn-up in the Low Carbon Transition Plan, with the household sector nowrequired to deliver a 29% cut on 2008 CO2 levels by 2020. The Government committed toinsulate a further 6 million homes by December 2011 and also introduced a Community EnergySaving Programme on electricity and gas suppliers and electricity generators. At EU level, theEnergy Using Products Directive requirement that by 2010, the standby power consumption ofequipment in any condition has to be less than 1 Watt if the equipment is providing a reactivationfunction or 2 Watts if the equipment is providing a status/information function; as well as themandatory phase-out of incandescent lamps, will impact the products and savings under CERT.

Looking ahead, the commitment to introduce feed-in tariffs in April 2010 and a renewable heatincentive in April 2011 both potentially interact with CERT, and need to be considered whendesigning CERT extension policy. Whilst these policies offer synergies with CERT, accreditedCERT activity must continue to deliver additionality and be demonstrated to do so.

http://www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspx2

Value For Money report, published July 2008;www.nao.org.uk/pn/07-08/0708787.htm
http://www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspxhttp://www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspxhttp://www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspxhttp://www.nao.org.uk/pn/07-08/0708787.htmhttp://www.nao.org.uk/pn/07-08/0708787.htmhttp://www.nao.org.uk/pn/07-08/0708787.htmhttp://www.nao.org.uk/pn/07-08/0708787.htmhttp://www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspx


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Equally, under the Ofwat managed water efficiency target to be introduced in January 2010water companies will be expected to achieve a minimum saving by providing householdersinformation on how to use water sensibly, and by promoting water saving devices, contributing tothe Governments ambition to reduce per capita consumption of water by 20 litres by 2030. On

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December 2009, Government also announced its plan for smart meters to be rolled outthrough energy suppliers to every home by the end of 2020 including a standalone displaydevice. The detailed design phase is likely to be completed around summer 2012, paving theway for the build and roll out phase.

CERT Uplift

Government has already acted to amend CERT in light of these developments. Governmentincreased the scale of CERT by 20% in July 2009, raising the target from 154 to 185 Millionlifetime tonnes of CO2, in line with the Prime Ministers announcement of September 2008

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Extend ing CERT

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A question on extending CERT was included in the Heat and Energy Saving Strategyconsultation in February 20094

CERT exten s ion a mb ition

. The rationale for this proposal was to align the end of CERT withthe end of the first 5 year carbon budget period (2008 2012). The majority of respondentswelcomed the extension for the ongoing investment certainty it would deliver. The Governmenttherefore confirmed in Julys Low Carbon Transition Plan that it would maintain an obligation onenergy suppliers... extending the end date of the CERT from April 2011 to the end of 2012.

The Government proposes to maintain the target at a pro rata level of ambition, increasing theoverall CERT for the additional 21 months by 108 Million lifetime tonnes of CO2 savings to 293Million lifetime tonnes of CO2. This will drive significant additional carbon saving activity.

Increas ing e quity and as s is tance for the mos t vulnerable ho us eho lds

Ensuring an equitable distribution of measures, especially to those most vulnerable and who canleast afford energy saving measures, remains a key aspect of CERTs design. As set out in the2009 Fuel Poverty annual report5

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, CERT is a key component of the Governments commitmentto tackle fuel poverty. This document proposes to use the CERT extension to increase the

proportion of assistance committed for the most vulnerable households. At least 40% of CERTmust be met in a Priority Group of households where at least one occupant is a benefit recipient(including disability benefits, income support and income-based jobseekers allowance, housingbenefit, council tax benefit, pension credit and child tax credit) or is aged 70 and over. Thisgroup constitutes some 11 million households. While a high number of these households are noton a form of means-tested financial support and thus less likely to be fuel poor than lowerincome households, they are more vulnerable than the general population. Whether through ageor disability, this means they are more likely to spend a significant amount of time at home sothe benefits of improving thermal comfort through energy saving measures is potentially greater.It is understandable from a commercial perspective that suppliers might target the more affluenthouseholds within the priority group as they can be easier to locate and are more able to make a

financial contribution to the cost of the measures.

www.number10.gov.uk/Page168074http://hes.decc.gov.uk/consultation/chapter-4/executive-summary/

5www.decc.gov.uk/en/content/cms/what_we_do/consumers/fuel_poverty/strategy/strategy.aspx
http://www.number10.gov.uk/Page16807http://www.number10.gov.uk/Page16807http://www.number10.gov.uk/Page16807http://hes.decc.gov.uk/consultation/chapter-4/executive-summary/http://hes.decc.gov.uk/consultation/chapter-4/executive-summary/http://hes.decc.gov.uk/consultation/chapter-4/executive-summary/http://www.decc.gov.uk/en/content/cms/what_we_do/consumers/fuel_poverty/strategy/strategy.aspxhttp://www.decc.gov.uk/en/content/cms/what_we_do/consumers/fuel_poverty/strategy/strategy.aspxhttp://www.decc.gov.uk/en/content/cms/what_we_do/consumers/fuel_poverty/strategy/strategy.aspxhttp://www.decc.gov.uk/en/content/cms/what_we_do/consumers/fuel_poverty/strategy/strategy.aspxhttp://hes.decc.gov.uk/consultation/chapter-4/executive-summary/http://www.number10.gov.uk/Page16807


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As a result, there is a risk that little CERT activity takes place in lower income Priority Grouphouseholds. This goes counter to the aim of the Priority Group of securing an equitabledistribution of measures to lower income vulnerable households. The Government thereforeproposes that a new obligation be introduced to ensure that more of the most vulnerable, lower

income households who are more likely to be in fuel poverty stand to benefit from energy savingmeasures. The Government proposes a super Priority Group, mandating that a proportion ofthe existing Priority Group activity be offered to poorer vulnerable households (for example,recipients of Pension Credit and possibly recipients of Child Tax credit at existing or lowerincome thresholds). For illustrative purposes, we have suggested that this obligation be set ataround a quarter of the Priority Group target. However, the final level will depend on decisionsabout which groups should make up the super Priority Group, taking account of evidenceprovided by stakeholders and energy efficiency opportunities remaining in that sector as a result.

Sc aling ins ulation d elivery

Insulation delivers deep and long lived carbon saving benefits. If we are to achieve our 2050greenhouse gas emissions target savings it is imperative that we meet the Governmentsambition to insulate all homes where practicable6

Innovation

by 2015. CERT is currently the primaryinstrument for delivering insulation into peoples homes at scale. The CERT extension has aclear role in increasing the volume of insulation being installed, as well as in providing anincrease in the insulation industry operational levels. This document suggests two reinforcingproposals for ensuring that insulation is prioritised and installed at scale under CERT: theprovision of an insulation minimum, that is, to require a minimum percentage (65% is initiallyproposed) of the increase in target to be met through insulation; and that Compact FluorescentLights are removed from the list of eligible measures, which will encourage the increasedinstallation of insulation, which is the next most cost effective measure.

CERT plays an important role in bringing through new innovative carbon saving products.However, it is critical that CERT stays fleet footed in an ever changing market, to allow newproducts to come through quickly, to ensure products are benchmarked effectively and to phaseout those measures which have achieved high levels of market penetration or which have beenovertaken by changes in EU product legislation. The Government therefore intends to makechanges which ensure that only the most energy efficient products and appliances remaineligible to be supported under CERT.

Beyond a CERT extens ion

Government consulted earlier this year on the options for household energy efficiency deliveryarrangements beyond 2012, including the possibility of continuing with a version of the supplierobligation. The Government will publish its Household Energy Management strategy early in thenew year, setting out plans for the post-2012 period. The Government recognises that it isimperative to retain momentum in the transition to this period so that all cavity walls and lofts areinsulated where practicable by 2015 and that the supply chain for more significant carbon savingmeasures builds quickly.

6www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspx
http://www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspxhttp://www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspxhttp://www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspxhttp://www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspx


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Cons ulta tion Que s tion s

CERT extension ambition

1. Do you agree that there should be an extension to CERT rather than a newobligation period i.e. that the current CERT mechanism is largely retained but theend date extended to December 2012?; if not, why not?

2. Given the potential costs, do you agree that the size of the extended CERTobligation should be increased pro rata to the existing overall CERT obligation

(which was increased by 20% in summer 2009)? If not, what should the level ofthe new overall target be, and why?

Increasing equity and assistance for the most vulnerable households

3. Do you agree that under the CERT extension there should be a requirement forensuring a proportion of the Priority Group target to be delivered to a subset ofthe most vulnerable customers (a Super Priority Group), who are also more likelyto be in fuel poverty? Please explain your answer.

4. Do you agree that Pension Credit recipients should be at the heart of the SuperPriority Group? Should Child Tax Credit households that qualify for the PriorityGroup also be included in the super Priority Group? If not, what groups wouldyou suggest, and what evidence do you have to support alternative proposals?

5. Do you think that lower income thresholds or sub sets of the identified benefitgroups should be identified to form the Super Priority Group if this means it is

likely to result in better targeting of those with a greater propensity to be in fuelpoverty? Is your answer the same if this required a lower super Priority Grouptarget to be applied?

6 Do you agree that we should introduce a limited list of heating and insulationmeasures of which Super Priority Group households benefit from at least one?How far should this list extend? Are there other ways of promoting thesemeasures and so significant bill savings?

7 Do you think that the options and incentives proposed will encourage more helpto vulnerable rural households? What else can we do to help rural householdsaccess CERT?


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8 Would a CERT obligation based on energy supplied (kWh) by an energy supplierto its customers, rather than its customer numbers, represent a fairer, moreequitable method by which to apportion the overall CERT obligation and thus

lead to a more equitable scheme?

Scaling insulation delivery

9. Do you agree with the proposals for setting an insulation minimum and removingCFLs as eligible measures so as to secure and drive insulation levels?

10. Subject to your views on the desirability or otherwise of introducing an insulationminimum what level of minimum do you consider justifiable? Within this, shouldthe minimum exclude DIY insulation as a qualifying measure?

11. Do you have any evidence on alternative options which could successfully drivea sustainable increase in insulation levels?

Innovation, evidence and reporting

12. Do you agree with the proposals for ensuring that only the most energy efficientproducts and appliances should be eligible measures under the CERTextension? Do you have views on how else this can be best delivered?

13. Do you agree that only providing carbon scores for A rated LEDs provides thegreatest certainty on delivering carbon savings from lighting products?

14. Should micro-generation measures remain eligible measures under the CERTextension? If so, it may be sensible to introduce new rules e.g. that thesemeasures or subsets of these measures only remain eligible to Priority Groupand/or proposed Super Priority Group households; or no longer be eligible for acarbon uplift; do you agree?

15. Do you think that the cost, carbon and wider assumptions set out in theassociated impact assessment are fair? If not, please provide evidence tosupport how the assumptions should be amended.

16. Do you think that the current reporting and monitoring arrangements are robustenough to ensure that Ofgem identify and avoid the risk of double countingbetween different programmes? If not, how can this risk can be avoided?


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Cha pter 1 In troduc tion

Background

1.1 The Electricity Act 1989 and the Gas Act 1986, as amended by the Utilities Act 2000, theClimate Change and Sustainable Energy Act 2006 and the Climate Change Act 2008 containpowers for the Secretary of State, by Order, to impose an obligation on electricity and gassuppliers to achieve carbon emissions reduction targets. The existing CERT obligation is set bythe Electricity and Gas (Carbon Emissions Reduction) Order 2008 (SI 2008/188)7

1.2 The Carbon Emissions Reduction Target (CERT)

as amendedby the Electricity and Gas (Carbon Emissions Reduction) (Amendment) Order 2009.

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1.4 CERT leads to wider energy security benefits and in the context of the EUs demandingrenewable energy target

commenced on 1st April 2008 andconcludes on 31st March 2011, and is the third phase of a household energy supplier obligation(previously called the Energy Efficiency Commitment). CERT applies in England, Scotland andWales. Suppliers achieve their targets by promoting to households (e.g. through subsidisedoffers) low carbon and energy efficient measures such as cavity wall insulation. The primary aimof CERT is to contribute to the UKs legally binding target under the Kyoto protocol to cutgreenhouse gas emissions by 12.5% below 1990 levels by 2008-2012 and the Climate ChangeAct 2008 requirement to cut emissions of green house gas emissions by 80% below 1990 levelsby 2050.

1.3 Energy saving in homes has multiple benefits, beyond carbon savings. Manyinterventions have a high net present value, that is they save householders more than they cost,so have a direct financial benefit. CERT sets energy suppliers an obligation requiring at least40% of the overall carbon saving target be achieved in a priority group of households whichcontain an eligible benefit recipient or someone aged 70 and over. This means that an estimated1.3 billion over the CERT extension period (April 2011 December 2012), will be invested indelivering low carbon measures to vulnerable households. CERT is therefore one of a number ofschemes which combine to implement the Governments fuel poverty strategy.

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, it also reduces the absolute investment needed to attain a given

percentage of renewable energy supply. CERT has a role in market transformation and inencouraging activity by suppliers to promote innovative measures or approaches. As anincentive to the promotion of these measures, CERT attributes an additional 50% in carbonsavings to eligible market transformation qualifying actions. In order to limit any potential loss ofcarbon savings the uplift is only attributable within a ring fenced percentage of a suppliers totalCERT obligation.

www.opsi.gov.uk/si/sis05-02.8

The legislative basis is set by the Electricity and Gas (Carbon Emissions Reduction) (Amendment) Order 2009which amended the existing Electricity and Gas (Carbon Emissions Reduction) Order 2008 (SI 2008/188)9

The 2009 EU Renewable Energy Directive set a binding target of achieving 20 per cent of the EUs energyconsumption from renewable sources by 2020. The UKs share of the EU target commits us to sourcing 15 per centof our energy from renewable sources by 2020
http://www.opsi.gov.uk/si/sis05-02http://www.opsi.gov.uk/si/sis05-02http://www.opsi.gov.uk/si/sis05-02http://www.opsi.gov.uk/si/sis05-02


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Recent CERT amendm ents

1.5 The overall CERT was increased by 20% in July 2009 to 185 MtCO2 over the life of themeasures. Additionally, the innovation ring fence was increased from 6% to 10% (retaining 2%

headroom for micro generation); upfront carbon scores were introduced for Real Time Displaysand Home Energy Advice packages as an incentive to these behavioural measures (capped at2% of the suppliers total carbon saving obligation). Direct mail CFL schemes are removed aseligible measures from 1st January 2010.

Consultation

1.6 This consultation delivers on the Governments commitment set out in the Low CarbonTransition Plan to extend the CERT from April 2011 to December 2012 at no less than the sameambition; to ensure a focus on ensuring fairness for the most vulnerable; to increase the scale ofinsulation being delivered; and to publish a consultation on the detail by the end of 2009. All

other elements of the design, operation and reporting of CERT not captured by this consultationpaper are proposed to remain the same as they are believed to reinforce delivery of these statedambitions.

Cost and benefits to cons umers

1.7 The provisional costs and benefits are set out in the accompanying consultation stageimpact assessment10. The central proposals are expected to require an estimated 2.4 billioninvestment (undiscounted) by suppliers in meeting their targets. This will mean additionalaverage annual pass through costs of 11 per household per year on top of current CERT costs

if passed on in full to a customer of both gas and electricity supply

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Next s teps

. These costs areoutweighed by average annual benefits, in terms of lower energy bills or increased comfort, ofabout 24.50 per household per year for the lifetime of the measures averaged across GreatBritain, and continuing for up to 40 years beyond the CERT period.

1.8 The Government will publish a draft order during the consultation period on the DECCwebsite, detailing how it will give effect to the policy intentions set out in this consultation paper.Government also intends to hold outreach events over the course of the consultation period.Following the consultation close, having considered the consultation responses, the Government

will publish a summary of responses and announce policy decisions. The Government will thenlay an order before Parliament with a view to it coming into force no later than the end of 2010.

1.9 Comments on all aspects of the proposals contained in this document are invited, andshould be sent no later than the 14th March 2010 to:

CERT teamDepartment of Energy and Climate ChangeArea 1D, 3 Whitehall PlaceLondon, SW1A 2AWE-mail:[email protected]

10http://www.decc.gov.uk/en/content/cms/consultations/open/open.aspx

11Equating to total average annual pass through costs of 52 increasing from a 41 existing CERT baseline
mailto:[email protected]:[email protected]:[email protected]://www.decc.gov.uk/en/content/cms/consultations/open/open.aspxhttp://www.decc.gov.uk/en/content/cms/consultations/open/open.aspxhttp://www.decc.gov.uk/en/content/cms/consultations/open/open.aspxhttp://www.decc.gov.uk/en/content/cms/consultations/open/open.aspxmailto:[email protected]


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1.10 Consultees in Scotland are asked to respond to DECC at the address above, and areinvited to submit copies of their comments to:

Colin Imrie

Business, Enterprise and Energy DirectorateThe Scottish Government4th Floor, 5 Atlantic Quay150 BroomielawGlasgow G2 8LUEmail:[email protected]

1.11 Consultees in Wales are asked to respond to DECC at the address above, and are invitedto submit copies of their comments to:

Charlotte Gibson

Climate Change and Water Division / Yr Is-adran Newid yn yr Hinsawdd a DrLlywodraeth Cynulliad Cymru / Welsh Assembly GovernmentParc Cathays / Cathays ParkCaerdydd / CardiffCF10 3NQe-bost / email:[email protected]

1.12 In line with the Department of Energy and Climate Change policy of openness, at the endof the consultation period copies of the responses received may be made publicly available onthe DECC website. The information they contain will be published in a summary of responsesand shared with other Government departments and Devolved Administrations. If you do not

consent to this, you must clearly request that your response be treated confidentially. Anyconfidentiality disclaimer generated by your IT system in e-mail responses will not be treated assuch a request. You should also be aware that there may be circumstances in which DECC isrequired to give information to third parties on request, in order to comply with its obligationsunder the Freedom of Information Act 2000 and the Environmental Information Regulations.

1.13 If you have any complaints about the consultation process (as opposed to commentsabout the issues which are the subject of the consultation) please address them to:

Ferry LienertDECC Consultation Co-ordinator3 Whitehall PlaceLondon SW1A 2HHEmail:[email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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Cha pter 2 CERT extens ion a mbition

Extend ing CERT

2.1 This consultation proposes a straight extension to CERT i.e. that much of the existingCERT framework is retained, extending the end date from 31st March 2011 to 31st December2012. In practice this will see the increased aim and new overall target become effective as soonas the secondary legislation is in force. The alternative would be to require the existing target of185 Million lifetime tonnes of CO2 to be met by 31

st March 2011 with a separate obligation periodand new framework following.

2.2 A straight extension negates the need for any carryover arrangements and allowssuppliers to plan smooth delivery strategies to the end of the extended obligation period. Thiswill see the new arrangements implemented as soon as the legislation comes into force whichwe hope to do as early as possible and no later than the end of 2010, which is when on currenttrajectories energy suppliers will have met their existing CERT obligation. It avoids suppliersneeding to close down and re-contract for new schemes with the potential for a hiatus inconsumer offers that this would imply. This can also benefit industry players who can sufferadditional costs from having to scale back and then increase their operational capabilities.

2.3 To ensure a clean break in how Ofgem administer qualifying schemes to the existing and

extended target, we propose that suppliers will need to bank with Ofgem (i.e. report and agreethe carbon savings delivered by their schemes) all relevant schemes within one month of theamended legislation coming into force. This will also allow Government to undertake an interimreview of CERT by the end of 2011. This review will ensure CERT continues to present value formoney whilst learning from delivery as we build towards the post 2012 framework. This interimreview will specifically look to focus on those elements of the scheme which are new includingthe proposal here for a Super Priority Group; the insulation minimum; the delivery ofbehavioural measures provided for as part of the 20% CERT increase; and more broadly howwell CERT ensures an equitable distribution of benefits. There will also be a lessons learnedassessment of how well CERT operates through smaller retailers.

Consultation Question

1. Do you agree that there should be an extension to CERT rather than a newobligation period i.e. that the current CERT mechanism is largely retained but theend date extended to December 2012?; if not, why not?


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CERT exten s ion a mb ition

2.4 The Government announced in the Low Carbon Transition Plan that the CERT extensionphase would be no less ambitious than CERT (including the 20% increase). Increasing the

overall size of CERT will drive significant household energy efficiency activity. This will extendthe overall target pro rata by 108 Million lifetime tonnes of CO2 for the additional 21 months ofthe scheme. This means a new target of 293 Million lifetime tonnes of CO2 by December 2012(over the whole 57 months of CERT).

2.5 The target is well within the available cost effective carbon saving opportunities availablein the household sector but is believed to maximise outcomes for the expected costs which allconsumers may have to pay through their energy bills. The overall target for the CERT extensionis established using an optimisation model to demonstrate the feasibility of the target and thebalance of costs and benefits. This also builds in assumptions on supply chain constraints,expected consumer demand and an understanding of how suppliers operate. The detailed costs

and benefits of different target levels, and model assumptions, are set out as part of theaccompanying impact assessment.

2.6 The central extension proposals are expected to require an estimated 2.4 billion12investment by suppliers in meeting their targets which if they passed on in full to their customerswould mean average annual costs of 52 per household ( if a customer of both gas andelectricity supply)13. The net resource cost over the CERT extension phase for all parties isapproximately 6.1 billion14

12These are undiscounted levels. The exact level of expenditure is a matter for the companies concerned, who try

and reach their carbon targets as cost-effectively as possible13

The central CERT extension proposals set out in this paper will therefore be some 11 more expensive (perhousehold per year) than estimated for the current CERT (with estimated costs of 41 on the same basis).14

This includes assumptions on householders hidden costs for the first time

. The costs are more than offset by annual benefits to GB (net ofcosts) of 668 million for the lifetime of the measures - up to 40 years.

2.7 Alternative options explored include a 20% lower and a 20% higher level of target than apro rata extension. A target of 86.4 MtCO2 would lead to net resource costs for all parties atapproximately 3.7 billion. The annual benefits to GB (net of costs) would be 476 million for thelifetime of the measures. This option would pass through costs of 26 per household per year.Although reducing the cost of the programme significantly, this option is not considered topresent sufficient impact against the Governments environmental targets which require allcost effective carbon saving opportunities in the household sector to be installed as soon aspossible if it is to be met.

2.8 A target of 129.6 MtCO2 would lead to net resource costs for all parties at approximately7.1 billion. The annual benefits to GB (net of costs) would be 726 million for the lifetime of the

measures. This would substantially increase cost pass through onto bills - to 63 per householdper year. The risk is that, given the supply chain restrictions on some of the larger measures notably cavity wall insulation, at the margin, more expensive measures would have to bepursued. This could therefore push significantly more of the poorest households into fuel povertythan the policy is able to remove, given their greater spending on energy as a proportion ofincome.


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2.9 A draft order demonstrating how all the proposals in this paper will be enforced will bepublished part way through the consultation period. Alongside extending the end date of CERTand increasing the size of the target, several consequential amendments e.g. to the reportingdeadlines will need to be made. These will be made clear as part of the draft order.


2. Given the potential costs, do you agree that the size of the extended CERTobligation should be increased pro rata to the existing overall CERT obligation(which was increased by 20% in summer 2009)? If not, what should the level ofthe new overall target be, and why?


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Chapter 3 - Increas ing equity andas s is tan ce for the mo s t vulne rab le

Governme nts com mitme nt to the m os t vulnerable

3.1 The Government is committed to tackling fuel poverty. Delivering energy savingmeasures can improve the thermal performance of a home and deliver long term reductions inhousehold energy bills. In turn, this can offer a lasting solution to fuel poverty. On this rationale,this document proposes to use the extension of CERT to ensure that energy efficiencymeasures are offered to more of the poorest and most vulnerable in society, many of whom arefuel poor.

3.2 For reasons of equity, a minimum of 40% of the carbon savings delivered by the energysuppliers must be delivered to a Priority Group. This consists of households containing a benefitrecipient (including disability benefits, income support and income-based jobseekers allowance,housing benefit, council tax benefit, pension credit and child tax credit) or a person aged 70 orover. The Priority Group makes up over a third of the total households in Great Britain. Anongoing Priority Group will in itself help ensure a proportion of the benefits of CERT are directed

to households deemed more vulnerable or less able to afford measures than the generalpopulation. On the basis of historical activity, it is estimated that to meet a 40% obligationsuppliers need to invest over 50% of the total investment costs of the CERT extension. Thecosts of meeting the Priority Group are higher as measures tend to need higher or full subsidybefore being taken up.

Setting s uppliers a target to as s is t the m os t vulnerable

3.3 Government wants to ensure assistance for the most vulnerable, lower incomehouseholds and so contribute to fuel poverty objectives, without adding excessive costs orundermining carbon saving objectives.

3.4 It is clear that different groups within the Priority Group are more likely to be fuel poorthan others, especially following the inclusion of non-means tested households aged 70 or overin the CERT Priority Group15. Evidence on where benefits are accruing within the Priority Grouprequires ongoing data gathering and analysis, including through the English Housing Survey.However16

15

The inclusion of those aged 70 and over in the Priority Group was needed to ensure that there were sufficientopportunities for a 40% obligation to be cost effectively achievable16The inclusion of the over 70s in the Priority Group however has taken the focus away from those on a low

income (i.e. those on benefits) Ofgem CERT Year 1 Annual Report to the Secretary of State, August 2009

, commercial patterns of behaviour would suggest that opportunities to delivermeasures in more affluent households would be prioritised over opportunities in lower incomehouseholds where costs of sourcing opportunities and delivering measures are likely to behigher.


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3.5 There is a risk that, without changes to the equity provisions in the design of the CERTextension, the level of measures accruing to the poorer, most vulnerable households will remaindisproportionately low. We believe that simply increasing the scale of the Priority Group willincrease the costs of the scheme whilst doing no more to direct assistance to those most in

need. It may also affect our ability to meet our carbon targets through cost effective measuressuch as insulation, given that there are fewer insulation opportunities remaining in the PriorityGroup. Alternatively, changing the composition of the Priority Group, for example by excludinghouseholds with someone aged 70 or over not on a form of means-tested financial support,would remove the impetus for investing in households which are still more vulnerable than thegeneral population.

3.6 Government therefore proposes to include an additional obligation on suppliers for theCERT extension requiring that a proportion of the ongoing 40% Priority Group obligation shouldbe delivered to those most vulnerable, lower income households who are more likely to be infuel poverty within a new Super Priority Group.

3.7 It is accepted that the targeting of fuel poor households through existing proxies will beimperfect - there will always be some households within the eligible group which are not fuelpoor and some households outside of the eligible group which are. There is though a strongrationale for focusing support for vulnerable households within CERT on a tightly defined groupof households that have a high propensity to be fuel poor to ensure that more of the poorest andmost vulnerable have the opportunity to benefit from the scheme.

3.8 Over the coming months, we will undertake further analysis and stakeholder engagementto help inform a decision on the most appropriate balance of effort between the Priority Groupand Super Priority Group. However, for illustrative purposes for inclusion in this consultationdocument, we have assumed that no less than 10% of the overall carbon reduction effort in theextension period should be focused on the Super Priority Group (i.e. no less than a quarter ofthe current Priority Group target). A decision on the level at which the Super Priority Grouptarget should be set links closely to decisions on the eligible recipients making up that group, onthe number of energy saving opportunities remaining, on the ease with which those householdscan be found and on the impact it presents to total scheme costs.


3. Do you agree that under the CERT extension there should be a requirement forensuring a proportion of the Priority Group target to be delivered to a subset ofthe most vulnerable customers (a Super Priority Group), who are also more likelyto be in fuel poverty? Please explain your answer.


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Defining a S up er P riority Group ho us eh old

3.9 Identifying the fuel poor at any point in time requires us to have information about theincome, energy efficiency and fuel costs of every household in Great Britain. It is clear that there

is currently no single mechanism or proxy that allows us to identify a Super Priority Groupcomprising only those in fuel poverty. However, we do know from survey data that thosehouseholds in the lowest income decile have a much higher propensity to be fuel poor17

Evidence of vulnerability and risk of detriment of a given target group as a result of livingin poorly heated homes;

. TheCERT extension is an opportunity to direct assistance towards more of those vulnerable andlower income households with a higher propensity to be fuel poor.

3.10 In considering how we might best define eligibility within the Super Priority Group, wehave considered potential options against the following key criteria:

Availability of stable benefit proxies for a target group and feasible means to identifyeligible households (i.e. by stable we mean that if a particular household is identified asfuel poor in one year, there is a high probability that the household is fuel poor thefollowing year);

Evidence that the fuel poverty rate in the group is higher than the average for the currentPriority Group; and,

Sufficient opportunities to deliver cost-effective energy saving measures.

3.11 Further to this analysis, the Government is minded to propose that older poorer

pensioners be at the core of the Super Priority Group, using Pension Credit receipt, or a sub-setthereof, as a proxy. In addition, there is a good case for including poorer families in the group,using Child Tax Credit receipt under an income threshold as a proxy.

Ration ale for Su pe r Priority Group eligibility

3.12 We propose that Pension Credit recipients, or a sub-set thereof, should be at the heart ofthe super Priority Group. People of retirement age are more susceptible to excess winter deaththan the population average, with the level of risk increasing as people grow older18. Olderpeople are in general more vulnerable to detrimental health impacts if they are fuel poor or live inhomes which are not adequately heated, compared to the average healthy adult of working

age19

3.13 Pensioner households by definition tend to have a more stable income through time thana household of working age, the income for which can vary significantly as household memberslose, find or change job. As a result, the fuel poverty status of pensioner households is alsomore stable by comparison. If a pensioner household is in fuel poverty one year, then in theabsence of dramatic decreases in energy prices, it is also likely to be in fuel poverty the followingyear.

.

17Around 90% of the fuel poor are in the lowest three income deciles. A household in the lowest income decile has

a 74% probability of being fuel poor, compared to a 32% chance for a household in the second income decile and14% for a household in the third income decile.18

www.statistics.gov.uk/statbase/ssdataset.asp?vlnk=708919

For example, the WHO finds that elderly people are more likely to suffer from hypothermia than non-elderly adultsand, due to poor circulation, elderly people require higher room temperatures than younger adults to remain healthy:

http://whqlibdoc.who.int/euro/ehs/EURO_EHS_31_part2.pdf


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3.14 To determine the eligibility criteria of the Super Priority group, we need to assess thetrade off between ensuring that there are sufficient and identifiable opportunities for energysuppliers be able to fulfil their obligation on the one hand and the group having a good fuelpoverty hit rate on the other. Pensioners on low income are eligible for Pension Credit, which is

composed of two elements: Guarantee Credit provides a standard minimum income guarantee,and Savings Credit rewards low-income pensioners who have made modest provisions for theirown retirement, either through employment or savings.Around 2.7 million households in GreatBritain receive Pension Credit benefits, with 2.1 million of those on some form of guaranteecredit. The rate of fuel poverty amongst Pension Credit claimants is higher than for the PriorityGroup as a whole. We can increase the fuel poverty rate further by reducing the incomethreshold. However, this group would then increasingly present a smaller number of householdsand thus fewer opportunities to deliver energy saving measures compared to the wider group.

3.15 There is a good case for including households in receipt of Child Tax Credit below a givenincome threshold in the super Priority Group. Children who are fuel poor or live in homes which

are not adequately heated suffer from many of the same health risks as older people20. Forexample, children living in fuel poverty are at particular risk of respiratory illness21, as well assuffering developmental problems22 including poor weight gain, and infants in fuel poorhouseholds are at 30% greater risk of admission to hospital or primary care facilities when othercontributory factors have been accounted for23

3.16 The fuel poverty rate among the 1.5 million households in receipt of Child Tax Creditunder the income threshold which qualifies them for the Priority Group is equivalent to the widerPriority Group. This is because household income is measured before the sum of the benefit hasbeen taken into account. However, if the income threshold is lowered to reflect the sum of thebenefit in addition to other income sources, the rate of fuel poverty increases significantly. Aswith Pension Credit claimants there is a corresponding trade off with the level of energyefficiency opportunities

. We know that the income of working agehouseholds is less stable over time than pensioner households. Experience of operating theChild Tax Credit policy for those households on the very lowest income has shown that incomesoften vary month by month. Child Tax Credit is a form of means-tested financial support forworking families, and as such provides the best available proxy for low income working familieswhen combined with an upper income threshold.

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20

http://whqlibdoc.who.int/euro/ehs/EURO_EHS_31_part2.pdf21 Howden-Chapman, P. et al., (2007). Effects of insulating houses on health inequality : Cluster randomised studyin the community. British Medical Journal, doi:10.1136/bmj.39070.573032.8022 Barnes, M. et al., (2008). The Dynamics of Bad Housing : The Impacts of Bad Housing on the Living Standards ofChildren. London : National Centre for Social Research

. The rationale for a more tightly defined stable target group ispotentially stronger for a policy such as Social Price Support which, whilst providing an importantsource of benefit to vulnerable consumers, does not have a sustained longer term impact on fuelpoverty and requires an annual payment to the relevant household (increasing the importance of

the stability of benefit proxy for a given household from one year to the next). Equally it will notcontribute towards meeting the UKs carbon reduction emission targets.

23www.apho.org.uk/resource/view.aspx?RID=5328124

The English Housing Survey suggests that the level of opportunities remaining in the Child Tax Credit Group ishigher than the Pension Credit group and the rate of improvement is slower for households in receipt of Child TaxCredit under the income threshold.
http://www.apho.org.uk/resource/view.aspx?RID=53281http://www.apho.org.uk/resource/view.aspx?RID=53281http://www.apho.org.uk/resource/view.aspx?RID=53281http://www.apho.org.uk/resource/view.aspx?RID=53281


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Consultation Questions

4. Do you agree that Pension Credit recipients should be at the heart of the superPriority Group? Should Child Tax Credit households that qualify for the PriorityGroup also be included in the super Priority Group? If not, what groups wouldyou suggest, and what evidence do you have to support alternative proposals?

5. Do you think that lower income thresholds or sub sets of the identified benefitgroups should be identified to form the super Priority Group if this means it islikely to result in better targeting of those with a greater propensity to be in fuelpoverty? Is your answer the same if this required a lower super Priority Grouptarget to be applied?

Helping en ergy s up pliers find eligible hou s eh olds

3.17 The more Government can help suppliers identify and source Super Priority Groupeligible households, the more confidence we can have in setting a higher level of carbon targetfor this group. To this end, the Government is exploring the possibility of sharing data on certainPension Credit recipients with energy suppliers through a gateway provided in the Pensions Act2008, with a pilot under discussion with energy suppliers for possible implementation in 2010.

This is on the basis that eligible households will receive an automatic benefit in the form of adeduction off their electricity bill. If data sharing with pension credit data is found to be effective,it could establish a relationship between relevant Pension Credit households and energysuppliers and help supplier identify opportunities to deliver energy saving measures through theCERT extension for the Super Priority Group. Subject to Parliamentary scrutiny Government islooking to undertake data matching from spring 2010.

3.18 We do not currently have an equivalent legal power to enable those in receipt of ChildTax Credit, to benefit in a similar way. Moreover, the Government believes it is prudent to testthe viability, effectiveness and security of data matching using the existing gateway for PensionCredit data before considering the creation of new gateways. However, Government is exploringthe potential for providing other ways to assist suppliers cost effectively identify targethouseholds in the Child Tax Credit group.

Prom oting mea ningful energy b ill sa ving s

3.19 For the Super Priority Group to be effective in ensuring that those households offeredassistance are promoted measures which could make a real difference to their energy bills wepropose requiring that every household reached has to receive at least one insulation or heatingmeasure which has the potential to deliver deep and long term improvements in the thermalcomfort of a property. These households will not be precluded from being offered further

measures.


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Eligible measures Improvement inannual energy bill25

Insulation

Cavity Wall Insulation 128

Loft insulation (from


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3.21 Nevertheless, on the principle of equity, it is important that those households likely to bemost vulnerable in rural areas stand to benefit from the scheme. We believe that by setting aCERT obligation by the end of 2012, energy suppliers will as a matter of course need to exploit ahigher proportion of the available carbon saving opportunities, including those households which

to date, have proved less cost effective, such as in rural areas. We also believe that the adventof the Super Priority Group will reinforce the delivery of activity to rural vulnerable households.

3.22 A high proportion of rural properties are off the gas grid with solid walls, meaning energysaving measures often require a comparatively high level of investment. To ensure that thesemeasures are incentivised, so that the benefits of Priority and Super Priority Group targetsaccrue to rural households, we propose to allow the existing flexibility option to apply to SuperPriority Group households26. The flexibility option provides for carbon uplifts for solid wallinsulation and heatpumps in off gas grid properties to encourage more of these expensivemeasures to be installed in vulnerable households. The trade off of this carbon uplift is that fewervulnerable households in total may need to be reached in meeting targets.


7. Do you think that the options and incentives proposed will encourage more helpto vulnerable rural households? What else can we do to help rural householdsaccess CERT?

Wider eq uity cons iderations : pas s -through cos ts

3.23 In July 2009 Ofgem published a paper27

26

See article 2(3) and 14 of the CERT Order 200827

July 2009 Can energy charges encourage energy efficiency? Anna Kulhavy, Ofgem

exploring how changes to the way the supplierobligation target was applied could influence the equity of the scheme. The paper argues that inan effective market, suppliers are likely to alter their pricing structures to reflect changes in theircosts given the competitive risks of not doing so and that structuring the obligation in terms ofwho pays can have a positive social benefit.

3.24 A suppliers obligation is currently based on customer numbers and so represents to

suppliers a fixed cost per customer. Although we do not know exactly how suppliers recoverthese costs from customers, in a competitive market we assume suppliers pass these costs onas they face them. That is, costs incurred in meeting their CERT obligation are assumed to bepassed onto the consumer base evenly with consumers paying the same absolute amount perfuel, regardless of their consumption level. This means that, even at modest consumption levels,where consumers have little scope to be energy efficient or are already being energy efficient,they contribute the same amount as customers with high consumption.


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3.25 The Ofgem paper recommends basing CERT on annual sales (i.e. kWh supplied) to helpimprove the equity of the obligation. An obligation based on energy supplied and passed throughto consumers as such could be more progressive on average, as high income households withtypically higher consumption profiles would pay more in absolute terms as part of their energy

bills to fund the programme. In turn, on average, people in lower income deciles would thereforepay slightly less as their energy usage tends to be lower. An obligation based on kWh suppliedcould also provide a stronger incentive to high use consumers to become more energy efficientand manage energy use through take up of measures offered under CERT. This would helpreduce their energy charges including what they pay to fund the programme.

3.26 Of course, these averages mask variation in the patterns of energy use within incomegroups. For example, vulnerable groups who spend a significant amount of time at home,because they are of pensionable age and/or due to limited mobility, will require higher energyusage to keep their home warm, especially in hard to treat housing. A perverse consequence ofmeasuring CERT by energy usage could therefore be that, for certain fuel poor households,

costs passed through onto their energy bills could be higher.

3.27 As a result of changing the basis of the obligation to energy supplied Ofgem would berequired to collect supply data as they currently do for customer numbers and to then divide theadditional obligation up across suppliers on a pro-rata basis. It is possible that some supplierscould face a larger obligation than they had previously. We also recognise that if people actuallyheated their homes to the recommended level the differential between income deciles and thuscost pass through would be less. The Government would welcome any further views.


8. Would a CERT obligation based on energy supplied (kWh) by an energy supplierto its customers, rather than its customer numbers, represent a fairer, moreequitable method by which to apportion the overall CERT obligation and thuslead to a more equitable scheme?


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4.6 Social landlords, for example, have a role to play, working in partnership with localauthorities and the energy suppliers, to access those homes that still have potential for basicinsulation measures, not only in their own stock but to stimulate demand from other homes in thesame community. In this way landlords can help scale the insulation work that remains to be

done and help lever supplier offers by reducing their search and marketing costs. Equally,energy suppliers will benefit from continuing to engage positively with social landlords and localauthorities when they bring forward work, delivering their targets more cost effectively.

4.7 We propose two reinforcing amendments for ensuring the CERT extension increases itsfocus on insulation. Firstly, through setting a minimum insulation requirement, and secondly byremoving the main measure which competes with insulation on economic grounds (i.e. CompactFluorescent Lights).

Se tting an ins ulation minimu m

4.8 In requiring a minimum percentage of a suppliers CERT obligation to be met through theinstallation of insulation, we can have certainty on a minimum level of insulation over theextension period. It may mean however that suppliers reduce insulation installation until the newminimum insulation requirement comes into force. In the short term, this could have an adverseimpact on the insulation industry and see longer lived carbon saving measures offset by othermeasures. A minimum would though allow the Government to remove any risk to insulationlevels over the extension period.

4.9 The level of insulation minimum is proposed to be set at no less than 65% of the increasein target. Suppliers will still have freedom to meet this through different proportions of qualifying

measures so as to adjust for demand. A 65% minimum would mean no less than 70.2 MtCO2could be delivered through qualifying insulation measures (currently qualifying insulationmeasures are running at around 60% of carbon savings to target). Qualifying measures areproposed to be cavity wall insulation, loft insulation (both from empty and top up) and solid wallinsulation. As we need the number of professional employees to increase to meet ourchallenging insulation delivery aspirations, there is argument to suggest we should restrict this toprofessionally installed insulation only. In turn, this may mean a need to slightly lower theinsulation threshold e.g. to 60%.

4.10 For illustrative purposes, if a 65% minimum were delivered through cavity wall insulationjobs only, on average, that would mean 2.8 million households insulated. If delivered 60%

through cavity wall insulation; 30% professional loft insulation (split evenly from 60mm) 5% DIY insulation and 5% external solid wall insulation then that would mean around4.9 million insulation measures in total (1.7 million cavity wall insulation jobs, 3.15 million loftinsulation jobs and 50,000 solid walls insulated). In terms of numbers of households, if weassume that a third of the houses that had cavities installed would also get loft insulation, thatwould mean around 4 million households receiving insulation of some kind.

4.11 Given supply chain constraints, as you move to a higher insulation minimum itprogressively presents further uncertainties - in terms of costs to the programme from generatingsufficient consumer demand for insulation and from ensuring the necessary supply chaincapacity evenly across GB.


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Remo ving com peting m ea s ures (i.e. CFLs ) as eligible

4.12 Extending the CERT obligation will in itself require a significant increase in the number ofmeasures which will need to be offered to consumers. Insulation is one of the most cost

effective measures under CERT, but it is not as cost effective as CFLs. If the Government actedto remove these more cost effective measures as eligible, this should realise an increase ininsulation promotion. In doing so, CERT will deliver more measures which realise carbonsavings which are more secure (most insulation under CERT is professionally installed, whilstCFLs rely on consumers to fit them) and longer lived (insulation has a 40 year lifetime whilstCFLs now have an 8 year lifetime).

4.13 CERT and its predecessors helped CFLs enter most households in this country at a timewhen they were still competing with the cheaper and better known incandescent equivalents,allowing households to benefit from energy and bill savings early. However, with over 300 millionCFLs now distributed through the supplier obligation (since 2002), and the phase out of

incandescent bulbs through EU legislation due to be almost complete by September 2012, theGovernment believes that the time is now right to completely remove CFLs as eligiblemeasures31.

4.14 The Government recognises that the withdrawal of CFLs from CERT risks an increase inpurchase of less energy efficient lighting such as halogen GLS lamps, which are currentlyenergy label C and D. The Government also recognises that dimmable and spotlight CFLsare not captured by the incandescent bulb phase out, nor have they been distributed in largenumbers. On balance however, by removing CFLs completely we remove the risk that CERT willscore carbon savings which would have occurred anyway. The removal of CFLs can thereforehave a positive impact not only on insulation levels, but also the certainty and length of carbonsavings accruing to the scheme.

Consultation Questions

9. Do you agree with the proposals for setting an insulation minimum and removingCFLs as eligible measures so as to secure and drive insulation levels? If not, whynot?

10. Subject to your views on the desirability or otherwise of introducing an insulationminimum what level of minimum do you consider justifiable? Within this, shouldthe minimum exclude DIY insulation as a qualifying measure?

31CERT legislation was amended in July to rule out the distribution of non-retail CFLs from January 2010. Given the

volumes of CFLs distributed early under CERT by direct mail there were concerns that further free distributionrisked these measures not being installed and so the carbon savings not being realised.


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Discussion

4.15 An incentives approach, whereby carbon is surrendered for additional insulation numbers,is considered less optimal than the central proposals presented here. Given the market nature ofthe scheme there is no way of knowing with certainty what suppliers business as usual insulationactivity will be over the extension period. Without this information, there is no way of designingan incentive which will ensure that we provide incentives at a level sufficient to change theeconomics of promoting additional volumes of insulation whilst avoiding rewarding business asusual activity.


11. Do you have any evidence on alternative options which could successfully drivea sustainable increase in insulation levels?

Summary

4.16 We expect these proposals to drive an increased focus on insulation activity in theextension period. We expect this to allow us to meet the 6 million homes insulated target, as asignificant contribution to our carbon budgets. Our aim is to get the legislation in place wellbefore April 2011, so that suppliers can work to meet their obligations early, thus helpingconsumers benefit from energy bill savings sooner. In turn, this can help avoid some of the riskspresented around introducing an insulation minimum.


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Chapter 5 Innovation , evidence and

reportingOverview

5.1 CERT has a key role with regards innovation. Under article 2(3) it allows suppliers toreceive carbon scores for promoting investment in new technologies through a demonstrationroute. Demonstration actions are 'an action which is reasonably expected to achieve a reductionin carbon emissions32

c) the provision of a home energy advice package

. Secondly, for those product categories which are innovative, CERTawards an additional 50% carbon savings so that they are more cost effective for suppliers tosubsidise to help promote greater levels of market penetration.

5.2 A market transformation action means:

a) the provision of solid wall insulation or micro-generation units where such provision willachieve a reduction in carbon emissions;

b) the provision of a real-time display;33

5.4 Government does not propose any amendments to the demonstration action criteria.However, we propose that the baseline for market transformation action

; or

d) any other action which will achieve a reduction in carbon emissions but which were notpromoted under the electricity and gas order 2001.

5.3 Suppliers may meet up to 10% of their carbon obligation with market transformation anddemonstration actions. Where a minimum of 2% of their carbon obligation is achieved throughpromotion of micro-generation, this limit is increased to 12%. All uplifts are applied after the capsspecified have been met.

34

(d) be moved frommeasures not promoted under EEC1 to those not promoted under EEC2 so that only newinnovative products remain eligible. Measures under (d) tend fall into two categories lighting,which has featured strongly under each phase of CERT and other electricity using appliances

and products whose individual contribution to the target is small, even when promoted in highnumbers. For those measures which are similar to those promoted previously the supplier mustsatisfy Ofgem that it delivers a carbon emissions reduction of 20% above the standard achievedby that similar action.

32 As demonstration actions do not have a determined carbon emissions reduction, the carbon emissions reductionaccredited to a supplier for undertaking these actions are dependent upon the cost of the activity (determined bymeans of a translation factor set out in article 21 of the Order).33

The requirements for a Home Energy Advice Package are set out in schedule A1 of the 2009 CERT amendmentOrder; only advice which meets all the specified criteria is eligible to be scored as a behavioural measure.34

www.ofgem.gov.uk/Sustainability/Environment/EnergyEff/InfProjMngrs/Documents1/Market%20Transformation%20vfinal.pdf
http://www.ofgem.gov.uk/Sustainability/Environment/EnergyEff/InfProjMngrs/Documents1/Market%20Transformation%20vfinal.pdfhttp://www.ofgem.gov.uk/Sustainability/Environment/EnergyEff/InfProjMngrs/Documents1/Market%20Transformation%20vfinal.pdfhttp://www.ofgem.gov.uk/Sustainability/Environment/EnergyEff/InfProjMngrs/Documents1/Market%20Transformation%20vfinal.pdfhttp://www.ofgem.gov.uk/Sustainability/Environment/EnergyEff/InfProjMngrs/Documents1/Market%20Transformation%20vfinal.pdf


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Ene rgy efficient ap plian ce s

5.5 The mandatory energy labelling of households products was introduced in 199235

5.6 For the products not covered by the European labelling standards (e.g. computers) we

intend to apply the Energy Savings Trusts standards for Energy Saving Recommendedproducts. This will ensure that CERT only continues to promote the very best energy savingtechnologies. Wider requirements could be introduced to ensure that CERT continues to avoiddeadweight (i.e. activity that would have happened without CERT support). It has beenrecommended that Government consider not allowing innovative products to be supported ifthey have reached a market penetration of somewhere between 30 and 40%

. Thishas led to a significant change in the products which are now marketed in the EU. As part of the

CERT extension, as with the progression to any new supplier obligation phase, the Governmentproposes to only allow those products whose energy performance is the best in class at anyparticular time. For the extension, we therefore propose to allow only the products with thehighest energy label rating to be eligible, for the products and appliances for which there arecurrently labelling requirements, including: refrigerators and freezers, washing machines, electrictumble dryers, combined washer-dryers, dishwashers, air conditioners and electric ovens. Giventhat it is now clear that the energy label will allow new classes above the A-class to be openedwhen there is sufficient market saturation, the CERT scheme will need to ensure that it isdynamic and allows only the top of class to be subsidised at any particular time.

36. We couldachieve this by setting upfront sunset clauses37 which retire a measure as eligible once theyreach a certain level of market penetration (subject to providing sufficient market warning). Wewould need to be satisfied that this is worthwhile introducing for a 21 month scheme.

5.7 The changes at EU level will also mean that some carbon scores are adjusted. Forinstance, the lifetime of saver plugs is proposed to be reduced. Given that the Energy UsingProducts Directive requires that all new IT equipment purchased after January 2009 should havestandby of < 1W, installing a saver plug with new equipment would have no effect. DefrasMarket Transformation Programme estimates that home IT equipment is replaced, on average,every 5 years. This suggests that the lifetime of the standby saver plugs should be reduced to nomore than 5 years.

5.8 More widely, Government proposes to provide that no product can be mailed unsolicitedunder the CERT extension. This will ensure that there is no repeat of the CFL scenario whereby the number of CFLs distributed risked non-installation and so reduced the real carbon

savings.


12. Do you agree with the proposals for ensuring that only the most energy efficientproducts and appliances should be eligible measures under the CERT extension?Do you have views on how else this can be best delivered?

3522 September 1992, the Council of the European Union unanimously adopted a framework directive for the

mandatory energy labelling of household products (92/75/EEC) (the Framework Directive)36

Eoin Lees Energy Evaluation of the Energy Efficiency Commitment 2005 2008 (published in December 2008)37

Sunset Clause: a provision in statute or regulation that terminates or repeals all or portions of the law after aspecific date, unless further legislative action is taken to extend it
http://wapedia.mobi/en/Statutehttp://wapedia.mobi/en/Regulationhttp://wapedia.mobi/en/Legislativehttp://wapedia.mobi/en/Legislativehttp://wapedia.mobi/en/Regulationhttp://wapedia.mobi/en/Statute


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High efficiency lighting

5.9 Government wants to continue to see the most efficient longest lived forms of lightingcontinue to be promoted to households as they still offer an important vehicle for delivering

significant carbon savings. To this end, we intend for ESR-approved38

A ratedLight EmittingDiodes to be qualifying measures under the CERT extension. By helping create an early marketfor LEDs this can have a positive role in helping drive long-term carbon savings. The proposedcarbon score and lifetime are set out in the associated impact assessment.


13. Do you agree that only providing carbon scores for A rated LEDs provides thegreatest certainty on delivering carbon savings from lighting products?

Micro-generation

5.10 The Renewable Energy Strategy proposed a lead scenario for increasing renewable heatfrom current levels of just under 1% to around 12% in 2020. To encourage such a radicalchange in the way we generate our heat, Government announced its intention to introduce theRenewable Heat Incentive (RHI) scheme during the passage of the Energy Act in 2008. At thedomestic level, the RHI and Feed in Tariffs (FITs)39

5.13 It is clear, however, that by allowing these measures to remain eligible under CERT, therewill be more onus on suppliers to satisfy Ofgem that they pass the article 10 test (improvementsin energy efficiency) and that any reductions in carbon emissions that result will be over andabove that which would have happened without the CERT i.e. that there is 'additionality'.

will offer financial support for a range of

technologieswhichgenerate low-carbon and renewable electricity, including ground and airsource heat pumps, biomass boilers, and solar thermal.

5.11 Should the RHI and FITs provide for very cost effective propositions to householders forrenewable energy micro-generation measures, increased demand is expected. In combinationwith ongoing subsidy through CERT, this could be even higher. This may therefore provide for anew cost effective opportunity for suppliers which acts to displace energy efficiency measuresunder CERT (although this risk could be significantly reduced if we were to set an insulationminimum).

5.12 We need micro-generation measures to be installed at scale if we are to meet ourchallenging carbon saving targets. They also offer households significant potential energy billsavings, and could be particularly valuable to vulnerable and rural vulnerable households. Tothat end, the potential for reinforcing instruments to deliver these measures can be beneficialand no specific provisions are expected to be provided under the RHI nor the (FITs) for thepotential overlap with schemes such as CERT.

38Because LEDs are not labelled with the A-G mandatory energy labelling standards of the Framework Directive for

household products, LEDs promoted under CERT (and any other lighting not covered by the EU labellingstandards) will need to comply with the ESR standards.39

http://www.decc.gov.uk/en/content/cms/consultations/elec_financial/elec_financial.aspx
http://www.decc.gov.uk/en/content/cms/consultations/elec_financial/elec_financial.aspxhttp://www.decc.gov.uk/en/content/cms/consultations/elec_financial/elec_financial.aspxhttp://www.decc.gov.uk/en/content/cms/consultations/elec_financial/elec_financial.aspxhttp://www.decc.gov.uk/en/content/cms/consultations/elec_financial/elec_financial.aspx


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5.14 This will also be expected for any suppliers who wish to promote the early replacement ofG rated boilers, following the 2009 Pre Budget report announcement that the Government wouldwork with industry to introduce in 2010 a new scheme providing for a 400 incentive to help upto 125,000 households upgrade their working G-rated boiler with a new boiler or renewable heat

unit.

5.15 Some commentators have suggested that as Priority Group customers have less accessto capital, they may be less likely to benefit early from the proposed RHI and FITs. Heat pumpsare (alongside solid wall insulation) a Priority Group flexibility option measure helping provide amore cost effective means of helping vulnerable, especially vulnerable rural households benefitfrom significant energy saving measures. There may therefore be merit in retaining butrestricting the promotion of these micro-generation measures under CERT to Priority Groupand/or proposed Super Priority Group households. This needs to be considered alongside the2009 Pre Budget report announcement that the Government will consult next year on measuresto help low-income households take advantage of clean energy cash-back.

5.16 If we acted to exclude or refine the eligibility for micro-generation measuresunder RHIand FIT, other measures would need to fill the carbon gap. Although some of this may be cavitywall insulation and loft insulation, given the supply chain constraints, other measures such asefficient products and appliances may need to increase in scale. Alternatively, we may need toreduce the level of carbon target. Practically, the removal of micro-generation eligible under RHIand FIT may require us to consider lowering or removing the existing 2% trigger for micro-generation which is in addition to the 10% innovation cap.


14. Should micro-generation measures remain eligible measures under the CERTextension? If so, it may be sensible to introduce new rules e.g. that thesemeasures or subsets of these measures only remain eligible to Priority Groupand/or proposed Super Priority Group households; or no longer be eligible for acarbon uplift; do you agree?

Evidence

5.17 References have been made throughout this consultation paper to the evidence providedby the supporting consultation stage impact assessment.


15. Do you think that the cost, carbon and wider assumptions set out in the

associated impact assessment are fair? If not, please provide evidence tosupport how the assumptions should be amended.


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Reporting

5.18 Within CERT itself, so as to better design supporting policy instruments, we increasinglyneed to understand where measures have been delivered. We are working to ensure that there

is increasing evidence and transparency on where CERT benefits are accruing. As part of this,we indicated in the Government response on amendments to CERT in July 2009 that we wouldprogress a revised voluntary agreement with energy suppliers. We hope to see this agreementin force early in the new year requiring energy suppliers to transmit data to the Energy SavingTrust (to upload onto their Home Energy Efficiency Database) the location of all professionallyinstalled measures. This would act retrospectively from the outset of CERT.

5.19 The introduction of the Community Energy Saving Programme, Renewable HeatIncentive and Feed in Tariffs provide for additional support for energy saving measures in GBhouseholds. Given the onset of carbon budgets, and the introduction of these new low carbonmeasure incentives in the domestic sector, there is an increasing need to know where measures

have been delivered and under which mechanism they received support, so as to avoid anypotential double counting of carbon savings.

5.20 In order to avoid the risk of double counting under schemes such as CERT and CESP,and also in the future under other programmes such as the Renewable Heat Incentive and Feedin Tariffs, the Government is considering whether the current reporting and monitoring processin article 16 and 19 of the existing CERT Order are sufficient to guard against this risk. Inparticular the Government is considering whether the information currently supplied to Ofgem isof sufficient detail to ensure that a proper audit of measures installed and thus the effectivenessof the scheme can be carried out.


16. Do you think that the current reporting and monitoring arrangements are robustenough to ensure that Ofgem identify and avoid the risk of double countingbetween different programmes? If not, how can this risk can be avoided?


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