jobs and energy conservation

13
Applied Energy 22 (1986) 299-311 Jobs and Energy Conservation Andrew Warren Association for Conservation of Energy, 9 Sherlock Mews, London W IM 3RH (Great Britain SUMMA RY A stud)' of the employment generation potential oja major energy conservation programme in the UK is presented. NUMBER OF JOBS CREATED The employment potential of an energy conservation programme directed principally at reducing space heating has been assessed over a 10 year period, for two levels of investment. These are the base and the maximum case scenarios. In the base case up to 68 000 new jobs would be created, with an average increased employment of 50 000. In the maximum case the programme proposed would result in the creation of up to 155 000 new jobs, with an annual average employment generation of 124000. These are shown graphically in Fig. 1, and in Table 1. CONSERVATION PROGRAMMES AS BASES FOR ESTIMATING EMPLOYMENT GENERATION POTENTIAL Programme definitions In order to illustrate the employment generation effects that would result from a major government initiative aimed at conserving energy in 299

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Page 1: Jobs and energy conservation

Applied Energy 22 (1986) 299-311

Jobs and Energy Conservation

Andrew Warren

Association for Conservation of Energy, 9 Sherlock Mews, London W IM 3RH (Great Britain

SUMMA RY

A stud)' of the employment generation potential o j a major energy conservation programme in the UK is presented.

NUMBER OF JOBS CREATED

The employment potential of an energy conservation programme directed principally at reducing space heating has been assessed over a 10 year period, for two levels of investment. These are the base and the maximum case scenarios.

In the base case up to 68 000 new jobs would be created, with an average increased employment of 50 000. In the maximum case the programme proposed would result in the creation of up to 155 000 new jobs, with an annual average employment generation of 124000. These are shown graphically in Fig. 1, and in Table 1.

CONSERVATION PROGRAMMES AS BASES FOR ESTIMATING EMPLOYMENT GENERATION POTENTIAL

Programme definitions

In order to illustrate the employment generation effects that would result from a major government initiative aimed at conserving energy in

299

Page 2: Jobs and energy conservation

300 Andrew Warren

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YEARS FROM THE START OF PROGRAMMES IN THE UK

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12(I.000

l 10,000

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80,000

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Fig. !. Jobs created by energy-conservation programmes in buildings.

Page 3: Jobs and energy conservation

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Page 4: Jobs and energy conservation

302 Andrew Warren

buildings, two programmes have been developed corresponding to different levels of activity.

One is a base case programme which, while representing overall a significant level of activity, has a strong underlying economic rationale with pay-back periods on investment of 10 year s or less for all but one sector, and in most offers 3-5 year pay-backs. A maximum case programme was calculated on the basis of the maximum annual con- servation activity that could be sustained either, according to the total scope for conservation within the sector having in mind the need to remain within the Treasury 5 % Real Rate of Return on Investment Guideline and a ten-year programme period or by the realistic upper operating level of expanded manufacturing/installation industries, even when further cost-effective conservation opportunities existed.

Programme costs and savings

The programmes are based on incremental activity only, that is, they include the additional employment which would be generated over and above that associated with on-going activities.

1. B a s e case

The individual programme measures assume that there would be a steady build-up in activity, in response to stimulation, which would then continue at a steady rate. Only in the case of incremental loft insulation is market saturation reached by the end of the period; all the other programmes would continue thereafter.

In Table 2 we show the size of the base-case programme for each conservation activity and the investment cost of the programme, estimated in total at £10000 million over the ten-year period.

The total value of domestic and non-domestic energy savings are assessed at around £1400 million in year 10 (or £6700 million for the total period). The corresponding energy savings are 23 and 112 Mtce (million tonnes of coal equivalent) per annum.

The internal rate of return for the total programme has been calculated by taking the energy savings over 20 years. This is a conservative approach as certain of the measures, such as loft and cavity wall insulation, would last for the life of the building. Other measures, however, such as heat controls and draught proofing could have much shorter lives and as no allowance has been made in the calculation for

Page 5: Jobs and energy conservation

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Page 6: Jobs and energy conservation

304 Andrew Warren

periodic maintenance or replacement costs, an overall 20-year analysis period has been adopted. This is less than both the 30-year life span assumed for old houses for discretionary renovation grants and the 25 years normally adopted for assessing new power station projects.

The investment costs and energy savings (after allowing for 25 ~o of gross domestic savings to be taken in the form of increased comfort levels) are shown in Table 3. There are further benefits which have not been taken into account such as reduced unemployment benefit payments, increased taxation receipts, higher national insurance contributions and reduced fuel-subsidy payments. The internal rate of return (IRR) calculated at 15 "/ Jo can thus be considered a minimum estimate.

The IRR can be compared directly with the 5 ~o discount rate used by the Treasury for assessing public-sector capital investment projects. As the IRR is the discount rate which equalises costs and savings over the life

T A B L E 3 Base Case Programme Internal Rate of Return (Constant Prices)

Year Imestment costs Net energy savings Cash.flow (m£) (M£) (M£)

1 2 3 4 5 6 7 8 9

10 11 20 21 22 23 24 25 26 27 28 29

IRR

482 644 911 994 042 142 162 204 229 249

15 ",,

7O (412) 160 (484) 292 (619) 430 (564) 576 (466) 659 (483) 844 (318) 054 (150) 226 (3) 404 155 404 1404 334 1334 244 1244 112 1112 974 974 828 828 745 745 560 560 350 350 178 178

Page 7: Jobs and energy conservation

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Page 8: Jobs and energy conservation

306 Andrew Warren

of the investment, the rate of 15 ~o exceeds by a factor of three the Treasury requirements.

2. M a x i m u m case

The maximum case programme is summarised in Table 4. As a major concentrated effort to insulate buildings is implied, the pattern of activity assumes a strong build-up to a peak, and then a falling offat the end of the period when the momentum slows as appropriate properties to treat become harder to identify.

Industrial capacity in the insulation and heat-control industries has not been viewed as a constraint. In some cases existing capacity would not be sufficient, but it has been assumed that if an unequivocal commitment were given by the government to a sustained programme of this sort, investment in additional capacity would be forthcoming.

TABLE5 Maximum Case Programme--InternalRateofReturn(ConstantPrices)

Year Inrestment costs Net energy sarings Cash flow (M£) (M£) (m£)

1 1140 131 (1009) 2 1651 310 (1 341) 3 2054 546 (1 508) 4 2543 811 (1732) 5 2747 1112 (I 635) 6 3066 1435 (I 631) 7 3105 1771 (1 334) 8 2904 2 108 (796) 9 2 621 2445 (176)

10 2615 2792 177 11-20 2 792 2 792 21 2661 2661 22 - - 2482 2482 23 2246 2246 24 1981 1981 25 1680 1680 26 1357 1357 27 - 1021 1021 28 - - 684 684 29 347 347

IRR 111~

Page 9: Jobs and energy conservation

Jobs and energy consercation 307

The maximum case assumes a co-ordinated and planned programme of total refurbishment of buildings which will be in full use through to AD 2000 and beyond. The energy measures in the case of solid-wall dwellings would be undertaken in concert with other major maintenance work. A policy of encouraging the best use of existing buildings through repairs and restorations clearly has implications for construction industry capacity. It would not be possible to mount a major activity in this direction if policy emphases were to be given only to new building. Thus the implicit assumption is that national housing policy will be heavily geared to renovating and retrofitting old housing stock. The investment programme and estimated energy-savings are shown in Table 5. The total investment cost of the maximum case programme is estimated at £24 500 million, which would realise total annual energy savings of £2800 million (46 Mtce) by the end of 10 years. The internal rate of return has been calculated on the same basis as for the base case programme, as shown in Table 5. This gives an IRR of 11 "J / O "

INCREASED DIRECT EM PLOYMENT

Based on the programme assumption summarised earlier, and the unit employment ratios calculated with the assistance of the conservation industry, the direct employment impact has been calculated.

At present around 15 000 people are employed in the UK manufacture and installation of energy-conservation equipment and materials. This number would be increased by up to 41 000 in the base case, and up to

100

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Year5 from :~ar: < f pr, ,ur n : n e

Jobs created in the energy conservation industry.

Page 10: Jobs and energy conservation

308 Andrew Warren

100 000 direct jobs in the maximum case, as shown in Fig. 2. This is more than six times the present level of employment.

DISTRIBUTION OF JOBS IN THE ENERGY CONSERVATION INDUSTRY

An overriding feature of this industry is the predominance of installation work in generating additional employment. Taken over the 10 years, installation accounts on average for 65 ~0 of the additional employment in the base case and 52 ~o in the maximum programme. This reflects both the labour intensiveness of installation work and the capital intensiveness of the material supply and manufacturing industries, as Fig. 3 demonstrates.

Fig. 3.

Materi~d ~

All O t h e r s ~

Distribution of jobs in the energy-conservation industry.

No allowance was made in the base case for any secondary incremental effect in material supply. Many insulation materials are polymer derivatives from the petrochemical process industry. In terms of the overall capacity of these industries, and in particular at present when this industry's capacity is heavily under-utilised, the marginal requirements of the programmes outlined represent a very small proportion of potential output. This situation does not apply to the components of heat control systems nor particularly to light fittings. In the latter case, account has been taken of the employment generated in component supply manu- facturers. However, in the higher activity maximum case, a 5 ')i, allowance (of total incremental employment) was made for additional employment in providing insulation, control materials and components.

The majority of the manufacturing processes for converting materials into insulation and heat control products are also capital intensive. There

Page 11: Jobs and energy conservation

Jobs and energy conservation 309

has been considerable modernisation of plant by the major manu- facturers in recent years and processes are now highly automated. There is up to 50 i:,, spare capacity in certain sectors. The additional employment generated by even a 50 %(, output increase is therefore l imited--repre- senting on average 12~o of the total in the base case and 15°,, in the maximum programme. The contributions from administrative, clerical, technical, professional, selling and distribution jobs in the base case and maximum programme are 23 and 28 '{~, respectively.

INDIRECT E M P L O Y M E N T EFFECTS

In addition to the 100000 direct jobs created in the maximum case, the indirect employment effects of the multiplier and responding effects result in the creation of a further 27 900 jobs in the base case, and a further 62 600 jobs in the maximum case -as set out in Table 1. The multiplier chosen is the same as that used by the UK Treasury a conservative 1.4. which almost certainly errs on the pessimistic side.

NEGATIVE E M P L O Y M E N T EFFECTS

In Table 6 we sum the total negative employment effects of the energy- conservation programmes. It is proposed that the average of these ranges should be taken as the total negative employment effect in the supply industries, caused by an energy-conservation programme directed to buildings. There are therefore minimal reductions in supply industry employment only one new job for every fifty new' jobs created even

TABLE 6 Negative Employment Effects of Energy, Conservation Programmes

Gas industry Oil industry Electricity supply Coal industry

Total

BE,sc CEl,~C .~[O V i l l l l l l l l ( H,';t'

2OO 5(t{) 25O 500

250 400 500 800 500 700 900 I 300

1200 I 55{) 2400 3100

Page 12: Jobs and energy conservation

3 IO Andrew Warren

from full implementation of the maximum programme, a reflection of the capital intensive nature of the energy supply industry.

EMPLOYMENT SKILLS

With such a wide variety of programme activities, there is inevitably a range of different skills required. However, in general, the large majority of the work would be either semi-skilled or unskilled.

Manufacturing

The limited number of jobs generated here would be primarily semi- or unskilled. The operation of most of the modern production lines, which characterise the industries involved, do not require high level skills to operate.

Installation

Apart from the electrically based measures--heat controls and lighting-- the installation of the remaining insulation measures requires either no particular skills or only limited skills available after a short period of training. Thus the major benefits would be felt among construction- industry workers, where unemployment of unskilled workers is currently (1985) running at very high levels.

The manufacture and fitting of electronic control systems is relatively labour intensive employing mainly semi-skilled labour (about 70 ~) with skilled (about 5 ~o) and unskilled (25 ~o) making up the remainder.

Other

Here a mixture of skills would be involved, ranging from unskilled clerical and distribution jobs to professional skills, such as surveying and design.

LOCATIONAL AND SOCIAL IMPACT

Geographical employment spread

While the effects on employment of an energy-saving programme would be countrywide, the impacts would be greatest where maximum benefits

Page 13: Jobs and energy conservation

Jobs and energy consert,ation 311

could be realised. Much of the country's housing and industrial building stock, where most scope for energy conservation exists from the programmes, are located in the depressed industrial and urban centres. It is here that current rates of unemployment are at exceptionally high levels. Employment would thus be generated where it was most needed.

Social benefits

With the inner cities inevitably providing the major target of any large government conservation programme in buildings, social benefits would be maximised. The greatest number of pensioners, single-parent households, disabled people and others, who spend their days mostly at home are to be found here. They do not have the opportunity for their day-time space heating requirements to be provided by employers. As was noted in evidence published by the House of Commons Select Committee on Energy, 'the most economically vulnerable face larger fuel bills through their inevitably greater use of household heating'. In addition the Economic Advisory Office of the DHSS has demonstrated that, among low income households, it is those at home all day who pay a higher proportion of income for keeping warm. While the average figure is around 5 ',!0, pensioners pay 12 '5o and at the coldest time of year this can reach 26'~,; for the poorest pensioners and the long-term unemployed.

It is noted that the incidence of ownership of loft and cavity wall insulation decreases markedly as one moves down the social and income scales. Therefore any major government funded domestic conservation programme would inevitably benefit the more economically and socially deprived.