Home energy efficiency policy in Germany and the UK
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Home energy efficiency policy in Germany and the UK
Jan Rosenow, University of Oxford, Environmental Change Institute
Manuscript of paper to be published, please quote as following:
Rosenow, J. (forthcoming 2013): Energy efficiency policy in Germany and the UK. In: Urban, F.,
Nordensvard, J. (Ed) Low Carbon Development: Key Issues. Earthscan, Oxford. Link to book
Abstract
Energy efficiency recently has experienced a revival as part of the attempts to reduce
greenhouse gas emissions. However, global energy demand has not fallen so far and is projected
to increase even further. There is a need for ambitious energy efficiency policies if energy
demand reduction is to play an important role for achieving low carbon development. This
chapter looks at the approach taken in Germany and the UK, two countries that are
internationally recognised for their innovative energy efficiency policies. More specifically, the
principal policy instrument targeting energy use in homes in each country is analysed.
1 Introduction
A path of low carbon development inevitably needs to address two key issues related to
energy: The carbon intensity of energy production as well as the level of energy
consumption (Urban, 2010). These are the main two options to reduce the carbon
emissions in the energy system which are the focus of national and transnational
climate policy. For example, the 2007 EU climate and energy package (European
Commission, 2010) sets a reduction target for EU greenhouse gas emissions of at least
20% below 1990 levels by 2020 and a reduction of 80% by 2050. Part of the policy
package is a binding target to achieve a 20% share of EU energy consumption to come
from renewable resources by 2020 (to reduce the carbon intensity of energy
production) and an indicative target to reduce primary energy use by 20% by 2020
compared with projected levels, to be achieved by improving energy efficiency (to
reduce energy consumption). The paper focuses on the issue of reducing energy
consumption through energy efficiency measures in industrialised countries. The issue
of energy production is addressed by other chapters in the book (see the chapters by
Bloomfield and Yadoo, Tawney, Byrne, and Urban et al.).
While discussing some of the key issues around energy efficiency, this chapter looks in
more detail at two prominent energy efficiency policies in the household sector as a
case study for industrialised, high income countries. The two examples are chosen
because they are widely considered as blueprints for successful energy efficiency
policies. However, the policy instruments are very distinct in the way they address
energy efficiency improvements and show two possible options for tackling energy use
in residential buildings. The first example is the Energy Savings Obligations in the
United Kingdom (UK), also known as the Supplier Obligation (SO). Today the SO is the
most important policy instrument to deliver energy and carbon savings in the
residential sector in the UK (OFGEM, 2005). The second example is the German CO2
1Buildings Rehabilitation Programme (CBRP). In Germany the CBRP is the principal
policy instrument to reduce greenhouse gas emissions from residential buildings (BMU,
2007). Both policy instruments focus on residential buildings only, a sector that is
particularly important for greenhouse gas mitigation as will be demonstrated below.
The value of contrasting the two cases is manifold: It shows the very different
architecture of the two policy instruments discussed and showcases two prominent
examples of energy efficiency policy. The approach of the instruments is very different
even though they both focus on residential energy efficiency improvements. This
enables the reader to get a better understanding of the potential range of energy
efficiency policy instruments. Also, the analysis provides an evaluation of the achieved
carbon savings and discusses why the two programmes generate different results. The
critical discussion of the contextual factors that need to be considered when drawing
conclusions helps the reader to get a better understanding of the difficulties around
sound comparative evaluations in this area.
The structure of this chapter is as follows: The chapter starts with an outline of the
methodology. This is followed by a section presenting the case study findings for the UK
and for Germany including a comparative analysis of the achieved energy and carbon
savings as well as a more general comparison of the architecture of the two systems and
the actors involved. Finally, the chapter draws some conclusions, highlights areas for
future research, and makes some recommendations.
Text box 1 indicates the definitions of key concepts and terms relevant for this chapter.
Text box 1: Definitions of key concepts and terms
Energy efficiency: Energy efficiency is frequently referred to as the ratio of the useful energy
output of a process and the energy input in a process (Patterson, 1996). The higher the energy
efficiency of a given technology, the more output one gets from one unit of energy used to run
that technology. Hence, energy efficiency focuses on how much energy is consumed relative to a
service.
Energy conservation: Energy conservation focuses on total energy use and is aimed at energy
demand reduction (Moezzi, 1998). While energy efficient technologies may be part of that, it
also includes energy sufficiency, i.e. doing without a service altogether and changing
consumption behaviour. The distinction to energy efficiency is important, particularly when
considering issues such as the rebound effect (see text box 2).
Energy efficiency gap: Even though there are multiple cost-effective energy efficiency
technologies, take up remains far below what would be possible. This discrepancy is called the
energy efficiency gap or the energy paradox. This term was first coined by Hirst and Brown
(1990).
2 Methodology
Case selection
The area of energy efficiency policy covers multiple policy instruments across different
sectors (domestic, commercial, and industrial). It would be a herculean task to cover all
of this in one chapter. Hence, only two policy instruments have been chosen for more
detailed analysis. The case selection followed a simple logic:
2First, the focus of the policy instrument should be among the key areas with the highest
potential for energy demand reductions. Second, the countries examined should play an
important role in energy efficiency policy. Third, within the countries and the sector
chosen the instruments should be the principal policy instrument. With regard to the
three conditions the case selection is as following:
1) The sector with the largest potential for energy efficiency improvements is the
buildings sector: Of particular importance for energy demand reduction are
residential buildings. Studies indicate that buildings alone (both residential and
commercial) contribute about one third to global greenhouse gas (GHG)
emissions (figure for year 2009), most of which stems from residential buildings
(UNEP, 2009). The picture looks similar in the UK where almost 30% of carbon
emissions come from just the energy use in residential buildings (DEFRA, 2010)
and Germany where residential buildings contribute about one third to total
carbon emissions (BMWi and BMU, 2010). According to the Intergovernmental
Panel on Climate Change (IPCC), energy efficiency in the building sector plays a
key role for climate change mitigation policy and can deliver significant
reductions of GHG emissions. The IPCC estimates that at least 29% can be
reduced cost-effectively in the residential and commercial building sectors by
2020 compared to the projected baseline emissions, the highest reduction
potential among all sectors studied in the latest IPCC mitigation report (IPCC,
2007). Unfortunately the IPCC does not list separate estimates for residential and
commercial buildings, but the largest proportion of the potential is likely to be
within the residential building sector (UNEP, 2009).
2) In terms of the significance of national energy efficiency policy, both Germany and
the UK are often cited as examples for innovative and ambitious energy
efficiency policies. For example, the IEA describes both policy instruments as
particularly innovative in its assessment of IEA members’ energy efficiency
policies (IEA, 2009). Also, the currently debated EU Energy Efficiency Directive
proposes that all member states implement Energy Savings Obligations similar
to the British SO. The German CBRP is frequently cited internationally as a
blueprint for loan and grant programmes to finance energy efficiency
improvements (e.g. UNEP, 2011).
3) The criterion applied to identify the principal policy instrument is its contribution
to carbon emission reductions in the domestic sector compared to other policy
instruments targeting the housing sector, i.e. the one with the largest effect on
reducing carbon emissions is deemed the principal policy instrument. According
to Rosenow (2011), in the UK this policy instrument is the Energy Savings
Obligations, the SO. Germany’s key policy instrument is the CBRP, a loan and
grant scheme run by the bank KfW (Kreditanstalt für Wiederaufbau), the German
Reconstruction Loan Corporation.
Because the two policy instruments have a slightly different focus it is useful to define
the system boundaries of the analysis.
System boundaries
Both policy instruments target solely energy end-use in residential buildings. There are
some differences though:
3The SO in the UK focuses on heating, warm water provision, electricity use for domestic
appliances, and lighting. The measures promoted by the programme may increase the
energy performance of the building fabric (for example through wall insulation), reduce
the energy consumption from appliances (for example through replacement of
inefficient appliances such as fridges with more efficient ones), improve the heating
system (for example through the installation of an energy efficiency boiler) or reduce
electricity consumption from lighting (for example through the replacement of
incandescent light bulbs with energy efficient light bulbs). While of low significance in
terms of the contribution to the overall savings measures may also decarbonise the
energy used for example by installing solar thermal.
In contrast, the CBRP in Germany has a narrower focus and mainly targets energy use
for heating and warm water provision. Measures include insulation (for example solid
wall insulation), renewal of the heating system (for example by replacing stand-alone
heating devices), and replacement of windows (for example double glazed windows
with triple glazed windows). Similar to the SO the CBRP also allows the promotion of
micro-renewables such as solar thermal.
To sum it up, the SO historically targeted energy use from a wider range of end-uses
whereas the CBRP mainly focused on heating and warm water provision.
Analysis
The two policy instruments are compared with regard to their carbon and energy
savings as well as the financial resources spent. This comparison is undertaken by using
annual evaluations of the policy instruments by government departments, government
agencies, the regulators, and consultants. Note that this can only be an indicative
evaluation due to the different methodologies used in the various studies that have been
analysed for the purpose of this chapter. The effectiveness of policy instruments aiming
at improving the energy efficiency of the building stock may be constrained by barriers
to energy efficiency and rebound effects as illustrated in text box 2.
Furthermore, the architecture of the two policy instruments is compared based on
differences in the key features of those instruments. This comparison is based on
document analysis and interviews with experts. A more detailed analysis of the
differences between the two policy instruments is provided in Rosenow (2011).
Text box 2: Key issues
Barriers to energy efficiency: The energy efficiency gap, i.e. the fact that cost-effective energy
saving opportunities are not exploited, can be explained with obstacles that energy users face –
the literature frequently uses the term 'barrier' or 'market barrier' to explain the low uptake of
cost-effective measures.
There have been numerous attempts to develop taxonomies of barriers to energy efficiency (e.g.
Brown, 2001; Hirst and Brown, 1990; Sorrell et al., 2004). According to Eyre (1997), the
barriers commonly named are:
imperfect information to energy consumers;
perverse incentives (e.g. the landlord/tenant barrier);
limited availability of capital;
price volatility;
externalities such as the social and environmental cost of carbon (such as the cost of climate
change, air pollution, health hazards etc.) are not sufficiently internalised and reflected in
energy prices; and
4 bounded rationality (individuals may not have the cognitive ability to assess the costs and
benefits appropriately).
Often energy efficiency programmes only address one or two of these barriers. While it is
unlikely that a single policy instrument can incorporate all of the barriers named above,
attention needs to be paid to the effect of not addressing them. For example, improving access
to capital may help to overcome the lack of financial means of households, but those in the
private rented sector are unlikely to be able to benefit from such measures because only the
landlord can make decisions for or against energy efficiency measures.
Rebound effect: The rebound effect describes the phenomenon that energy efficiency measures
make the consumption of energy services cheaper and hence more attractive to consumers
resulting in an increase of total energy demand (Brookes, 1990; Inhaber and Saunders, 1994;
Khazzoom, 1980). This phenomenon is called the rebound effect or the Khazzoom-Brookes
Postulate (Saunders, 1992).
The rebound effect is frequently broken down in three different types: direct, indirect and
economy-wide rebound effects.
Direct rebound effects refer to the phenomenon that energy efficiency improvements make it
cheaper for consumers to use an energy service and as a result they use more of that service
(Greening et al., 2000, Sorrell, 2007). For example, if driving a car uses less fuel due to a more
efficient engine people might simply drive their car more and offset some of the energy savings
by doing so.
Indirect rebound effects might occur when consumers spend the money they save due to energy
efficiency measures on other energy consuming services. To stick to the previous example, if
driving a car becomes cheaper consumers might decide to pay for a flight with the money they
saved due to higher fuel efficiency (Barker et al., 2007, Sorrell, 2007).
Economy-wide rebound effects refer to the effects of falling prices for energy services on the
economy as a whole. If the cost of energy services decreases the price of intermediate and final
goods in the economy decreases too. This has the effect that more energy intensive goods
become more competitive. Lower cost for energy services might also stimulate economic
growth leading to a higher demand for energy services (Barker et al., 2007).
Based on a review of over 500 papers and reports, a study for the UK Energy Research Centre
provided estimates of the direct, indirect and economy wide rebound effects. For household
heating, household cooling and personal automotive transport the direct rebound effect is
estimated to be less than 30% (Sorrell, 2007).
3 Case study findings
3.1 Energy Savings Obligations in the UK
In 1994, the UK introduced an obligation on electricity suppliers to deliver a certain
amount of energy savings at the customer end, known as the Supplier Obligation (SO).
Although the initial obligations where set at a low level and covered only electricity
suppliers at the beginning, the instrument became one of the key features of UK energy
efficiency policy. In 2000, the SO was extended to both gas and electricity suppliers,
which is still the case today (Rosenow, 2012b).
The basic concept of the SO is that Government imposes a savings target on energy
companies that has to be achieved at the customer end i.e. not via increasing the
efficiency of energy production but through the improvement of the efficiency of energy
5consumption. The target may relate to energy consumption or carbon emissions. In the
UK, the target is set by the Department of Energy and Climate Change (DECC) for a
defined period of time (usually 3-4 years). The energy regulator, OFGEM, is responsible
for administering the SO and enforcing it. It defines individual savings targets for each
energy company. The energy companies then contract installers of energy saving
measures that carry out the work in homes according to a defined standard and with a
certain benchmark for energy and / or carbon savings. Alternatively, energy companies
may choose to work with homeowners directly. In the past, energy companies have for
example promoted the use of compact fluorescent lamps (CFLs) via mass mail-outs of
free light bulbs, although this is now prohibited. Figure 2 summarises the mechanism of
the SO.
Figure 1: Mechanism of the Supplier Obligation in the UK
Source: Rosenow (2012b)
While there was a succession of different SO schemes, the basic logic remained the
same. The first SO scheme was called Energy Efficiency Standards of Performance
(EESoP) and ran from 1994 to 1998. Its successors, EESoP 2 and EESoP 3, ran from
1998 to 2000 and 2000 to 2002 respectively. In 2002 the scheme’s name was changed
to Energy Efficiency Commitment (EEC). EEC 1 was in place from 2002 to 2005 and EEC
2 from 2005 to 2008. EEC was eventually renamed in 2008 to the Carbon Emissions
Reduction Target (CERT) that runs from 2008 to 2012. The following graph shows
annual energy savings target for the different periods:
6Figure 2: Changes to the energy savings target
Source: Rosenow (2012b)
It is evident from the data that the ambition of the SO changed significantly over time.
The main drivers of this process include climate change policy, rising energy prices,
increasing fuel poverty, and a number of institutional changes. A detailed analysis of the
different drivers and the politics can be found in Rosenow (2012a).
3.2 The German CO2-Building Rehabilitation Programme
As outlined above, the CBRP is the most important policy instrument in Germany for
reducing carbon emissions of buildings. The CBRP provides low interest loans and
grants to households for specified refurbishment measures including energy efficiency.
The Federal Government funds the scheme and enables the bank KfW to issue loans
with an interest rate lower than the market rates. In addition, some of the funding
provided is used to issue grants. Making use of both federal funding and national as well
as international capital markets KfW offers financial products to finance housing
refurbishment. Home owners, housing companies, and public bodies can apply for loans
and grants at an intermediary bank which assesses the financial circumstances of the
application. The intermediary bank forwards the application to the KfW which then
approves the loan or grant (Rosenow, 2011). Figure 3 summarises the model described
above.
7Figure 3: Architecture of the CBRP
Source: author
While the CBRP has been modified over the years since its inception in 2001, the basic
principles are still the same. One notable change, however, is the introduction of grants
in 2007 (not covered in the graph above), although most of the funding goes into low
interest loans.
3.3 Comparison
3.3.1 Brief evaluation of policy instruments
This section provides a brief evaluation of the two policy instruments in terms of their
effectiveness, i.e. the carbon emissions and energy saved compared to the financial
resources spent.
A comparison of the data derived is subject to various limitations for a number of
reasons: First, the energy and carbon savings accounting methodology differs in the UK
and Germany and the figures are not like-for-like. Second, there is no reliable estimate
of free rider effects, i.e. how much of the energy efficiency improvements initiated by
the policy instrument would have happened anyway, and rebound effects in Germany,
whereas in the UK free rider effects (called ‘deadweight’) and rebound effects (called
‘comfort taking’) are taken into account. Finally, the figures are based on modeling
studies rather than monitoring real energy use and the effects of the policy instruments.
Therefore the following remarks have to be taken with a pinch of salt.
Figure 4 is based on various evaluations and presents the energy and carbon savings for
both programmes.
8Figure 4: CO2-emissions in Mt lifetime emissions and TWh saved per year in the UK (SO) and
Germany (CBRP)
Source: Rosenow (2011)
From 2002 to 2008 about 1.3 billion Euros were spent by energy suppliers as a result of
the SO (based on Lees, 2006; Lees, 2008). According to the BMVBS (2010), in the same
period federal funding for the CBRP amounted to more than three times as much (about
4.5 billion Euros). In case of the SO the energy customers paid for the scheme with their
bills, while the CBRP funding was based on taxpayers’ money. The carbon savings
achieved over the same period amount to 109 million tonnes of lifetime CO2-emissions
for the SO and to 91 million tonnes of lifetime CO2-emissionsfor the CBRP (Rosenow,
2011). The ‘dips’ that occur in some years in case of the CBRP are the result of varying
funding for the programme from year to year.
Considering that both programmes led to comparable carbon savings, the question
remains why the CBRP required significantly more funding. One reason is the different
energy efficiency performance of the building stock; dwellings in Germany are much
more energy efficient than buildings in the UK, a result of laxer energy performance
requirements for new buildings in the past and the older building stock in the UK (BPIE,
2011). Hence energy savings are more costly as the low hanging fruits have already
been picked. However, a more detailed analysis would be required in order to answer
that question confidently and there are several factors that need to be considered: the
CO2 emissions from residential energy use per household are broadly similar (around 5
t CO2 per year) (DEFRA, 2010; Diefenbach, 2008), even though British buildings are less
energy efficient. A more moderate climate and less living space per person offset the
lower energy efficiency though resulting in similar levels of emissions. Therefore it is
difficult to draw quick conclusions without further analysis.
Text box 3 presents a critique of mainstream energy efficiency policy.
Text box 3: Critique of mainstream energy efficiency policy
Most energy efficiency programmes are still pursued from a perspective that puts technological
efficiency and financial aspects centre stage – it, intentionally or unintentionally, aims at
improving nominal efficiency of energy services leading to relative savings. This helped to
trigger remarkable technological innovations with regard to efficiency in many areas. However,
at an aggregate level enhanced efficiency just does not seem to add up. In order to employ
energy efficiency as a means (rather than an end in itself) to reduce carbon emissions on a large
scale, a different approach is needed. While it is unlikely that the focus on efficiency as it stands
will change significantly in the foreseeable future, there is potential to re-calibrate existing
policy instruments with an increasing orientation towards achieving total energy savings.
Similar thoughts have been explored by others, who also highlighted the need to realign energy
9efficiency efforts with total energy savings (Harris et al., 2008; Wilhite and Nørgård, 2004).
Harris et al. (2008) developed the concept of progressive efficiency, which proposes that as the
scale of energy use or service increases, the level of required efficiency should be higher to
make sure total consumption is accounted for. This concept could potentially be applied to
buildings, appliances, heating systems etc.
3.3.2 Comparison of architecture of the policy instruments
While having a similar effect in terms of delivering energy efficiency measures across
the housing stock, the two policy instruments are very different with regard to their
general architecture.
Actors involved
In both countries the level of ambition is set by a government department, although it is
the Department of Energy and Climate Change (DECC) in the UK and the Federal
Ministry of Transport, Building and Urban Development (BMVBS) in Germany. The two
departments have a very different focus: DECC’s main remit is reducing carbon
emissions and setting the framework for a low carbon energy system whereas BMVBS
primary task is the development of infrastructure, although this has a climate change
and energy efficiency component.
The CBRP channels funding for energy efficiency retrofits through the bank KfW. The
SO, in contrast, utilises energy suppliers as a vehicle for delivering energy efficiency, a
model quite distinct to the German approach. It also relies on the regulator, OFGEM, to
administer the scheme. In Germany, the regulator is not involved in the CBRP.
Finance
The CRBP is funded out of the public budget and total funding may change every year
depending on the overall budgetary considerations. While funds have been projected
for three years in the future, those projections are mere statements of what the
government would like to spend on the CBRP rather than binding figures. The CBRP was
subject to austerity measures in 2010 when the responsible minister announced that
funds would be cut by half for the year 2011 (Rosenow, 2011), although additional
funds were made available later in the year. The volatility and risk of funding cuts
trigger considerable uncertainty in the market leading to a stalling of orders for energy
efficiency retrofits.
In Britain the SO is paid for by the energy companies, but energy suppliers are
permitted to pass the costs through to households via energy bills. Therefore, the
treasury has no involvement in the financial transactions taking place and does neither
benefit directly from nor contribute to the SO. Hence even substantial spending cuts as
seen at the moment cannot affect the SO as it is not based on public expenditure. Taking
into account that larger targets and the promotion of more expensive measures increase
the total cost of the programme it comes as no surprise that every household in the UK
contributes about £50 to the SO through their annual energy bill. This puts a burden on
some households who do not benefit from the SO (for example the fuel poor living in
private rented accommodation). This means that there are limits to how far the costs of
the scheme can expand if paid via energy bills.
10Focus
The SO incentivises energy suppliers to use the cheapest measures available in order to
deliver their obligation. In a competitive market where energy companies compete on
price it is assumed that the suppliers will try to minimise the cost of the delivery of the
SO. This is probably one of the reasons why micro-generation measures never had a
significant share of the SO measures and why most of the activity has been in loft and
cavity insulation as well as lighting. In a nutshell, the SO is a scheme that incentivises
the picking of low hanging fruits.1
In contrast to the SO, the CBRP focused on packages of measures from the beginning on
taking the view that doing many measures at once would be advantageous. The so
called ‘whole house approach’ where all of the building fabric is upgraded to a higher
energy efficiency performance has played an important role for the calibration of the
CBRP. In order to be eligible for support from the CBRP, a defined standard in terms of
the buildings energy use compared to the basic energy performance standard for new
buildings has to be achieved. However, the CBRP also promotes single measures and
combinations of measures, so it is not just about the whole house approach.
4 Conclusion
The path of low carbon development includes ‘using less energy, improving the
efficiency with which energy is used’ (Urban, 2010: 93). This chapter focused on
precisely this issue and presented two high profile case studies in the area of energy
efficiency policy.
Both instruments resulted in significant energy and carbon savings over time and it is
difficult to judge which instrument is ‘more effective'. They are both examples of
successful energy efficiency policy and will probably continue to do so.
Based on the above a number of recommendations can be made:
Funding: The CBRP was funded by the public budget – there was some volatility
in the past in terms of funding levels and there is the risk that the budget may
continue to vary in the future. This is unhelpful for the long-term certainty in the
energy efficiency market. Similar loan and grant programmes should be designed
in a way that is less prone to budgetary changes. The SO is currently focusing on
low cost measures. As discussed above, larger targets and the promotion of more
expensive measures increases the premium paid via the energy bill. There are
limits to how much consumers are willing and able to pay and for deep retrofits
additional resources will be required. Loan schemes similar to the CBRP might
be a sensible option.
Scale: In order to achieve significant refurbishment rates of 2% or more of the
building stock every year, the current ambition of both policy instruments does
not suffice. Therefore additional instruments, for example building regulations
setting minimum standards for existing buildings, are likely to be required to
increase the refurbishment activity.
Social equity: Some segments of consumers did not benefit as much as others
from the two policy instruments. Particularly poorer households are negatively
1 By ‘low hanging fruits’ the cheapest options for improving energy efficiency are meant.
11affected if the energy efficiency of their buildings is not improved and energy
prices continue to rise in the future. In order to cover a wider range of
households there needs to be additional support, particularly for the private
rented sector.
Future policy initiatives for energy efficiency and low carbon development in
industrialised, high income countries should draw on the experiences with the two
policy instruments and carefully assess the limitations of them. What is likely to be
required is a sensible mix of different policies rather than one silver bullet.
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Energy & environment, 15, 991-1009.
6 Further readings
Eyre, N. 1997. Barriers to energy efficiency: more than just market failure. Energy & Environment, 8(1),
25-43
Jaffe, A. B. & Stavins, R. N. 1994. The energy-efficiency gap What does it mean? Energy Policy, 22, 804-810.
Moezzi, M. The predicament of efficiency. ACEEE 1998 Summer Study on Energy Efficiency in Buildings,
1998 Washington DC. ACEEE, 4.273-4.282
Wilhite, H. & Norgard, J. S. 2004. Equating efficiency with reduction: A self-deception in energy policy.
Energy & Environment, 15, 991-1009
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