Link business rates to energy efficiency to make big changes

• Energy efficiency is a key part both of boosting productivity and decarbonisation; quick wins could result in bill savings of £1.3 billion per year for businesses
• Opportunity for productivity gains not just restricted to business – NHS could save £200 million a year, the equivalent of more than 6500 nurses
• New Energy Efficiency Delivery Unit should be set up to focus on development stage of energy efficiency projects

The Government should establish a new Energy Efficiency Delivery Unit and Energy Performance Certificates should be linked to business rates to incentivise landlords to invest more in energy efficiency, according to Clean Growth, the new report from Policy Exchange’s influential and expert Energy and Environment team.

The report calls for a new approach by Government to encourage investment in business energy efficiency to reduce carbon emissions and improve business productivity. Existing tools like the Energy Saving Opportunity Scheme can be much better used – and must be extended to public sector institutions like the NHS and MoD.

The report’s key recommendations are:

• The Government should establish an Energy Efficiency Delivery Unit (EEDU) that can bridge the gap between viable projects and available capital. The unit should mirror the Heat Network Delivery Unit and offer expertise, certification and finance for project development to both public and private institutions.
• ESOS (Energy Saving Opportunity Scheme) needs to be extended to cover public sector institutions where the energy saving potential is large and cost effective – like the NHS, defence and education – and reporting on progress should be mandatory.
• Government intervention should focus on landlords rather than tenants and use a combination of tighter regulations and fiscal incentives, including linking business rates to energy efficiency.
• Evidence suggests Climate Change Agreements (CCAs) have been a weak driver of businesses’ energy efficiency and adverse effects of the Climate Change Levy (CCL) on economic performance are unsubstantiated across most sectors. Therefore the discount on the CCL that businesses gain under CCAs should be made more stringent and tied to sector deals as part of the industrial strategy.

Joshua Burke, Energy and Environment Research Fellow, who wrote the report, said:

“Improving energy efficiency is amongst the easiest and cheapest ways to decarbonise our energy system. Businesses and public sector organisations spend the equivalent of nearly 5% of GDP (£22bn) on energy every year but too many organisations still aren’t investing enough in energy efficiency. It needs to be seen as a major strategic investment which is both good for the environment and good for profitability.

“Public sector leadership on energy efficiency could save the taxpayer billions, while the private sector should focus on funding energy efficiency projects, particularly those that have longer payback periods.

“What will ultimately drive energy efficiency projects are the perceived strategic and productivity benefits rather than energy and carbon savings, and this is how it should be framed and communicated to ensure traction across all management levels of businesses.”

Bill Rogers, Managing Director, Distributed Energy at Green Investment Group Limited (GIG), which supported the research, said:

“Finance is increasingly working with technical solution providers to help businesses capture the benefits of energy efficiency. Measures that actively engage senior decision makers will be critical in translating this opportunity into much-needed infrastructure investment.”

Nick Park, Group Head of Energy Policy Development at Centrica, which also supported the research, said:

“By gaining a better understanding of their energy use, businesses large and small can save money, improve operational performance and become more resilient. Improving energy efficiency provides a golden opportunity for businesses and the public sector to improve productivity and unlock future growth opportunities.”