Scottish Government

Rising number of households - falling occupancy

The increase in domestic energy use does not reflect a strong rise in individual household energy use, but instead a rise in the number of households overall, as the number of people per household declines. The following graph, Figure 8, illustrates this:

Figure 8 - Occupancy Projected Trends

One-person households have a far higher per person energy use than the archetypical couple with two children. This can be seen in the following graph, which shows the energy use per capita has increased significantly compared to the use per home:

Figure 9 - Domestic Energy: Use per capita and per household

Fuel Use in Homes

Typically about 60% of energy in homes is used in space heating plus 20% to heat water and the remainder for domestic appliances and lighting. Hence heating is the main driver of energy demand and hence CO ₂ emissions.

Direct use of fossil fuels in Scottish homes in 2002 had increased by 12% since 1990, with gas use increasing by 18%, accompanied by an increase in oil use and a similar scale of fall in solid fuel use. There will be many reasons behind this, one is the trend to one person households, another is a trend to increase use of central heating and to increase comfort heating levels. Since 1990 the number of UK homes with central heating has increased by 25% and the average internal temperature in UK homes has risen by 1.6 ^oC ⁸. The increase in central heating has almost saturated, with only 3% of Scottish homes without central heating.

At the same time the energy performance of the housing stock has improved and continues to improve. In 2002 the median NHER⁹ rating was 6, by 2007 this had risen to 7.

Electricity Use in Homes

Electricity accounted for 22% of domestic sector energy use, but 37% of domestic sector CO ₂ emissions in 2002. Since 1990 electricity use rose more rapidly, by 26%, than any other form of energy used.

Increasing energy use for lighting and appliances

Appliances and lighting currently show the greatest growth in domestic energy use, (mostly as electricity), currently growing at about 2% per annum. The number of appliances in each household is steadily increasing. Although in some areas ( e.g. washing machines) this has already reached market saturation, the number of electric entertainment goods continues to increase, and it is common for a house to have several TVs or music players. This is an area where new technology is continually being developed and taken up by the market.

Figure 10 - UK Electricity consumption by household domestic appliance, by broad type ⁸

A different climate

Scotland has a harsher climate than the average for the UK, and fewer usable daylight hours, so domestic energy demand is greater than pro-rata its population, 10.1% of UK energy consumed compared with 8.5% of the UK population.

Fuel poverty

In 2007 the Scottish Housing Condition Survey estimated that 25.3% of Scottish households were in 'fuel poverty' and therefore use a significant proportion of their income to heat their homes. Rising energy prices increased fuel poverty from 13.4% in 2002 - a trend that will continue with rising prices. According to Energywatch, Scotland has significantly higher numbers of consumers in energy debt and with pre-payment meters.

Scotland has distinctive housing stock - with its own housing needs

Scottish homes differ from those in the rest of the UK in several respects. A lower proportion of Scottish households have access to gas for heating (77% compared to 86% in England) ¹⁰. A particular feature of Scottish housing is its high proportion of tenements and multi-tenured flats, which present particular issues: e.g. significant shared areas in properties, joint responsibility for roofs, landlord tenant relationships etc. Although Scotland and England have similar proportions of properties with cavity walls (74% in Scotland, 73% in England), Scotland has a significant proportion of traditional, hard to heat, house types including 23% stone built (mostly granite and sandstone) houses.

Limited community heating

The vast majority of Scottish homes are heated individually. Although community heating schemes are not new, only a small proportion (of order 1% ¹¹) of Scottish homes are part of community heating networks. This contrasts with some European countries, such as Austria, where over half of homes are connected to some sort of heat network.

Community heating can potentially cut both fuel bills for residents and also CO ₂ emissions, particularly when the heat is supplied by Combined Heat and Power ( CHP) systems, and/or when fuelled by biomass or waste. This has a good match with the recent requirement for high thermal efficiency set out in the zero waste policy for Scotland.

Community heating can be lower in cost per home than micro renewables due to the plant being centralised and hence larger benefiting from economies of scale, which can result in a shorter payback period.

Recent years have seen signs of an increase in biomass fuelled heating, both for individual properties and also for community heating, particularly for housing association developments. The Scottish Biomass Support Scheme and the Scottish Community and Household Renewables Initiative ( SCHRI) have assisted many such schemes.

An example of a successful Scottish community heating scheme, part grant funded, is the Glenshellach biomass district heating scheme in Oban. This is a 600 kW wood fuelled district heating system that supplies 44 homes with space heating and hot water that has the potential to be expanded for up to 90 homes ¹². The cost of the whole project was £530,566.

Domestic renewables increasing

Renewable energy technologies are increasingly available for individual householders: solar water heating was developed many years ago, but more recently solar photovoltaics, micro and small scale wind, biomass and ground source and air source heat pumps have all started, on a small scale, to contribute low carbon energy to people's homes.

Rebound effects

When households save energy and save money there is a risk that some of these savings are used to purchase goods or services that in turn use energy, reducing the net savings.

Domestic electricity use controls peak electricity demand

As well as being the highest energy use sector, domestic consumption is also responsible for the timing and level of peak electricity demand, generally early on winter evenings. If action could be taken to reduce this peak demand, load management would be simplified and the requirement for (flexible) fossil fuel generating plant would be reduced. Householders switching to energy efficient appliances, using energy efficient lighting and not leaving equipment on standby are all measures that can help reduce peak demand.

Some powers devolved

Housing and the promotion of energy efficiency are both devolved matters, so the Scottish Government has scope to take initiatives to address energy efficiency in housing. This includes setting more rigorous energy standards within the building regulations, along with support schemes that address the specific issues in the existing housing stock.

House replacement occurs slowly - so existing stock will be key to future reductions

There are 2.3 million households in Scotland ¹³. In 2007-08, 25,753 new homes were completed in Scotland, ¹⁴ and 4,000 were demolished. This means that even on a 50 year time scale, the majority of Scottish houses standing now will still be in use. Improving the energy performance of existing housing stock will therefore play a key role in reducing CO ₂ emissions: retrofitting energy efficiency measures are generally considerably more cost effective than demolition and rebuild.

Untapped savings

There are many households where basic energy efficiency measures are yet to be fully realised. These include cavity wall insulation, loft insulation, hot water tank jackets, draught proofing etc.

In many cases these opportunities are not fully realised. A prime example is loft insulation. Many households will have some loft insulation, but only homes built in recent years will have the recommended level of 270mm, most homes will have 100mm or less ¹⁵. It is estimated that 670,000 Scottish homes do not have cavity wall insulation and 800,000 homes have under insulated lofts ¹⁶.

Domestic Sector Savings assessment

To support the work of the UK Committee on Climate Change ( CCC) BRE and AEA have produced Abatement Cost Curves for the domestic sector ¹⁷. These show the potential CO ₂ savings from a wide range of measures. These are shown in cost order, starting with the most cost effective (-ve costs i.e. net savings) through to the most expensive (net costs). This is shown in Figure 11.

Potential for savings

This analysis shows that there is the technical potential for savings of 75 to 105 MtCO ₂, against a UK baseline projection of 110 MtCO ₂ for the sector in 2020.

Around 40 MtCO ₂ of savings are possible using measures that cost less that £40/tCO ₂, i.e. below the carbon price projected by the CCC. Of these, the most cost effective measures (33 MtCO ₂) derive from energy efficiency improvements achieved through:

• Better insulation (loft, cavity and solid wall)
• More efficient lighting and appliances ( e.g. A+ wet appliances and A++ cold appliances)
• More efficient gas boilers (replacing boilers with condensing boilers).

Lifestyle measures could deliver an estimated 6 MtCO ₂ reduction. These measures include:

• Turning thermostats down by 1 ^oC.
• Washing clothes at low temperatures.
• Switching off lights when leaving the room.

The curve also shows very significant savings potential from micro generation measures ( e.g. biomass, photovoltaics and solar water heating). However these currently entail much higher costs than the energy efficiency and behavioural change opportunities.

Although this is a UK abatement curve, it shows some key energy reduction priorities, e.g. insulation, appliances and boilers, that will also apply to the Scottish housing stock.

Many of the energy saving opportunities described above for existing homes have been available for some time, are proven and provide cost effective energy savings. Yet many homes do not have these energy saving measures installed or have opportunities to make further improvements ( e.g. top up loft insulation).

Information on what measures can be used and how to get support to adopt them is important to raise awareness of these opportunities and to increase adoption rates. The provision of advice on energy for householders is via the Energy Saving Scotland Advice Centre ( ESSAC) network. Five centres serve Scotland (Ayr, Aberdeen, Edinburgh, Glasgow and the Highlands). Each centre provides a one stop shop for advice on energy efficiency, microgeneration technology and sustainable transport.

The targets for the ESSAC network are to reach 250,000 people each year, increased from 100,000 under the previous system and increasing carbon savings to 400,000 tonnes of lifetime carbon.

The ESSAC networks target localities with properties and occupants that have high potential for installing measures such as loft insulation, cavity wall insulation etc.

Grants support change

Several grants and loans are available to provide capital for energy efficient measures or domestic renewable energy technologies for the households in Scotland. Examples include:

• The Energy Assistance Package ( EAP)
• Carbon Emissions Reduction Target ( CERT).
• Landlords Energy Saving Allowance ( LESA).
• Scottish Community Households Renewable Initiative ( SCHRI).

Increasing benefits from CERT

Part of the package of energy saving measures announced by UK Government in September 2008 are increases to the Carbon Emission Reduction Target ( CERT).

There will be an increase in the existing CERT target by 20 per cent in the period up to March 2011. At UK level that will require additional expenditure by the energy suppliers of an estimated £560 million on providing, for example, discounts to households for energy efficiency measures. Such an increase in the CERT target is likely to benefit up to two million more UK households.

The Scottish Government has developed a CERT strategy working group with the energy suppliers, Ofgem and the EST.

Greater Transparency on home energy use

It is a legal requirement (from December 2008) as part of the Home Report initiative for all potential purchasers of second-hand homes to receive a comprehensive and up-to-date report on the energy efficiency of a property before they bid. This Energy Report provides information on energy usage and costs, carbon impact, recommendations for improvements and sources of advice - in the form of an Energy Performance Certificate.

Energy Performance Certificates

Since May 2007 Energy Performance Certificates ( EPCs) are required when dwellings are constructed. From January 2009 EPCs are also required when existing buildings are sold or rented out ¹⁸. The intent is to make energy efficiency a selling point in the housing market and to ensure home owners are informed about the costs and benefits of improvement measures at the point where they have the most choice over which home to purchase.

Appliances are changed frequently - so scope for improvements to feed in quickly

Lighting and appliances were highlighted earlier as the fastest growing segment of domestic energy use. One positive aspect of both is that they are replaced relatively frequently, so that improvements in energy efficiency feed into the domestic market on a much more rapid timescale than for example building regulations. (The converse is also true of course: new, inefficient electronic goods can also achieve rapid market penetration). There are a range of initiatives that can stimulate the production and use of more efficient appliances.

European labelling & minimum standards legislation are driving down appliance energy use

European legislation has had a significant effect in cutting appliance energy use in the last 10 years, in particular through a market transformation approach, combining energy labelling and minimum standards. For example, the energy consumption of an average refrigerator has dropped by 29% between 1990 and 2001. Although this is not directly within the Scottish Government's control, it is an approach that will be important in Scotland. Indeed, EU labelling and minimum standards legislation has had a significant effect on cutting appliance energy consumption.

The European Commission ( EC) is currently developing a Framework Directive for the Eco-design of Energy Using Products ( EuP). The aim of the Directive is to reduce the environmental impact of energy using products and has the potential to reduce EU energy consumption by around 10%.

Scope for improvements in cold goods and improving low temperature washing

Most appliance energy use relates to the removal of heat in freezers and refrigerators, or the supply of heat to washing machines, dishwashers and dryers. The most likely opportunities for reducing energy consumption will therefore be in improved insulation for cold goods (probably though the use of vacuum panels) and improving low temperature washing performance.

In the case of improving the performance of colds goods this opportunity is governed by the replacement rate of appliances and the purchasing choices of consumers. These factors also apply for wet appliances, plus an important behavioural change - to use the low temperature settings.

Lighting

Lighting is often a focal point for energy savings - as conventional filament lamps need regular changing and a range of low energy lamps is now available. Initial campaigns focused on a changeover from filament lamps ( GLS) to compact fluorescent lamps ( CFL). The EC has proposed a ban on filament lamps and the UK government announced a plan to phase out their sale by 2011, staring with the phase out of 100 W GLS lamps in September 2009.

Improvement in LED lighting will offer further reductions in the future.

Standby electricity

The standby consumption of appliances is estimated to be around 8% of domestic electricity consumption. This has risen as more electronic products have become commonplace in our homes.

Efforts are underway to transform the standards for equipment, through a market transformation approach for example led by Defra via its Sustainable Products and Materials Programme and by the ECEuP Directive. However short term gains can be made through behaviour change - switching appliances off at the wall socket.

New support to tackle Fuel Poverty

The Scottish Government has announced a revised Energy Assistance Package ( EAP), this replaced the Central Heating Programme and the Warm Deal. Targeting fuel poor homes the EAP comprises 4 elements:

1. An initial energy audit available to anyone who phones the Energy Savings Scotland Advice Centre ( ESSAC) network and identifies those at risk of fuel poverty who can continue to Stage 2.

2. Help with improving incomes and reducing energy bills.

3. A package of standard insulation measures (cavity wall and loft insulation), as part of the energy companies' obligation under the Carbon Emission Reduction Target ( CERT).

4. More enhanced energy efficiency measures (such as heating systems including renewable systems, and insulation measures for hard to insulate homes for those who are fuel poor).

Stages 1 to 3 will be widely available, while Stage 4 will be focused on homes with very poor energy efficiency and lived in by those households most vulnerable to fuel poverty.

'Energy inefficient homes' are defined as those where an energy audit identifies that the dwelling has an EPC performance rating of F or G.

New support for home insulation

In February 2009 the Scottish Government announced proposals for the first stage of an ambitious area based home insulation scheme supported by £15m of new Scottish Government funding plus £15m from other sources. This first stage has the potential to assist householders in 90,000 houses and support nearly 900 jobs. The Area-Based Home Insulation Scheme ( HIS) aims to improve the energy efficiency of houses through an intensive area based approach to promoting and installing insulation and other energy saving measures.

The scheme will focus on eradication of poor insulation in Scotland. A previous announcement includes proposals for a significant loan mechanism to support energy efficiency and renewable technologies.

Community based approaches

A further initiative is the new initiative is the £350 million Community Energy Saving Programme ( CESP). This will be launched in around 100 fuel-poor areas to go street-by-street through communities offering free and discounted central heating, energy efficiency measures and benefit checks. The programme is intended to support new and existing partnerships between local councils, voluntary organisations and energy suppliers.

The CESP would be funded through a new and additional obligation on the energy suppliers and electricity generators. Across the UK around 100 new community schemes might be created benefiting some 90,000 homes over the next three years.

Sustainable procurement

Sustainable procurement by Housing Associations could help boost the purchasing of efficient white goods ( e.g. "A" grade EU energy label boilers).

Deployment of low carbon energy solutions

There are currently still a number of limitations and issues with small-scale renewables. These include financial and carbon payback period, availability, a limited knowledge of the benefits and cost effectiveness of various technologies, selecting an appropriate technology to match individual homes and a range of local environmental and technical issues.

SCHRI has played a particular role in raising the profile of small scale renewables and supporting their uptake. The demand for support from SCHRI has been very strong, particularly for solar thermal and ground source hear pumps.

The funding for SCHRI has tripled, increasing the number of schemes that can be funded. Applicants are now required to have the relevant energy efficiency measures in place before the installation of a renewable energy system.

The uptake of these microgeneration technologies will potentially be greater in off gas grid situations where the cost of energy is greater and therefore the potential for cost savings with these technologies is also greater.

Use of low carbon sources of heat growing

As shown in Figure 11 the most cost effective opportunities are from energy efficiency and behaviour change. Once these main energy efficiency opportunities have been realised, further CO ₂ reductions can be achieved by using forms of energy with lower carbon emissions.

Energy use in homes is dominated by fuel for space heating, hence this offers the largest potential for switching to low carbon fuels. A range of technologies are available, including:

• Biomass heating
• Solar Hot Water
• Ground Source Heat Pumps

Of these biomass heating for off gas grid homes offers a high level of savings at a lower cost than the other low carbon technologies.

However to date the renewable energy technology with the largest number of installations is solar collectors for hot water production rather than space heating.

In recent years, the availability of grants and the development of the supply chain for equipment (and in the case of biomass, fuel supply) have started to increase the use of other low carbon heating technologies.

The EU renewable directive is adding further emphasis to develop the use of these technologies. For example, UK Government proposes to introduce revenue incentives for heat from renewable sources (The Renewable Heat Incentive). The incentives recognise the additional capital cost for installation of these technologies and the need for simple arrangements for domestic sector installations.

In addition to renewable heat systems for individual homes, there are opportunities to use district heat to connect homes and other consumers to larger sources of renewable heat. The, part grant funded, community heating scheme at Glenshellach is a good example of a successful biomass district heating scheme ¹².

Low carbon sources of electricity

In addition technologies such as small scale wind turbines and PV can provide renewable sources of electricity to individual homes. In the case of PV this is the most expensive of the small scale renewable energy technologies and in the case of small scale wind there are important site selection issues to take into account.

Unlike the low carbon heat technologies there is the potential to generate more electricity than is needed for the individual home. Exporting this excess is increasingly practical and has an added financial bonus of attracting Renewable Obligation Certificates or the forthcoming Feed In Tariff.

Renewable Energy and Fuel Poverty

The Scottish Government launched a two-year pilot study in 2006 to explore the potential of renewable energy technology options for heating in a variety of domestic settings. The aim was to assess how renewable energy systems performed to assess their potential for inclusion in the mainstream Central Heating Programme.

A final report, The Scottish Renewables Heating Pilot, was published in November 2008 ¹⁹. This report includes an updated assessment of system performance. The key findings include:

• Almost nine in ten householders were either fairly or very satisfied with the new renewable system installed.
• 170 installations were initially planned, but due to higher than expected costs the final number of installations was 87. The average cost of a fully installed Air Source Heat Pump ( ASHP) in the pilot was £10,500 while the average cost for a fully installed Ground Source Heat Pump ( GSHP) was £17,240. It is estimated that in the near future, costs per installation for bulk installations will be £9,000 and £14,500, respectively.
• The installation of renewable central heating systems improved NHER scores in all households. After installation of renewable technologies and Warm Deal insulation measures, the average NHER score was 5.5. This is only slightly below the national average of 6.1 and a significant improvement on the average NHER score of 2.8 prior to installation.
• NHER-based projections suggest that, before improvements, pilot households emitted on average 11.7 tonnes of carbon per year. The installation of renewable heating systems and Warm Deal measures was projected to reduce this to an average of 4.9 tonnes, a better than projected outcome than for oil and Warm Deal measures or electric storage and Warm Deal measures.

As a result ASHP is not offered support as part of the EAP.

Building renewables in from the start

It is important to note that the cost of domestic renewable technologies is considerably reduced if they are installed at the new-build stage. If major house builders were to take forward the option of micro-renewables for most new homes, the market could achieve a significant transformation. A tightening of building regulations, as recommended in the Sullivan Report, would take the energy standards to a level where it would be difficult and expensive to comply without using low carbon equipment.

Feed in Tariffs for Microgeneration

A new system of support for small scale renewable electricity generation is being developed to replace the RO for smaller generators. The new Feed In tariff will provide a fixed payment for the electrical output. Eligible generators will be:

• Up to 5 MW for renewable energy projects
• Up to 50 kW for natural gas fired CHP

The powers to implement the Feed In tariff are included in the Energy Act 2008. The level for the tariff itself will be decided following a consultation on the detailed arrangements for how the tariff will operate.

This should provide a simpler and more certain form of revenue support for smaller generators in individual homes as well as community scale schemes (serving many homes and public buildings).

Further improvements to building regulations for new homes

While the energy used by new homes is a small proportion of the sector's energy consumption in any given year, the performance of new homes will have a more significant influence on total long term energy use in the domestic sector.

In 2007 the Scottish Government appointed an expert panel to recommend measures to improve the energy performance of houses and buildings in Scotland. The resulting Sullivan report made 56 recommendations, the majority of which are within the remit of the Scottish Building Standards. These include:

• Staged increases in energy standards in 2010 and 2013 to substantially reduce carbon emissions from new buildings.
• The aim of net zero carbon emissions for space heating, hot water, lighting and ventilation within the next 10 years, if practical.
• The ambition of total-life zero carbon buildings by 2030.
• Consideration of zero fees for building warrant applications where new buildings are to be significantly above the current energy standards.

A review of energy standards is currently in progress for revised standards for 2010.

Zero stamp duty

Zero stamp duty is now available for new zero carbon homes. EPCs will be used to determine which homes qualify and the incentive will apply at the first point of sale only. New zero carbon homes costing less than £500,000 are exempt from stamp duty, while for homes worth more that £500,000 the tax liability will be reduced by £15,000.

This incentive is in place for 5 years after which a review of the scheme will be undertaken.

Because of the progressive increase in stamp duty rates for more expensive homes, this measure is more likely to be an incentive for investment in zero carbon solutions for these more expensive properties.

Growing numbers of small households boost energy use

Scotland has about 2.3 million households, who individually use a fairly modest amount of energy, but this is increasing. UK energy use by households increased by 12% between 1990 and 2006 ²¹ - similar to the Scottish increase of 16%. Due to changes in society, the average household size has fallen in recent years and is projected to decrease by an average of 1% each year to 2031 ²². Domestic energy use per person decreases dramatically as the number of people in a household increases. As has been pointed out ²⁰, in theory, an energy saving of 60% could be achieved for all one-person households simply by moving individuals to create five-person households. This barrier is probably best addressed by encouraging the provision of efficient housing and appliances for single people and small households.

Raising the awareness of five million consumers is a barrier

The sheer number of energy users in the domestic sector presents a significant barrier to improving energy efficiency. Changing the behaviour of 5 million people is challenging. Although consumers are increasingly aware of climate change they find it difficult to relate this to a need to change their own behaviour. With recent increases in gas and electricity costs, however, there is an indication that understanding of real energy costs is growing and knowledge of energy efficiency cost saving measures is improving.

Attitudes

The attitudes to saving energy will differ from person to person. To help understand the spectrum of attitudes Defra produced a population segmentation model. This classifies attitudes to pro-environmental behaviour using seven different segments, see Figure 12. The seven segments are classified by their:

• Willingness to Act
• Ability to Act

The focus of the analysis was on attitudes to climate change - including attitudes to energy efficiency.

This suggests that two groups are already willing and able to act. As these groups represent 32% of the population there appears to be a significant audience who can readily be influenced.

Targeting consumers

The EST uses a 10 segment model to inform the development and delivery of the programmes and advice that the EST provides to households, including the ESSAC network. The 10 segments are:

• Environmentally Mature
• Educated Advocates
• Discerning Elders
• Comfortable Conservatives
• Britain Today
• Restful Retirement
• Driving Dependency
• Financial Burdened
• Ethnic Tradition
• Environmentally Indifferent

Geographical data is available on how these households in each segment are distributed at local ward level. This is used to target local campaigns ( e.g. mailings) using the most appropriate messages and offers of support for the segments in each locality.

Figure 13 shows the breakdown of Scotland's population by the EST segmentation model. The most significant feature is that over a third of the population is viewed as being "Environmentally Indifferent". However the groups with higher awareness and motivation on environmental issues also have higher energy use in their homes and travel more. From this two conclusions emerge:

• Initial focus of campaigns should be on the population segments that are already environmentally aware and have motivation to change, e.g. those viewed as "Environmentally Mature". This approach is backed up by the higher level of energy use in the homes of these population segments.
• In the long term the awareness and attitudes of the largest group, the Environmentally Indifferent, will need to be addressed.

Tenements and flats need special approaches

As noted earlier, Scotland has a significant proportion of multi-tenured flats and also tenements. Traditionally for repairs to be carried out to particular parts of these buildings, it has been necessary for all tenants to agree on the action: which can present a major barrier to improving energy efficiency. Although The Tenements (Scotland) Act 2004 has significantly removed this barrier to repairs, however it does not apply to improvements, such as energy efficiency measures.

New measures are being considered by the Scottish Government under efforts to implement the Housing (Scotland) Act 2006 to assist owners maintain the fabric of their properties. These include more and better information and advice to owners, more targeted use of grants and the introduction of new, flexible lending options e.g. Home Appreciation Loans ( HAL), which allow for an owner to borrow money and repay through the eventual sale of their property. Because the HAL does not require repayment from income, it means many low income homeowners can potentially access affordable credit to fund works (including certain activities to improve energy efficiency) to their properties. Access to assistance under the Act will be through each local authority in line with its public Section 72 Statement of Assistance and it will be for each authority to determine its priorities within its resources.

Landlords have little incentive to make properties more efficient

The Scottish Housing Condition Survey has highlighted that private rented accommodation is the least energy efficient compared to homes in other forms of tenure.

As in the services sector, the landlord-tenant relationship presents a barrier to improving the energy efficiency of rented accommodation. If the landlord spends money on improving the efficiency of his property, the tenant reaps the benefits in terms of lower fuel bills. The only incentives for the landlord occur if his improvements enable him to achieve a higher rent, or make the property easier to rent. Neither of these is by any means certain, however, the requirement for Energy Performance Certificates will help to raise the profile of this issue, particularly in the context of higher energy prices.

The Landlords Energy Saving Allowance ( LESA) was introduced to encourage landlords to improve the efficiency of their buildings and has been progressively expanded in subsequent Budgets since its introduction.

The cost of multiple occupancy licences could be reduced for implementation of energy efficiency measures.

The Energy Saving Scotland - Small Business Loans scheme is a potential route to allow landlords, as small businesses, to borrow money to implement energy efficiency measures.

Landlords and agents accredited by Landlord Accreditation Scotland, a national scheme, are required to meet standards, including one that relates to energy efficiency, insulation and heating.

Teleworking: more domestic use, less transport

Indications are that teleworking and home working are increasing, 9% in 2002 and 13.5% ²⁴ in 2006. It is likely that this will increase domestic energy use and cut transport use. Reductions in travel demand could be up to 11% ²⁴ in Scotland if fully realised, although at present the total effects are likely to be relatively small.

Contractors don't have efficiency at the top of their agenda

Building contractors can introduce barriers to the use of energy efficient technologies. A well reported example from the past, was a reluctance over installation of condensing boilers. This specific issue is being addressed by tighter building regulations, which require high efficiency, condensing boilers. However, it is still the case that householders' first action when improving their homes is often to contact an architect, builder, etc. If the contractor does not place a focus on energy, the householder won't achieve as efficient a home as they might.

A programme of working with, and educating, contractors could help improve this. This barrier also applies to small and micro scale renewable energy technologies: many contractors are relatively unfamiliar with these. It would be unfortunate if the public's first experience of these opportunities was adversely influenced by inexperienced companies.

The Microgeneration Certification Scheme ( MCS) has been set up to provide standards for manufacturers and installers of microgeneration systems. For applications for grants under the SCHRI scheme, MCS registration is required as a condition of funding.

Few UK appliance & lighting manufacturers - so harder to influence production

The greatest domestic energy growth area is in appliances and lighting. These are traded goods subject to international standards for performance and labelling, e.g.EU Energy Labels. Hence there are limited opportunities for the Scottish Government to influence manufacturers.

This is symptomatic of the fact that although housing and the promotion of energy efficiency are devolved matters, some of the instruments which influence domestic energy use are either reserved, ( e.g. the Treasury) or need to take place at an international (often EU) level.

This said there are opportunities to use these standards - e.g. to focus grant support schemes on the most efficient products.

Increasing car use

Car use continues to grow year on year. To an extent this is driven by the perceived inconvenience of using public transport. As of 2007, 70% of Scottish households had one or more vehicles for private use, with higher percentages (88%) in accessible rural areas, as opposed to large urban areas (60%). In the Scottish Household Survey of 2007, public transport was described as "very or fairly convenient" by 87% of adults in large urban areas, but by only 53% of those living in "remote" rural areas ³². This is evident in commuting behaviour: although 69% of commuters said that they usually travelled to work by car or van, this percentage was between 73% and 84% for rural areas and 59% for large urban areas ³³. However it is worth bearing in mind that almost half of those who currently drive to work said they could take public transport, particularly in the cities.

A Large Group to Influence

There are 2.6 million private vehicles registered in Scotland ³⁴. Hence reaching the owners and users of these vehicles is potentially a significant task. However the dominance of road transport means that the decisions of this large group must be influenced. The choices that could be influenced include:

• Choosing not to travel - working from home.
• Choosing how to travel - using alternatives, walking, cycling or public transport.
• Choosing improved vehicles - with higher fuel efficiency and lower emissions per kilometre.

Promotion of advice on sustainable transport options is now part of the scope of the Energy Saving Scotland Advice Centres ( ESSACs). The ESSACs run marketing initiatives on energy saving in the home and are well placed to use their existing marketing channels to reach private motorists. It is key to the success of influencing behaviour that all the relevant actors work together effectively particularly as Government is often the principal provider of funding.

Changing the composition of the private vehicle fleet is a medium term proposition. As new registrations are around 250,000 a year ³⁴, the fleet could turnover in around 10 years.

Driving Dependency

There is a link between newer housing developments and increased private vehicle use. This characteristic led the Energy Saving Trust ( EST) to name one of their domestic sector market segments as "Driving Dependency" due to some areas being more dependent on private vehicle use. These in general are young sharers or couples living in new houses in private estates, who see the car as the only way to get around. For this group their cars are seen as a lifeline. Almost all trips away from the house involve a vehicle, whether going to work, doing the shopping, or visiting friends and relations.

The circumstances of this group show that there are limited alternative transport options. Hence programmes to encourage change in transport must take into account the different circumstances of different localities and groups.

Congestion: a growing problem

At certain times of the day, congestion is a real problem on a number of Scotland's key roads. For example a number of stretches of road ( e.g. the Forth Road Bridge and the Kingston Bridge) operate at maximum capacity at peak times - which extends the period of congestion. Transport levels are growing and congestion, without intervention, will be an increasing problem in Scotland ³⁵. Scottish Household Survey data show that congestion is perceived to be a growing problem with over 12% of journeys delayed through congestion in 2005/06. ³⁶

Transport Investment Plan

On 10 ^th December 2008, Scottish ministers revealed a multi-billion pound transport blueprint to support the growth of Scotland's economy.

The details were announced in the Strategic Transport Projects Review ( STPR), which sets out the future investment programme for transport in Scotland over the next 20 years. The STPR is the first nationwide, multi-modal, evidence based appraisal of Scotland's current transport system now and as forecast over the next 20 years.

29 major transport investment priorities across Scotland have been identified as supporting the future growth of Scotland's businesses and communities. These include major road and rail projects. The STRP provides full details of these.

There are a number of projects ( e.g. major rail and cross-rail improvements), which will increase low carbon transport options. For other projects, such as easing congestion and major road upgrades, the carbon benefits are less evident.

The scale of the impact on CO ₂ emissions of each project has been considered as part of the environmental assessment.

Road haulage

Road haulage accounts for significant energy use, however the amount of goods lifted in 2007 was only 16% greater than that recorded 10 years previously ³⁷. In 2007, around 164.3 million tonnes of goods were lifted within Scotland and transported to destinations within Scotland ³⁷. This is a very competitive industry and hence fuel costs make a significant impact on the bottom line. About 16.9 million tonnes of goods from Scotland were delivered to destinations elsewhere in the UK, and around 22.5 million tonnes were brought into Scotland from elsewhere in the UK³⁷. In comparison, the volume of international traffic is very small: under 1 million tonnes in 2007 ³⁷. Most road freight journeys in Scotland were less than 50 km ³⁸. The road haulage sector is under considerable pressure, which it considers arises from the combination of generally increasing fuel prices and higher UK fuel taxation than in Europe, together with the Working Time Directive/Road Transport Directive (which limits the hours drivers can work, and hence their earnings).

Food - travelling further

With most goods now routed through supermarket regional distribution centres, even food that could be sourced locally is now travelling further ³⁹. Supermarkets have responded to consumer demand and other drivers to deliver a wider variety of food all year round. Since 1978, the annual amount of food moved in the UK by HGV has increased by 23%, and the average distance for each trip has increased by over 50% ³⁹.

Low cost flights and tourism

The introduction of low cost air travel has changes the number and type of flights being taken.

For example, in the 11 years from 1997 to 2007, Prestwick airport has seen a greater than four-fold increase in passenger numbers ⁴⁰. From 567,000 passengers in 1997 to more than 2.4 million passengers in 2007, this passenger growth can be attributed almost entirely to Ryanair. The large growth figures for Prestwick suggests that low cost air travel contributes to increasing passenger numbers and therefore fuel use and CO ₂ emissions.

Increasing air travel, however, brings associated economic benefits for a number of industries, including hotels and the wider tourism industry. Low cost airlines carry a significant share of air passengers ⁴¹, and therefore provide a boost to the economy.

Biofuels

One route to reduce the CO ₂ impact of transport is to develop and use fuel based on plant material, biofuels. By using renewable, rather than fossil, sources the use of biofuels offers a route to cut CO ₂ without major changes in vehicle fleets, or investment in infrastructure for alternative transport modes.

Biofuels have been proposed as a solution to key global issues. This has led to generous subsidies to help increase supply. In 2003, the European Union agreed the Biofuels Directive ⁴², under which Member States agreed to set targets for biofuels use and promote their uptake. However, there is now increasing awareness of, and concern about, the role of biofuels in rising food prices, accelerating deforestation and doubts about the environmental benefits. This has led to serious questions about their sustainability and campaigning against higher targets.

The Gallagher Review

As a result of these growing concerns, in February 2008, the UK Secretary of State for Transport, Ruth Kelly, invited the Renewable Fuels Agency to undertake a Review of the Indirect Effects of Biofuels. This resulted in the Gallagher review ⁴³, whose key recommendation to slow the targets for biofuels was accepted by the UK Government and consulted upon. As a result, changes to the UK legislation (the Renewable Transport Fuel Obligation) ( RTFO) mean there will now be a more cautious rate of increase in the UK (to 5% by 2013-14).

The key points arising from the Gallagher review are summarised below:

• A slowdown in the growth of biofuels is needed ⁴⁴.
• There is probably sufficient land for food, feed and biofuels although this will need further investigation going forward from 2020.
• Biofuels production must target idle and marginal land and use of wastes and residues. Policies must be focused on using such land, wastes and residues.
• Specific incentives must stimulate advanced technology. Advanced technologies have the potential to produce biofuels with higher greenhouse gas savings and have the benefit of being able to use a wider range of feedstocks.
• Biofuels contribute to rising food prices that adversely affect the poorest in the world.
• A genuinely sustainable industry is possible.
• Lower targets and stronger controls are needed.
• Stronger, enforced global policies are needed to prevent deforestation.

Further amendments to UK law will arise from transposition of both the Renewable Energy Directive, which has a 10% (by energy) target for transport by 2020, and the Fuel Quality Directive, which has a 6% target for reduction of GHGs (with a further 4% possible following a scheduled review of the impacts.

Prioritising the Opportunities

The delivery of demand side measures ( e.g. car sharing schemes) can be cheaper and quicker to introduce when compared to supply side measures ( e.g. the introduction of low carbon vehicles). It is therefore important to plan demand side and supply side in parallel to maximise energy efficiency and carbon savings.

This logic applies to the private vehicle fleet and commercial vehicle fleets, however some measures will be easier for smaller number of fleet operators to adopt, compared to the 2 million private motorists in Scotland.

Demand Reduction Opportunities

The Committee on Climate Change highlights the following types of demand reduction opportunity:

• Changes in driver behaviour: 'eco-driving' and effectively enforcing speed limits
• Modal shift to less carbon intensive transport
• Better journey planning
• Network access, land use and planning

Eco Driving

Fuel use can be significantly reduced by adopting a smoother style of driving, with less aggressive use of accelerator and brake, even without reducing average or maximum speeds.

The Energy Saving Trust has launched an ecodrive Scotland website ⁴⁵, which provides information and advice for drivers on how to improve fuel efficiency when driving.

Correct tyre pressure, the removal of unnecessary weight, removing roof racks and the intelligent use of heating and air conditioning systems can also have an appreciable impact. Evidence suggests that average fuel efficiency can be improved by up to 15% ⁴⁶ when the range of eco-driving principles are adopted together.

Fleet Training

Increased staff training can improve the fuel consumption of employees driving, both on company business and in their own time. For example, the Scottish Government's SAFED^{47 48} initiative, which was funded from the Scottish Road Haulage Modernisation Fund and promoted safe and fuel efficient driving to HGV drivers in Scotland, showed fuel savings of 10%.

Speed Limits

Fuel efficiency falls significantly as car, van or HGV speeds are pushed above optimal levels. Reducing car speed from 100 km/h to 80km/h can save 21% ⁴⁹ on CO ₂ emissions. The Committee on Climate Change estimated that enforcing the existing speed limit would produce annual UK emissions reductions of over 3 MtCO ₂ in 2020.

The Committee on Climate Change estimated UK savings from reducing the speed limit to 60 mph on motorways and A roads as an additional 2 MtCO ₂ emissions reduction in 2020. However, different numbers of people speeding in Scotland, combined with different average speeds, make the impact of such a policy in Scotland less certain. The Scottish Government are therefore undertaking a Scottish specific appraisal of stricter adherence to speed limits on trunk roads and motorways to identify the potential benefits.

Modal Shift

Supporting modal shift requires a combination of:

• Suitable alternatives to be in place
• Affordable alternatives to be in place
• Information and support to enable and encourage the shift to take place.

A number of measures can directly, or indirectly, support modal shift. These include:

• Travel plans.
• Travel information
• Tele-working
• Punctuality Improvement Partnerships ( PIP) and Quality Partnerships ⁵⁰.

PIP are agreements between bus operators and local authorities designed to improve reliability of services and journey times. Quality Partnerships are statutory schemes where local authorities invest in infrastructure in a defined area and in return for using the infrastructure bus operators need to satisfy specific quality standards in relation to services and vehicles.

Travel Plans

Many organisations are aware of travel issues, triggered by recent high fuel costs and from assessing their carbon footprint.

Travel plans can reduce commuting travel and business travel, through car sharing, video and tele conferencing, use of alternative travel modes and lift sharing. Examples include:

• Scottish & Southern Energy, Perth - Cycle to Work scheme
• PWC, Edinburgh - providing showers, changing facilities and cycle parking

The EST offers organisations with more than 50 employees and/or 10,000 visitors per year free travel plan advice from an experienced consultant. Organisations with less than 50 employees and/or 10,000 visitors per year can obtain free advice over the phone.

Personalised travel planning, where travel advisors visit residents to provide tailored advice on alternatives to the car for specific commuting and leisure journeys, has been shown to be effective in encouraging a shift from car use to public transport and non-motorised travel modes ⁵¹.

Smarter Choices, Smarter Places is a Scottish Government partnership project with CoSLA. Designed to increase active travel and public transport use and tackle transport emissions, it will contribute to a number of objectives in the Scottish Government's National Performance Framework, and Local Authorities' Single Outcome Agreements ⁵².

Teleworking

As part of Travel Plans, increasing teleworking has the potential to reduce transport use, albeit at the potential cost of increasing energy use to heat the home. Currently about 11.5% ⁵³ of Scotland's workforce works from home.

Traveline Scotland

The Traveline service provides information on public transport routes and timetables. This can be accessed by:

• Phone helpline (0871 200 2233)
• Web page ( www.travelinescotland.com)
• By mobile text message ( SMS)

A wide range of information is available, including:

• Route and timetable information
• Next arrivals at specific bus stops - via web and text messages
• Routes that have bike carrying facilities
• Service disruptions & events
• A Batch journey planning tool which can be used to aid assessment of the transport options as part of the planning process for existing and new development.

The use of this service can be incorporated into travel plans. Additionally, a number of travel information services are available:

Traffic Scotland ( http://www.trafficscotland.org),

Freight Scotland ( http://www.freightscotland.org) and

Transport Direct ( http://www.transportdirect.info)

These are existing tools to influence demand on the strategic road network and to encourage modal shift. The services are well used but given the significant scale of the challenge, there should be a strong drive to ensure high awareness of these services amongst the Scottish public.

Increasing walking

In 2007 about 53% (down from 55% in 1999) of school children walked to school ⁵⁴. There are opportunities to increase this and some schools are introducing "Walking Buses", encouraging schoolchildren to walk to school in organised, parent supervised, groups as an alternative to the school run.

Funding to Sustrans has enabled schools to develop School Travel Plans. Since their introduction in 2004, 75% of Scottish schools are now working on, or are implementing, a School Travel Plan ⁵⁵.

And getting on your bike…

At present about a third of Scots households have one or more bicycles ⁵⁶ - a considerably lower proportion than own cars. Yet cycling has many benefits beyond reduced energy consumption: it can increase health and well-being. There are a range of initiatives which promote cycling in Scotland, ranging from the creation of a National Cycle Network, local traffic free paths, safe routes to school and the Inland Revenue's tax concessions that allow the cheaper purchase of bikes by employees of companies/organisations which introduce the Bike to Work scheme.

Journey Planning

Increased uptake in satellite navigation equipment can result in reductions to journey length, as the software plans the most efficient route, avoids congested roads and reduces the chances of getting lost. There can, however, be issues with such equipment not being suitable for HGV use, i.e. satellite navigation equipment can recommend inappropriate routes for HGVs.

Transport access, land use and planning

There will be demand reduction opportunities in addition to those set out above, which could be achieved through a range of levers including changes to transport access and land use planning. These could potentially result in deep emissions cuts. Examples ⁵⁷ of potentially beneficial policies include:

• All significant new development should be accessible by public transport
• Sites with the best public transport accessibility should, wherever possible, be reserved for uses (or densities) that generate a high level of trips
• New development should not have an adverse impact on existing or future public transport operations
• Developers should fund any enhancements to the public transport network made necessary by a development proposal
• Significant development should be accompanied by a travel plan

The design and layout of a development should maximise the potential for public transport use and should give non-car modes priority over the car

Transport and Planning

Although some transport issues in Scotland are reserved matters, many measures are devolved, of which land use planning is an important one.

Public transport is seen as the key to alleviating and reducing city congestion. Incorporating public transport considerations into the planning of large developments, such as offices and retail parks, could help reduce the requirement for private car ownership. Having a range of services close together reduces the need to travel. Improvements in public transport facilities, such as improvements to the Edinburgh to Inverness train line, the tram system for Edinburgh, a new rail/tram interchange to connect passengers to Edinburgh airport and the train link to Glasgow airport, will provide a more integrated public transport network.

A number of extensions to the rail network have been implemented or are proposed, such as the Edinburgh to Glasgow Rail Improvements Programme, the Stirling- Alloa - Kincardine line and the Airdrie Bathgate line. In May 2008 the Stirling-Alloa-Kincardine railway line was opened to passenger trains and passenger numbers have already exceeded expectations ⁵⁸.

Integrated transport

Integrated transport systems offer considerable potential to make efficient public transport attractive to users. Park and Ride (and Park and Choose) systems for example allow the public to use their cars to access local bus, underground or rail networks. Similarly, where different modes of public transport exist, integrating them in terms of timetables, ticketing and fares can improve journey times, reduce barriers to use and reduce transfer times between modes, encouraging modal shift.

Packaging

Reducing volumes of packaging can reduce the level of transport required to transport goods. Cutting packaging weight also reduces the fuel required: the whisky industry, for example, has taken action here, cutting bottle weight. Through the Courtauld Commitment, WRAP Scotland is also working with retailers and manufacturers to develop innovative solutions to reduce packaging. One of the original Courtauld targets - to halt the growth in packaging - has already been met. WRAP and the signatories are now looking at the potential to focus future efforts on carbon-based , rather than purely weight-based, targets.

Backhauling - avoiding empty lorries

"Backhauling" enables companies to cut the number of journeys needed: by working in partnership this means that after a delivery has been made, different goods are carried on the return journey, rather than just returning with an empty van. The National Industrial Symbiosis Programme helps to identify backhauling opportunities.

Pallet networks are also currently in operation in Scotland. These are road-based freight-industry led networks, which have emerged in response to customer demands and the competition within the freight market. Networks operate on a hub and spoke basis, with most of the work carried out during the night ⁵⁹.

Collaborative initiatives also exist, one such initiative run through the Institute of Grocery Distribution and Boots was to increase the efficiency of deliveries in the Wick / Inverness area. The scheme was anticipated to cut approximately 6,000 lorry miles a week ⁵⁹.

Green Fleet Reviews

For organisations with fleets over 20 vehicles the Scottish Government funds free fleet reviews. These provide tailored advice on how to reduce running costs and environmental impact. This tailored support complements the telephone advice and e-bulletin service that is available to all fleet operators.

Travel plans advice and fleet reviews are provided for the Scottish Government by the EST and are promoted via the Energy Saving Scotland advice centres. Guidance is also provided online via www.chooseanotherway.com.

Improving Air Quality

Reducing use of vehicles will improve local air quality and hence the impact of poor air quality on human health. This benefit will be greatest in urban areas where the levels of pollutants are highest.

Funding is available from the Scottish Government to retrofit local authority vehicles with emissions reduction technology. The primary aim of this scheme is to improve local air quality. From April 2009 the scope of this scheme has been widened to also include as eligible for potential funding any measure that could be included in a local authority air quality action plan.

Scottish Transport Act

The Scottish Transport Act received royal assent on the 14 ^th of March 2007. Although energy is not a focus of the Act, it may offer opportunities to influence energy use.

Supply Side Opportunities

The largest element of transport energy use is for road transport. The UK Committee on Climate Change ( CCC) undertook an analysis of abatement potential for road transport using 2 different perspectives, a social one ( UK Treasury discount rates) and a private driver perspective (higher discount rates). The Abatement Cost Curve using the social perspective is shown in Figure 19.

Supply Side Savings

The Abatement Curve in Figure 19 shows that there is the technical potential for savings of 18.5 MTCO₂, against a UK baseline projection of 75 MTCO₂ for the UK road transport sector in 2020.

Around 4.5 MtCO ₂ of savings are possible using measures that cost less than £40/tCO ₂, i.e. below the carbon price projected by the CCC. Key observations include:

• The uptake of plug-in hybrid and electric models of large, medium and small cars could play a key role in reducing emissions from road transport.
• The curve indicates that use of biofuels (shown in green) could also play a significant role in reducing transport sector emissions. However, further research is required to understand the indirect effects of biofuels, before this option can be used more intensively ⁶¹.
• The greatest savings potential shown are from technologies that could be applied to cars, not vans or HGVs. However many of the measures for cars have a cost above £40/tCO ₂, whilst many of those for LGVs and HGVs represent a net benefit to society.

The UK abatement curve shows some key priorities that will hold true for the Scottish road transport stock - assuming that the Scottish fleet of private cars follows UK trends.

Careful Phasing

In the case of the UK and in Scotland the main supply side measure is to switch to plug in hybrid and electric cars. Benefits are maximised when electricity comes from renewables, but with the current mix it is still sensible. The increase in renewable energy generation and the potential of coal generation with carbon capture are key to the reduction of emissions from electricity generation. Predicting the timescale for this, and hence when to encourage the switch over, is difficult.

In the shorter term benefits will be realised from demand side measures. However, emphasis on longer-term interventions that may have significant impact on emissions should also be taken forward as a package.

Improved car efficiency

Improvements to vehicle design have the potential to result in considerably reduced CO ₂ emissions. Modern petrol and diesel engines, and innovative technologies ( e.g. stop-start, micro-hybrid technologies. etc) mean that cars are significantly more fuel efficient than designs of a few years ago. Much of the recent improvements in fuel efficiency are related to the voluntary agreement between the European Commission and the auto industry - a commitment was made in 1998 to reduce fleet-weighted average emissions to 140gCO ₂/km by 2008/09.

Whilst there have been steady improvements in CO ₂ performance, it was recognised by the EU that this voluntary target was unlikely to be met and as a result these targets have now been adopted into legislation (with some phased introduction between 2012 & 2015) by means of an EU regulation. In December 2007, the European Commission adopted a proposal for legislation for a mandatory successor to the voluntary agreement, with a target of 120 gCO ₂/km sales weighted average new car emissions for the EU by 2012 and 95 gCO ₂/km by 2020. This target is to be achieved through:

• A mandatory objective of 130 gCO ₂/km for the EU-average new car fleet through improvements in vehicle motor technology.
• Additional specific measures (including non-powertrain technologies such as low rolling resistance tyres) and use of biofuels contributing 10 gCO ₂/km. These could apply to vans as well as cars.

New Vehicle Technology

As discussed above, plug-in and battery electric vehicle technology could play an important role in reducing GHG emissions from the transport sector. There are already electric vehicles commercially available and more planned. A key issue is provision of charging infrastructure and incentivising their introduction and use - to deliver the economies of scale that could reduce the cost differential that currently applies on many electric vehicles.

In the future, fuel cell vehicles are a potentially exciting prospect if a low carbon route is used to generate the hydrogen. However this will place considerable demands on the infrastructure required to service it.

As a result of the introduction of the 2020 transport target within the Renewable Energy Directive, it is possible that both renewable electricity and hydrogen could contribute to meeting the target, although this would require significant investment to drive their use.

The provision of car energy labelling will enable those buying new cars to make more informed choices about the efficiency of their next vehicle.

As the private car fleet will turnover in around 10 years, it is possible that over the next decade the number of vehicles with improved efficiency or new technology will increase significantly.

A further EU directive on the procurement of cleaner and more efficient vehicles by the public sector, will introduce a requirement for the public sector (and their contracted transport service companies) to consider the environmental impact of the vehicles procured. This drive towards sustainable procurement practices will support other measures to achieve efficiency.

Greener cars

A number of classes of lower energy lower emissions cars are now available including "city" cars and hybrids. Small "city" cars can be very fuel efficient, but in the past have perhaps not been considered very desirable by many status conscious drivers (as seen by concerns at Daimler with the Smart car ⁶²).

There has been a marked increase in the number of registrations of alternatively fuelled vehicles. From ~4,000 in 2004, there were more than 16,000 in 2007 (16,000 were petrol/electric vehicles) but this was still only equivalent to 0.7% of the total UK market ⁶³.

Cars in general are becoming more efficient, with the average CO ₂ emissions of new cars in the UK reducing by 15% between 2000 and 2009 ⁶³. 'Superminis' have increased their share of new registrations. Between 1998 and 2007 the UK market share increased from 25% to 33%. However, in the same period there has been a significant increase in the number of SUVs, 4x4s and multi purpose vehicles. The combined UK market share for these vehicles has increase from 7.5% in 1998 to 13% in 2007 ⁶³.

Support for Radical Change

The introduction of more radical changes in vehicle technology may not be as rapid. Hence when plug in hybrid electric vehicles are introduced there is likely to be a need for government support to help create a viable market. The next generation of electric and hybrid cars could initially cost as much as double the cost of standard cars ⁶⁴, but could potentially have lower lifecycle costs. In order to create a viable market, and until manufacturing costs reduce, it will therefore be essential ⁶⁴ to provide financial incentives to buy an electric or hybrid car instead of a standard car. The government will also need to support the development of the infrastructure (charging points) necessary to support such technology. The support given to introduce LPG fuel supply and to convert vehicles is a relevant example.

In recognition of the need for support, the UK Government launched ⁶⁵ on the 16 ^th April 2009 the Government's vision to promote ultra low carbon transport over the next five years.

Central to the strategy is an initiative to help put electric cars into the reach of ordinary motorists by providing help worth £2000 - £5000 towards buying the first electric and plug in hybrid cars when they become available, probably from 2011 onwards.

This funding is included in a £250 million scheme to deliver a green motoring transformation, part of wider Government support to help consumers and businesses make the transition to low carbon economy.

Reserved Matters

Many instruments for reducing vehicle use are reserved to Westminster.

Taxation can be an effective instrument for influencing behaviour, but neither fuel nor car tax options are available to Scottish ministers, as those are reserved matters. Moreover, the populace, particularly in rural areas where there are few alternatives, would view increases in Vehicle Excise Duty very negatively. It could also impact on small business users, who have no control on fuel prices and, unlike fleet operators, cannot bulk buy fuel.

There is anecdotal evidence ⁶⁶ to suggest that the fuel price rises of 2008, coupled with the economic slowdown in 2008, have had some impact on car usage and been the instigators of significant change. Car sharing and public transport use increased in the year to July 2008 ⁶⁶.

Rural Issues

Managing transport efficiently in rural Scotland is a challenge. Whereas the higher population densities of the towns and cities mean the provision of public transport is more commercially viable, in rural areas the level of demand is less and so it is not practical to run public transport at the same frequency. This lack of availability is reflected in the greater incidence of private car ownership in rural areas ⁶⁷.

Personal Expectations - an emotive issue

As a society we have grown used to having access to private vehicles, and being able to drive where they want, when they want. Research on the impact or Traveline Scotland shows that this is sometimes the case even after advice on public transport has been sought and provided ⁶⁸.

Public Transport at Night

There is perhaps an inaccurate perception that public transport can be unsafe to use in the evening, particularly among the elderly. This is borne out in the Scottish Household Survey 2007 ⁶⁹. Of those who use buses in the evening, 80% felt safe, whereas only 47% of those who don't use buses in the evening would feel safe using them. In particular, of those who don't use the bus in the evening and are aged 75 or over, only 31% would feel safe using the bus. These statistics are similar for users and non-users of evening trains. Of those who do use public transport in the evening, the feeling of safety varies little between age categories (with the exception of those aged 75 and over). This perception, even if inaccurate can be a real barrier to public transport use, even when it is fast and frequent.

Past Regulation

A number of important regulatory schemes have been introduced that require or encourage energy savings. These include:

• Integrated Pollution, Prevention & Control ( IPPC), from 2000 the permits used by SEPA under the IPPC Directive require installations to be energy efficient. Installations that are part of a CCA are expected to achieve IPPC's energy efficiency requirements by that means, although individual installations may fall short of specific requirements.
• Climate Change Levy ( CCL), introduced in 2001, applies to all businesses, increasing the cost of energy and hence providing a stimulus to reduce costs.
• Climate Change Agreements ( CCA), introduced in 2001, apply to large energy intensive industry, who can obtain a CCL discount if they meet bi-annual energy saving targets.
• UK Emissions Trading Scheme ( UKETS) ran from April 2002 until Dec 2006, this was an incentive based scheme designed to act as a pilot to test out emissions trading in the UK.
• EU Emissions Trading Scheme ( EUETS), phase 1 commenced in April 2005 and ran to March 2008. This used a cap and trade approach to address emissions in the power sector and in large industrial sites.
• EU Emissions Trading Scheme ( EUETS), phase 2 commenced in Jan 2008 and will run to Dec 2012. Similar to Phase 1, but with additional sectors ( e.g. flaring offshore installations).

The increase in regulation and hence the need to manage the issues associated with this regulation has increased awareness of energy issues at more senior levels within industry.

Future Regulation

From 2010, the Carbon Reduction Commitment Scheme ( CRC) will apply mandatory emissions trading to cut carbon emissions from medium to large organisations not already included in CCA or the EU Emissions trading Scheme. Hence the CRC will provide incentives for these organisations to save money through energy efficiency.

The CRC will apply to organisations whose use of half hourly metered electricity is more than 6,000 MWh pa. This is expected to apply to around 5,000 organisations in the UK. The CRC will begin on April 2010, starting with a footprint year where data on energy sources will be collected and a Footprint report submitted. This will be followed by an introductory period when allowances will be sold at a fixed price. From 2013 the CRC will operate as a cap and trade scheme. Revenues will be recycled to participants, with amounts in proportion to the emissions reduction made by the participant.

Supplier Demands

Supermarkets are a powerful player in the food supply chain, and can often require changes to product lines at short notice. This can lead to a reduction in the length of time energy saving measures are relevant, accentuating a focus on short term opportunities for improvement.

One way of addressing this would be to promote the benefits of planning ahead to reduce unnecessary downtime and include energy efficiency measures as a standard part of new process line testing, where appropriate.

Supermarket chains are increasingly taking up energy & environmental initiatives, as they see this as an important issue for their customers. This includes focusing on the environmental performance of their suppliers as part of these initiatives. Supermarkets are also working on collaborative initiatives, particularly with regard to the supply chain and transport efficiency measures.

Hygiene

Complying with legislation concerning product quality and hygiene can increase the energy required to produce a product, e.g.EU specifications concerning certain heat treatments instead of chemical treatment.

Traditional Industry

Distilling is a traditional industry and most of the innovation is focused on issues other than production - e.g. Marketing, brand protection, and effluent disposal. Having said this, the sector in Scotland has spent over £14 million on activities that boost energy efficiency ⁷¹. Although the process will not change, replacement of time expired plant will give opportunity for higher efficiency equipment or new technology or low carbon fuels. With energy use dominated by heat use, more distilleries are starting to install biomass and CHP systems.

Heat

Supplying heat is the main energy use for distilling, so the main energy focus is on improving heat generation efficiency and heat use.

CHP is a major option - when the economics are favourable. Gas fired CHP systems have been installed in two of the seven grain distilleries so far.

Biomass also has considerable potential, given the location of many small distilleries in rural areas, without access to gas.

Energy From Waste

The distilleries also produce waste such as spent pot ale and draff. These biomass based wastes can be used to produce energy. Schemes are being installed at two grain distilleries to convert these wastes to energy, e.g. using Anaerobic Digestion. These benefit from the incentives on offer to produce renewable energy and also cut the costs of land-filling waste material.

Industry focus on energy

As a result of the CCA, UK and EUETS bringing energy to board level, there is now an industry Energy Efficiency Working Group that addresses energy efficiency in this sector. Concentrating on renewable energy and reducing energy usage,

Sector Environmental strategy

The Scottish Whisky Association has launched an environmental strategy ⁷² that commits the sector to a number of key targets. These include:

• Sourcing 20% of energy from non-fossil sources by 2020, increasing to 80% by 2050.
• Reducing packaging weight.

Working with supply chain partners.

Increasing Costs

This was flagged up as a significant problem for the sector: business rates and insurance have seen considerable increases of late, the former decreasing the sector's competitiveness compared to England. Unpredictability of raw material prices also adds risk to longer term business plans.

New focus on energy

With a number of medium scale energy users the engineering sector will include a number of sites in the CRC as this applies to medium to large organisations not already included in CCA or the EUETS. This will raise the profile of energy issues as well as providing incentives for organisations to save money through energy efficiency.

Scottish Engineering has produced an Engineering Industry Toolkit, with support from the Scottish Government, to help its members improve their environmental performance. Energy is a significant component of this toolkit.

Supply Chain

Energy is becoming an increasing focus in supply chain initiatives to drive energy use down. Scottish Enterprise's Lean Thinking for Manufacturing Companies, focuses on the manufacturing sector and offers larger companies more intensive support on improving efficiency within the supply chain.

Process Change

A range of process change opportunities can help engineering companies save energy costs. These include:

• Using pre-coated metal to eliminate the finishing process;
• Progressive and semi-solids forming will reduce energy use by at least 5%.

In the longer term, when the carbon intensity of electricity is sufficiently low, electric heating for processes may offer a lower carbon alternative to fossil fuels.

Technological opportunities

A number of opportunities could result in savings in the chemicals sector. These include:

• Improved process control;
• Process intensification - matching how the process is carried out to the requirements of the chemistry;
• Fouling reduction - improving heat transfer;
• Process integration - making best use of heat;
• Improvements to distillation and separation;
• New catalysts.

Variety of experience

Some individual companies have put a lot of effort into reducing energy costs already, while some are just starting.

Move to speciality chemicals

There is a trend in this sector to move from large scale bulk chemical production to speciality chemicals - this tends to increase energy costs, as production of speciality chemicals tend to be more energy intensive.

A shrinking industry

Between 2001 and 2008, 12 out of 16 paper mills closed in Scotland. The high costs of energy and raw materials are factors that have continued this trend of mill closures ⁷³.

Moving from fossil fuels

Of the 4 remaining mills, UPM Kymane and Tullis Russell are developing biomass CHP schemes to provide the heat and electricity needed from low carbon sources ⁷⁴.

Gas fired CHP has long been used in this sector, but the economics returns are limited by the high costs of natural gas compared with the price of electricity.

This price difference between gas and electricity has improved in recent years but, with CHP project lifetimes of 10-15 years, there are still significant risks, especially to a small company affected by large market forces. Companies will need confidence in the energy market and considerable government subsidy.

However there is support for biomass with CHP under the Renewables Obligation scheme. This support increased under the revised banded Renewables Obligation scheme. Hence biomass CHP is gaining financial as well as environmental advantages over gas fired CHP.

Legislation

There is an apparent tension between two separate elements of environmental legislation. One is the pressure to reduce energy consumption in paper mills via the Climate Change Agreements and the EU Emissions Trading scheme. On the other hand there is pressure to increase use of recycled paper rather than use new wood pulp. There is suggestion, however, that recycling can increase energy use within the mills, leading to an increase in energy consumption. There is little evidence to support this suggestion and, in many mills, using recycled paper helps to reduce energy consumption ⁷⁵.

Incineration of used paper generates renewable energy and therefore allows the substitution of fossil fuels, but it is more efficient to burn used paper only when it can no longer be recycled, as the energetic value of paper and board is not being lost when recycled. The paper industry therefore asks that no aids for incineration should be introduced where material recycling is sustainable ⁷⁶.

Competition from abroad

The most commonly cited issue affecting Scottish industry as a whole is competition from abroad. Energy use in Scottish manufacturing has declined in many cases because the products we buy are now being made overseas, either by Scottish companies or by their competitors.

Although saving energy helps firms cut costs and hence increases competitiveness, if the overall cost base of an operation in Scotland is higher than in for example in Asia, the focus may not be on energy but on industrial survival.

Energy not top of the agenda

In many small and medium sized companies, turnover, production, profit levels or just staying in business are the top priorities. Energy is not on the board agenda and does not necessarily get the attention it deserves. Too often the person responsible for energy management has a host of other responsibilities, many of which are more pressing. However rising energy prices might change this.

But many enthusiastic firms - and individuals

Legislation such as the Climate Change Levy, EU - ETS and the forthcoming CRC have boosted the visibility of energy as an issue.

Some firms have focused on energy use and managed to make significant savings. This has been achieved with commitment at the highest level, by the activities of enthusiastic and skilled individuals. Companies have drawn on extensive support and advice both through the Carbon Trust and the Energy Saving Scotland business advice service. Furthermore, organisations are increasingly aware of public concern about the environment, and many are making public commitments to demonstrate their own credentials.

… And rising fuel prices

Fuel prices have risen steeply and this is impacting on profits for energy intensive industries, putting energy higher up the agenda.

Savings assessment

The majority of energy use and CO ₂ emissions in industry stems from the processes used in manufacturing. In 2008 AEA updated Defra's ENUSIM model to provide the UK Committee on Climate Change ( CCC) with a view on the level of industrial CO ₂ abatement potential.

This model considers in excess of 1,000 measures for reducing emissions from industrial energy use and generates an Abatement Cost Curve as shown in Figure 26. The measures are shown in cost order, starting with the most cost effective (-ve costs i.e. net savings) through to the most expensive (net costs).

In total savings of just under 11 MtCO ₂ are included compared to projected emissions in 2020 of 145 MtCO ₂.

These process saving opportunities are closely linked to the type of industry. There are marked differences between the composition of Scotland's industry sector and the UK as a whole. Specific examples include a greater contribution in Scotland from the Food, Drink and Chemicals sectors and a much lower contribution from the steel sector. These differences mean that the UK results cannot be assumed to apply to Scotland.

Savings assessment

Two features of this Abatement Curve are worth noting:

• Firstly, the potential to reduce emissions at a low cost, is much smaller relative to the size of the sector than for the services and domestic sectors. The 7 MtCO ₂ available at negative cost represents just 4% of industrial sector emissions, whereas for the services and domestic sectors the equivalent figures are 18% and 27% respectively. This may reflect good existing energy management practices and the motivation and skills available in industry to reduce energy costs.
• Secondly it is not possible to identify separately the results for each technology. This reflects the fact that the opportunities in industry lie in many relatively small process improvements. These include:
• Improvements in efficiency in the use of electricity through multiple enhancements to electrical machinery and
• Improvements in efficiency of heat generation, insulation and heat recovery.

These improvements can be achieved either within existing plants via incremental improvement or as part of investment in new plant.

Industrial Buildings

In addition to the potential savings in process energy, there are opportunities in industrial buildings, offices, warehouses etc. These were included in the CCC's non-domestic buildings Abatement Curve (In this report this curve is included under the services sector). While buildings are a small part of total industrial energy, there are worthwhile saving opportunities, particularly from:

• Improving efficiency of heating/cooling buildings.
• Better management of energy - from motion sensitive lights to optimising heating temperatures and timing.
• Use of more efficient lights and appliances.

CHP

The CCC undertook a separate assessment of the potential for CHP in industry and commercial buildings, using separate MACC models developed by AEA. Drawing on these models, the CCC estimated that there is scope for emissions reduction of a further 8 MtCO ₂ in 2020, with around 4 MtCO ₂ available below a cost of £40 per tonne of CO ₂.

Most of this is potential for CHP is in the industrial sector.

Increasing Energy Costs

Rising energy costs provides a greater management interest in energy savings and improves the paybacks on investments. However increasing economic uncertainty will focus attention on the improvements with the most immediate paybacks.

Existing Legislation

The Climate Change Levy gives many companies a direct incentive to cut energy, either to reduce their levy payment, or because they have entered, as a sector, into a negotiated Climate Change Agreement to cut their energy use in return for a rebate of part of the levy.

(It is worth noting however that many companies stated that it is becoming more and more expensive for businesses to comply with environmental regulations such as Climate Change legislation, EU Emissions Trading and other forms of environmental legislation and taxation.)

Future Legislation

As set out earlier in this section, there are many legislative drivers that require or encourage industry to reduce energy use and hence CO ₂ emissions. These drivers will continue to grow in the scope and the depth of reduction that is required. Furthermore, the increasing importance of these leaves industry decision makers in no doubt about the direction and scale of future policy.

The future legislation includes:

• The Carbon Reduction Commitment ( CRC) ⁷⁸ - The CRC will set emissions targets, with a trading scheme and performance table. As the CRC has financial penalties and will cover many smaller industry sector organisations, this could have a major impact, e.g. bringing carbon performance to the attention of senior management.
• EUETS Phase III. For the phase post 2012 a number of developments and changes are under discussion, the industry relevant proposals include:
• Including CO ₂ emissions from petrochemicals production, ammonia and other chemicals.
• Including CO ₂ & PFC emissions from the production of aluminium (both primary and secondary).
• Including N ₂O emissions from the production of nitric, adipic and glyoxal and glyoxylic acid
• Streamlining the definition of a combustion installation.
• Reducing the number of free allowances, ultimately reducing this to zero.

Increased Awareness

Increasing staff awareness of environmental issues and the importance of energy efficiency will increase the chances of company energy saving initiatives succeeding.

Interest Free Loans

The Energy Saving Scotland - small business loans scheme provides interest-free loans to improve energy efficiency within SMEs. The loan can be between £1,000 and £100,000, they are repayable up to 4 years and can cover 100% of project costs. The loan fund in 2008/09 is £2 million. With many SMEs in the commercial sector, this is an important measure as it is the main form of financial support available.

The loan can be used for energy efficiency or renewable energy investments, support and advice is available from the business advisers based in the local Energy Saving Scotland Advice Centre.

On site renewable energy

There are opportunities for business to invest in, or host, on site renewable energy generation projects. These can provide part of the business's own energy needs and can provide excess power or heat for other consumers.

Existing projects include:

• Wind turbines, funding directly or by a wind developer ( e.g. Sainsbury East Kilbride, Michelin Dundee etc.)
• Biomass boilers ( e.g. Pentland Plants Loanhead, Lakeland Smolts Cairndow etc.)
• Biomass CHP ( e.g. Kymane UPM Irvine, Tullis Russell Markinch, etc)

A range of factors are providing greater encouragement of these schemes including:

• Higher energy costs
• The Banded Renewables Obligation
• Increasing costs for disposing of waste (landfill tax and gate fees)
• Grant funding ( e.g. the Scottish Biomass Support Scheme)

Changes such as the introduction of ROC banding, compliance with the CRC, the Renewable Heat Incentive and the Feed In Tariff for small generators etc. will further enhance the attractiveness of these types of project.

Supply chain initiatives

Management of the supply chain can potentially be a route to ensure that energy efficiency is improved, with manufacturers requiring their suppliers to follow good environmental practice, of which one aspect is a focus on energy.

Process Change

The first actions to reduce energy use in industry should be through good housekeeping - reducing compressed air leaks, switching off equipment etc. This should be followed by investment in quick payback projects - insulation for heating pipes, variable speed drives for fans etc. The next tranche of saving opportunities are to change the main process. This could be a switch to a new production technology or a form of low carbon energy.

Good credentials

Many companies take their environmental responsibilities seriously: focusing on minimising energy use is one facet of this. Businesses see it as increasingly important to be improving environmental performance and to be seen to be making these improvements.

Independent validation of environmental performance is increasingly important. The wide range of company reporting formats and the complexity of the issues can lead to scepticism amongst stakeholders as to the validity of some reporting of environmental performance. Hence independent and validated reporting and certification are likely to become more important. The CRC league table may act in this way, while the Carbon Trust Standard is intended to become a widely accepted company certification scheme. The Carbon Trust Standard is covered under the cross sector section of this report.

Lack of appreciation of importance

The barrier to improving energy efficiency within industry in Scotland most commonly cited by interviewees is the lack of understanding by staff as to why energy efficiency is important.

If there is not a sufficiently strong steer from the top of an organisation that energy is important, initiatives are less likely to succeed at a lower level. For example segregation of organisational budgets may mean that one part of the company has to pay for energy saving investments, whilst they do not receive the benefits of the savings made.

Lack of skill

The lack of skill and experience required to implement energy saving measures can be a major hindrance. Many companies, particularly smaller ones, are unaware of the help available from organisations such as the Carbon Trust and the Energy Saving Scotland business advice service.

Too little time

Many companies, especially small businesses, have a wide range of demands on their scarce resources and saving energy can easily fall off the list of things to address, even given good intentions.

Increasing Fuel Prices

Although at first sight this might seem an anomalous 'barrier' some companies reported that although increases in fuel prices raise the awareness of energy, on the other hand, they reduce the capital available to implement energy saving measures.

Business uncertainty restricts investment

In current economic conditions, companies are increasingly uncertain about their cash flow, profits and stability and are reluctant to invest in energy efficiency improvements, which may have a payback of 2 years or more.

Low hanging fruit already picked

In some companies many low cost measures have already been taken to save energy and cut costs. The remaining opportunities tend to have investment higher costs, and are therefore restricted by the capital available for improving energy use. They may also require specialist expertise.

Fear of damaging production levels or product quality

Companies are concerned that changes to plant may affect product quality: the "black art mentality" that fears all process change. There is also concern that changes will cause downtime whilst installing or testing new equipment. These perceived risks can take precedence over proven energy saving techniques. Companies continue to be cautious about downtime and perceived risks and are often unwilling to commit to the large capital costs often involved.

This is an important barrier given that:

• The CCC Abatement Curve is dominated by more complex energy savings made through process improvements.
• These process improvements are more expensive and more risky, hence they are much less attractive investment propositions, even more so in an uncertain economic climate where access to capital is even more difficult.
• Many companies have already undertaken the more generic saving measures such as improving boiler plant, addressing compressed air leakage etc. Hence the remaining opportunities may be process related.

Hence addressing these barriers to process efficiency is key to achieving further significant savings.

High gas prices hampering CHP

The CCC analysis shows that CHP offers an important of potential saving. CHP is particularly well suited to the process sub-sectors such as Food, Drinks and Chemicals - sectors that are key elements of Scotland's manufacturing sector.

Like process changes investment in CHP has a number of challenges:

• The economics of gas fired CHP are determined by the prices of the gas used vs. the value of the electricity generated. Neither of these are in the control of industry and this is an important risk for a major investment such as CHP.
• CHP is a major capital investment, gaining corporate support for this is often difficult, even more difficult in difficult economic times.
• Unlike process improvements, CHP is a non core investment, adding to the challenge of gaining corporate funding.

A number of support mechanisms are in place to support Good Quality CHP. These include:

• Exemption from the climate change levy
• Enhanced capital allowances
• Special arrangements in EU- ETS and CRC

These support mechanisms will reduce, not remove the main energy market risk. As a result there are limited numbers of gas fired CHP projects being developed, despite the potential savings.

For CHP using renewable fuels there are additional incentives that help the investment case, but the capital costs are also higher.

Energy recommendations not fully implemented

The Carbon Trust offers to industry many support methods such as standard surveys, feasibility surveys and carbon management. The Carbon Trust found that 76% of respondents to their 2006 census confirmed that they would not have implemented the same level of carbon savings without the Carbon Trust.

Organisations could, however, achieve much greater reductions in carbon dioxide emissions, as less than 40% of the carbon savings identified by the Carbon Trust between 2003 and 2006 have so far been realised. The Carbon Trust census found that 60% of organisations had only implemented up to 5 recommendations, compared to an average of 11 recommendations made to a typical client. This suggests that about half of all energy efficiency opportunities are not being implemented.

Potential for addressing the barriers

Measures that could be undertaken to address the energy efficiency issues can be classed into three streams:

• Initially making sure that absolutely everything that is low cost is implemented, energy awareness, reducing wastage etc.
• Investment in straightforward energy efficiency measures, efficient motors, lighting, controls etc.

This will leave the more complex process or supply chain opportunities:

• Creating expert groups: these would involve academics and people with many years of industry experience to collaborate in defining industry best practice, creating tools/techniques and carrying out focused research in creating higher energy efficient processes.

Investigating and identifying any issues within a company's supply chain, i.e. are all the companies within the chain implementing energy efficiency measures, are there processes being repeated unnecessarily by several companies within a chain.

Sector Trends

While energy use in the service sector increased by 10% between 1990 and 2002, this hides some important trends:

• Electricity use increased by 56%, with increased use by IT and air conditioning systems being the main reasons.
• Fossil fuel use fell by 18%, this comprises a 68% fall in oil use and a 97% fall in coal use balanced in part by a 57% increase in gas use.

Recognition of Energy Issues

Historically energy has been a small part of total costs in the service sector. Hence attention to energy issues has historically been low. This is starting to change, partly due to large increases in energy costs (up to 50%) and partly due to setting of targets to improve environmental performance.

Energy prices have increased for all sectors, increasing attention on reducing energy use in all forms of business. While prices continue to be high, this helps sustain these efforts.

Some of these targets are self imposed ( e.g. through corporate social responsibility initiatives) while some are imposed, ( e.g. energy improvement targets for NHS Scotland).

This trend is set to continue, with new regulatory requirements such as the Energy Performance Certificates and the Carbon Reduction Commitment, which include public statements of energy and CO ₂ performance.

Public Sector Easy to Identity…

Public sector bodies are easy to identify as they have a high profile and there are relatively small numbers of organisations. Information on energy use and CO ₂ emissions can be obtained without huge investment. These include:

• 32 local authorities (energy bill £108 million).
• 22 NHS Boards and bodies (energy bill £63 million).
• 44 Scottish Government bodies (energy bill over £35 million).
• 21 Universities and Higher Education colleges.
• 43 Further Education colleges.
• 8 Police Forces.
• 8 Fire and Rescue brigades.

Hence campaigns to influence the main public sector organisations are more cost effective and automatically target organisations with the greatest impact.

…but Large numbers of businesses

Across Scotland there are over 260,000 businesses in the commercial sector ⁸⁰. Of these the vast majority are SMEs, with just under 2,000 firms having more than 250 employees.

While these larger businesses are only 1% of the enterprises in the sector, they employ around 45% of the sector's workforce. With such large numbers of businesses it is most practical to target the largest as these are likely to have the greatest energy use and the greatest capacity to act to reduce energy use.

Carbon Reduction Commitment ( CRC)

Many existing regulatory measures target the largest energy users ( e.g.EU- ETS). The forthcoming CRC will target medium scale energy users, many of whom will be in the services sector, including retail and public sector organisations. The CRC will set emissions targets, with a trading scheme and performance table. As the CRC has financial penalties and will cover many service sector organisations, this could have a major impact, e.g. bringing carbon performance to the attention of senior management.

As a result CRC will bring an important new driver to act to reduce the energy use of existing service sector buildings.

A good image

Companies are increasingly aware that the way they address environmental issues affects how they are perceived, both by their customers and their stakeholders. Taking action to improve energy efficiency is one way of demonstrating a company's environmental credentials and hence projecting a good image. This will in future link to the CRC as each participant's performance will be published in a league table while the Carbon Trust Standard is intended to provide concrete proof of a companies carbon credentials.

Engaging Senior Management

Experience from the Carbon Trust's Carbon Management programme, and from the review conducted by Audit Scotland, shows the value in engaging senior management attention in energy and carbon reduction programmes.

The benefits include, more strategic links across the organisation ( e.g. into procurement and HR), setting and reporting on targets, increased profile for campaigns and additional resources.

Increasing IT and air conditioning

Some trends in building use and design are increasing energy use: increasing use of IT leads to a direct increase in electricity use, plus the heat gain from IT can lead to increasing use of air conditioning. Hence these trends mean that reducing energy use can become more difficult.

Landlord tenant relationship

Many retail units are leased from owners who receive no direct return from improving the energy efficiency of their property - as tenants are paying the energy bills. This reduces the motivation for a landlord to make energy saving improvements, as no savings are made by the landlord. The introduction of EPCs will help landlords and tenants understand how the leased building performs in terms of energy use. As EPCs have only recently come into being it is too early to judge their impact on landlords or tenants.

Building life

Like the domestic sector, most of the service sector buildings in use now will be in use long into the future. Hence opportunities to reduce energy use in existing buildings will dominate in the short term.

The challenge for refurbishing and upgrading the existing building stock is immense. Refurbishment schemes need to upgrade the structure, the fabric and the buildings services in a cost effective way and at the same time comply with new standards and government legislation.

Service sector buildings may have significant changes made during their lifetimes, e.g. regular refurbishment of offices and retail units so that they remain attractive lets. Therefore, building regulations can have an earlier impact in this sector, as the refurbished section of the building may need to meet the latest regulations.

The Scottish Building Standards Technical Handbooks ⁸¹ provide guidance on achieving the standards set in the Building (Scotland) Regulations 2004. Section 6 of the standards covers the energy performance of buildings and include the following standards:

Every building must be designed and constructed in such a way that:

• An insulation envelope is provided which reduces heat loss.
• The heating and hot water service systems installed are energy efficient and are capable of being controlled to achieve optimum energy efficiency.
• Temperature loss from heated pipes, ducts and vessels, and temperature gain to cooled pipes and ducts, is resisted.
• The artificial or display lighting installed is energy efficient and is capable of being controlled to achieve optimum energy efficiency.
• The form and fabric of the building minimises the use of mechanical ventilating or cooling systems for cooling purposes; and
• In non-domestic buildings, the ventilating and cooling systems installed are energy efficient and are capable of being controlled to achieve optimum energy efficiency.

Each of the above standards must be met for both new buildings and any part of an existing building that is converted, extended or altered. This will ensure that, for existing buildings, the building will end up at a standard no less than the original building and very often it will be required that the part of the building in question is finished to a higher standard than in the original building, so raising the standard of the entire building.

At the very least these regulations mean that Scotland's existing non- domestic building stock will not deteriorate in terms of CO ₂ emissions or energy efficiency. Indeed in many cases, refurbishments will result in improvements to the existing stock.

Energy Efficiency is an increasing priority for new buildings

Building standards should continue to ensure that new buildings are built to demanding energy standards and review the potential for further improvements. However, developers should be encouraged to adopt measures which improve on energy standards set by building standards The public sector has a focus on energy efficiency, including energy saving targets ( e.g. the Scottish Climate Change Declaration); this is less common in the private sector. If the client does not demand a focus on energy efficiency, their architect will not necessarily focus on it.

Planning Guidance

Scottish Planning Policy ( SPP) 6, Renewable Energy, states that:

"all future applications proposing development with a total cumulative floorspace of 500 square metres or more should incorporate on-site zero and low carbon equipment contributing at least an extra 15% reduction in CO ₂ emissions beyond the 2007 building regulations carbon dioxide emissions standard"

The limit of 500 m ² means that this policy is relevant to almost all development in the services sector.

The high level requirements set out in SPP 6 are discussed in more detail in Planning Advice Note 84 - Reducing Carbon Emissions in New Development ⁸². PAN 84 sets out the calculation methodologies and tools that should be used to assess the CO ₂ savings against the 2007 regulations.

The application of these planning guidance notes is a matter for each local authority. A number have set more stringent requirements. For example the City of Edinburgh Council ⁸³ has priority standards that set supplementary guidance on energy efficiency and renewable energy for new developments.

These policies are already having an impact as developers are including biomass or ground source heat pumps in new developments.

Energy Performance Certificates ( EPCs)

The EU Energy Performance of Buildings Directive requires that when public sector buildings and business premises are constructed, sold or rented out, they will require an Energy Performance Certificate ( EPC).

A system of asset ratings has been adopted for all EPCs in Scotland. This is based on an assessment of performance of the physical structure and thence the CO ₂ emissions that will arise from the heating, hot water, ventilation, cooling and lighting for the buildings. This differs from the rest of the UK, where EPCs are based on annual energy consumption.

There are a number of specific requirements including:

• Owners of large public buildings over 1,000 m ² must obtain and display an EPC in a prominent place, such as a public reception area.
• Buildings owners must provide a copy of the EPC to potential buyers or tenants.
• EPCs are normally valid for 10 years.
• Along with the EPC, an optional energy report, providing further information and advice to improve performance, can be issued. This is mandatory for the sale of dwellings in Scotland as part of the Home Report.

The EPC includes the following details:

• A performance rating, ranging from A to G or carbon neutral
• Current CO ₂ emissions in kg/m ² per annum.
• Current energy use kWh/m ² per annum.
• The rating that of a building of the same type would achieve - if built to current building regulations standards.
• A list of cost effective improvements (lower cost measures).
• An assessment of how the rating would change if the cost effective improvements were put in place.

Impact of EPCs

EPCs have been progressively introduced, starting in May 2007 with certification for new buildings, followed by dwelling sales in Dec 2008 and finally in Jan 2009 with certification for all new sales and lettings and for existing public buildings. Hence it is too early to draw any conclusions about the impact of EPCs.

However it is clear that EPCs have further raised awareness in the buildings sector of how individual buildings perform. This said, owners could merely be content to obtain a certificate - they may not be motivated or able to undertake any of the improvement actions.

Economic Conditions

Across the commercial sector current conditions will increase interest in cost savings, but at the same time investment will be more restricted. Hence attention in the neat term is likely to focus on very short payback measures, such as good housekeeping and staff energy awareness.

Retail issues

In a retail environment, energy use is most intensive on the sales floors: the priority here is making the environment conducive to sales, and ensuring products are effectively illuminated. When promoting energy efficiency, it is important to make clear that this does not necessarily lead to a less productive sales environment.

Opportunities in refrigeration and lighting

The large refrigeration and lighting demand within the retail sector, accounting for approximately 60% and 30% of demand, respectively, presents opportunities to make significant savings through improved technology. Energy ratings of equipment and appliances have a significant part to play in this.

Organic produce

The increased popularity of organic produce among consumers means that the lower shelf life of these products requires a greater frequency of deliveries, which increase transport use. Against this should be set the growing popularity of locally sourced food, potentially reducing transport distances.

Global Shopping

Historically, supermarkets have encouraged consumers to expect food to be in stock year round: no longer are strawberries only available for a short summer period. Even food that could be sourced locally may have travelled great distances. This increases energy costs significantly. However, this trend has been recognised by food retailers, many of whom have reacted by taking steps to counteract the trend by making 'local produce' a selling point. How this trend plays over the longer term remains to be seen.

Internet Shopping

In the longer term, if consumer behaviour continues to move towards Internet purchasing, more and more products could be delivered direct to the consumer. This may influence energy use, for example by perhaps leading to a reduction in the number of high street retail sites. It is likely to change transport use patterns too, although the likely net impact of this is unclear.

Corporate Responsibility

Retail companies are aware that environmental issues are high in the public agenda, and they are increasingly incorporating sustainability policies as part of their corporate responsibility.

An example of which is Marks & Spencer's 'Plan A', which is a 100 point 'eco' plan. Goals that they have set themselves include targets to reduce energy use by 25%, from 2007 levels, use of renewable forms of energy at their stores, which includes anaerobic digestion for food waste and biodiesel for their road freight and the tracking of food miles.

Other examples include action by Asda, Morrison's, Sainsbury's, Somerfield and Tesco, who have promised to cut their CO ₂ emissions. For example, Tesco, the UK's largest retailer who produces 2 million tonnes of carbon per year, has pledged to cut emissions produced by its stores and distribution centres by 50% by 2020.

Retail companies have also used energy awareness campaigns to encourage their staff to save energy at work and at home. The methods used in the campaigns include the appointment of energy champions in stores, including energy issues in store newsletters and training events for staff on energy issues.

A Leadership Role

Given the increasing emphasis of Government policy on improving environmental performance, and in particular reducing carbon emissions, the wider public sector is seen to have a leadership role.

This increases the pressure for public sector bodies to reduce their own energy use and hence carbon emissions and to make decisions that help reduce the emissions of other organisations and individuals.

Increasing Awareness

The public sector is facing a number of important issues affecting energy efficiency. Awareness of the climatic impacts of consumption behaviours and the need for changes is increasing within local authorities. Councillors, who have been involved in Renewable Energy planning issues, are now being pulled into the debate on energy efficiency.

The Scottish Government has set out its climate change commitments in the Government Economic Strategy, Scottish Budget Spending Review 2007, and the Climate Change (Scotland) Act 2009, which sets an ambitious target to reduce emissions by 80 per cent by 2050. In addition to this proposed statutory target, the Government Economic Strategy sets an accompanying target to reduce emissions over the period to 2011.

The Spending Review also commits government to "deliver increasingly high standards of environmental performance and design as we refurbish the public sector estate, including schools, hospitals and prisons, and requiring the same of all new buildings and investments drawing on public funds."

Scotland's Climate Change Declaration has been signed by all 32 Scottish local authorities committing them to contribute to the delivery of Scotland's and the UK's climate change programmes, including actions to address greenhouse gas emissions from their own operations. Local authorities are also subject to Best Value, which provides a statutory basis upon which they review and manage their performance in order to deliver continuous improvement in all services including energy and environmental performance.

Audit Scotland Conclusions

During 2008 Audit Scotland investigated how energy efficiency is being addressed across the public sector ⁸⁴. Based on information submitted by 80 public sector bodies, this report concluded that:

• Energy consumption in public buildings has fallen by 4.8% in the 3 years to 2006/07 but spending on energy has increased by 46.7% during this period due to significant rises in energy prices.
• Efforts to improve energy efficiency have been greatest in those sectors that spend the most on energy (councils and the NHS) and this is reflected in their energy performance.
• There is a need for stronger leadership by the Scottish Government and within public bodies to improve energy efficiency and ensure that the necessary cultural and behavioural changes are made.
• A robust strategy is central to the coordination of activities to improve energy efficiency, however, there are inconsistencies in the quality of strategies being implemented.
• The Scottish Government does not formally monitor and report progress by public bodies in improving energy efficiency. This makes it difficult to determine the extent to which the public sector is contributing to the achievement of national targets to reduce emissions.

Given the influence of Audit Scotland these conclusions and the report's recommendations are potentially significant.

Financial support available

The Scottish Government has set up the Central Energy Efficiency Fund ( CEEF), which provides support for energy efficiency capital expenditure to local authorities, the NHS, further and higher education and Scottish Water. The support is provided in the form of an interest free loan fund, which enables the recipients to invest in energy efficiency (or renewable energy) measures, providing they meet suitable payback criteria. This has supported over 850 projects.

The Scottish Community and Household Renewables Initiative ( SCHRI) offers financial support for projects on local authority premises, e.g. schools. SCHRI offers capital grant support as well as funding for feasibility studies. SCHRI funding has recently increased three fold.

Strategic support available

Strategic support is available to local authorities from the Carbon Trust's Local Authority Carbon Management programme. This assists authorities to implement a 5-Step process to analyse their carbon footprint, formulate a strategy and implement a plan to manage and reduce their carbon emissions.

Carbon Management has been rolled out to all 32 Scottish authorities and is being rolled out to the wider public sector, including the NHS, SEPA, universities and the Scottish Government.

For smaller public sector organisations ( e.g.FE colleges) the Carbon Trust is developing a new form of Carbon Management support that is better suited to these smaller bodies.

Energy tariffs

From Sept 2009 the Scottish Government's electricity needs will be supplied contracted on a national basis. Councils, health boards, police and fire services, universities and colleges, Scottish Government Agencies and non-departmental public bodies will be able to use the contract ⁸⁵. This is estimated to save £10million pa. over the previous arrangements.

Schools

For local authorities the majority of energy use, and hence carbon emissions, are associated with the school estate.

The 2004 report, Sustainability; Building our Future: Scotland's School Estate ⁸⁶, found that the majority of schools projects had design briefs that called for sustainability and energy efficiency but the number of fully sustainable schools constructed was relatively low.

Their reasons included:

• Lack of understanding of what a sustainable building is;
• Over simplification of the issues; and
• Failing to ensure that sustainable design intent is carried through and revisited at each stage of the process.

Since then a report by Audit Scotland recommended that councils needed to do more to ensure environmental sustainability is a key factor in the design of schools.

Recognising this the Scottish Government announced a number of measures to increase the energy efficiency and use of renewable energy in schools. These include:

• A new web portal to give advice on how to make schools more sustainable.
• Two specialist officers, who will work with councils to encourage greater use of micro-renewables in schools.
• Advice from a low carbon consultant through the Carbon Trust.

In addition the Carbon Trust has been working with Inverclyde Council on how to deliver energy efficiency in PPP schools projects.

PPP

The Public Private Partnership ( PPP) principle is to invest in a new facility using private sector finance, know-how and risk management where this shows better value for money taken over the whole-life of the facility than the use of a conventional procurement route.

In principle this lifecycle approach should encourage investment in better design that reduces energy use through the buildings operational life. However the private sector PPP contractor has a focus on keeping building costs down, to meet budget constraints, so if energy efficiency is not covered adequately in the public sector client's output specification, energy efficiency opportunities are often overlooked. Once a PPP funded building is constructed, it is of course more difficult to retrofit measures at a later stage.

To address these issues the Carbon Trust has been working alongside the consortium developing the PPP schools for Inverclyde Council. This examines ways to minimise the carbon footprint of the four PPP schools, using measures such as good use of natural daylight to minimise artificial lighting, improved insulation and eliminating draughts.

As a result, It is expected that their carbon footprints will be 30 per cent lower than conventional schools.

Scottish Futures Trust

The Scottish Futures Trust, will provide a national focus on infrastructure requirements and plans, and will promote strategic and aggregated solutions to funding and delivery mechanisms across the public sector. This new organisation will provide an opportunity to embed improved energy performance in new public buildings.

A longer view

Treasury guidance ⁸⁷ on public sector finance requires the use of long-term lifecycle costing analysis for appraisal of new projects over 25-years, discounting costs and benefits at a 3.5% discount rate. The principle of energy efficiency, investing more now to save energy later should perform well in this type of financial appraisal, as the increased costs will be quickly matched by the savings, when these are added up over 25 years with a low discount rate.

However in practice many decision makers in the public sector are not aware of these Treasury financial guidelines, or choose to use a different evaluation method. One of the reasons for choosing different methods is that public sector investment budgets are mostly constrained and promote short-term planning on a year-to-year basis. Therefore, energy efficiency improvements are evaluated based on the large initial capital required and not on the savings that will be achieved in the long-term.

The introduction of CEEF in particular has presented a considerable opportunity for local authorities, higher education, and health and water sectors to move on from these limitations.

HECA promotes responsibility

Local authorities can also influence energy use in the wider community. For example the Home Energy Conservation Act 1995 ⁸⁸ ( HECA) required every UK local authority with housing responsibilities to: Publish an energy conservation report identifying practicable and cost-effective measures to significantly improve the energy efficiency of all residential accommodation in their area; and to report on progress made in implementing the measures. HECA has helped raise awareness of energy efficiency as an issue within the housing sector. However, the relaxation of targets by up to 50%, in some cases, diluted the impact of this Act. Furthermore, several local authorities in Scotland did not achieve these targets. For example, a report from Communities Scotland ⁸⁹ states that two-thirds of local authorities were not on course to reach their own energy efficiency improvement targets.

Climate Challenge Fund

A further role and opportunity for local authorities is as a partner in projects that can use the Climate Challenge Fund ( CCF). The Climate Challenge Fund, £27.4m over three years (2008-11), is designed to enable communities to come forward with their own solutions to make a significant reduction in carbon emissions. The CCF can support:

• Projects to reduce carbon emissions.
• Community organisations to develop carbon emissions reduction action plans.
• Paying for costs associated with feasibility studies or community engagement for carbon reducing projects and action plans.
• Paying for community capacity building (awareness raising around carbon emissions reduction, relevant training and skills development).
• The costs of a community establishing a partnership, setting up a company or project management costs related to the community carbon emissions reduction project or action plan.

Direct energy use

Direct energy use in the construction sector includes fuel use for earth moving and other machinery along with heat and power for temporary site buildings - known as construction villages. These buildings are classed as limited life and have lower energy standards than other types of building.

Overall the direct energy use of this sector is modest in relation to total energy use in Scotland.

Indirect influence

However, the construction sector has a potentially larger influence over energy use through its role in determining the performance of buildings used by all the other sectors.

For example, the commitment in the Scottish Government Spending Review to "deliver increasingly high standards of environmental performance and design for the public sector estate, will require the construction sector to play an important part in meeting this.

Building regulations

In 2007 the Scottish Government appointed an expert panel to recommend measures to improve the energy performance of houses and buildings in Scotland. The resulting Sullivan report made 56 recommendations, the majority of which are within the remit of the Scottish Building Standards. These include staged increases in energy standards in 2010 and 2013 to substantially reduce carbon emissions from new buildings; the aim of net zero carbon emissions for space heating, hot water, lighting and ventilation within the next 10 years, if practical; the ambition of total-life zero carbon buildings by 2030; and consideration of zero fees for building warrant applications where new buildings are to be significantly above the current energy standards. A review of energy standards is currently in progress for revised standards for 2010.

Industry Practices

While building regulations will require ever better energy performance, there are issues within the sector that need to be addressed. For example the use of passive vs. active ventilation is potentially discouraged under current contract agreements, whereby fees for subcontractors (for example, engineers and designers) are set according to the capital cost of plant installed ( e.g. mechanical ventilation) - this does not encourage consideration of low energy design. Similarly whole life cycle costing, e.g. accounting for lifetime energy costs as well as initial capital costs, is not a standard practice when designing and pricing construction work. In this case this requires the client as well as the construction experts to adopt new ways of working.

Choice of materials

The dominant energy and carbon use associated with the construction of buildings is in the lifetime energy use throughout the building life. However, energy use, and therefore CO ₂ emissions, does arise during the production of materials used in the construction of new buildings. Therefore, selection of construction materials with low embodied energy is consistent with targets to reduce Scottish and Global CO ₂ emissions.

Opportunities exist therefore, through careful choice of materials, to reduce embodied energy and potentially include low carbon materials within the building fabric ( e.g. certified sustainable timber from the UK and Europe). As with all design options the costs and benefits require careful evaluation.

Corporate responsibility - and image

Energy use is a small proportion of costs, in this sector, reducing the importance it is sometimes given - however other drivers can come into play including corporate responsibility and image. From discussion with the RBS Group, achieving a high degree of corporate social respect through reputation is an important opportunity. This is clear from the RBS Group's effort in implementing a high standard of energy efficiency and sustainable planning in the construction of their World Headquarters in Gogarburn on the outskirts of Edinburgh.

Insurance

A number of incidences of flooding in recent years have increased awareness of the potential for global warming to lead to extreme weather events. This has increased the focus on climate change and the need to adapt to it, as well as to take action to reduce its likelihood of occurring.

Green Mortgages

"Green" mortgages are slowly becoming more popular, although currently only offered by a few organisations and there is no standard product. The lenders that offer these products may make contributions to charities that support the environment, or will only finance houses that are seen to be environmentally sound. Furthermore, the lenders usually state that they will not work with businesses that are known to damage the environment.

Savings assessment

To support the work of the UK Committee on Climate Change ( CCC) BRE and AEA have produced Abatement Cost Curves for the Non Domestic Buildings sector ⁹⁰. These show the potential CO ₂ savings from a wide range of measures. These are shown in cost order, starting with the most cost effective (-ve costs i.e. net savings) through to the most expensive (net costs). This is shown in Figure 31.

Potential for service sector savings

This analysis for the CCC shows that there is the technical potential for savings of 33 MtCO ₂, against a UK baseline projection of around 60 MtCO ₂ for the services sector in 2020.

Around 14 MtCO ₂ of savings in 2020 are possible using measures that cost less that £40/ tCO ₂, i.e. below the carbon price projected by the CCC. Of these 11 MtCO ₂ are available at negative or zero cost.

The CCC analysis shows significant opportunities from:

• Improving efficiency of heating/cooling buildings (over 5 MtCO ₂).
• Better management of energy - from motion sensitive lights to optimising heating temperatures and timing (over 8 MtCO ₂).
• Use of more efficient lights and appliances (around 1.5 MtCO ₂).

The curve also shows very significant savings potential (up to 18 MtCO ₂) from micro generation measures:

Microgeneration technologies have significant technical potential and could reduce emissions

• Biomass boilers (3 MtCO ₂).
• Heat pumps (up to 5 MtCO ₂).
• Solar thermal (around 2 MtCO ₂).
• Solar PV (over 8 MtCO ₂).

The UK abatement curve shows some key priorities, energy management, efficiency of boilers etc. that will hold true for the services sector in Scotland.

Energy Management

The analysis of savings for the CCC highlights energy management as the largest cost effective opportunity.

In Scotland EPCs are based on the energy rating of the building as an asset, thus EPCs will not reflect how the energy use within a building is managed. However, other drivers such as cost savings, CRC compliance and CSR objectives may provide motivation to improve energy management. As highlighted earlier in this section senior management engagement is a very important aspect in successful energy management.

Heating and cooling systems

Major changes such as improvement of boiler and chiller systems offer large potential savings. However the need to replace major plant items does not occur very frequently. Hence energy management offers a bigger and earlier opportunity for action.

This said, when major heating or cooling system replacement is needed, the new system should be upgraded to the best level of energy performance possible - as the equipment will be operating for many years into the future. In the past justifying any extra cost to specify more efficient equipment has been a barrier. However including procurement decisions and use of whole life cycle costing within an energy management strategy can help support these decisions. Major heating or cooling system improvements may help improve ratings on a building's EPC.

Microgeneration

Installation of microgeneration technologies have very significant carbon saving potential - but at costs per tonne of CO ₂ saved that are much higher than the energy efficiency measures. Of the 4 microgeneration technologies considered by the CCC, biomass boilers was significantly more cost effective than the 3 others.

Use of microgeneration technologies are likely to improve ratings on a building's EPC.

Enhanced EPCs

The Climate Change (Scotland) Act 2009 includes a number of proposals for Enhanced EPCs for improving the energy performance of existing non-domestic buildings. These include:

• Extend the scope of EPCs to take account of operational ratings as well as asset ratings (enhanced EPCs) and also embodied energy/carbon when a robust methodology is available to address the issue of historic and traditional buildings. Variable lifespan of the assessments/certificates
• Require owners (or their delegates) to obtain enhanced EPC - even though they are not selling or renting the buildings
• Require owners of non-domestic buildings to formulate action plans for building work arising from the advice on their enhanced EPC and encourage them to implement their action plans
• Develop appropriate standards for energy improvement building work
• Empower local authorities, or similar public bodies, to check enhanced EPCs

In parallel with these Scottish proposals, the EU is recasting the Energy Performance of Buildings Directive ( EPBD), the Directive that requires EPCs to be in place. Amongst these proposals are reducing the size threshold for obtaining and displaying EPCs from 1,000 m ² to 250 m ².

Hence the direction of travel for policy that should motivate the owners and occupiers of buildings is increasingly clear.

Audit Scotland Recommendations

The Audit Scotland report referenced earlier in this section includes 6 recommendations for public bodies:

• Effective strategies to improve energy efficiency and reduce CO ₂ emissions, supported by comprehensive plans detailing the actions to be taken to achieve agreed objectives and time-related targets.
• Ensure that senior staff play a key role in improving energy efficiency and reducing CO ₂ emissions through leading on the implementation of strategies.
• Implement a coordinated programme to raise awareness of energy efficiency among staff.
• Provide staff with the skills to implement energy efficiency strategies, using formal reporting frameworks to monitor progress.
• Collect accurate and consistent data on energy consumption within all sites.
• Ensure that energy efficiency is considered in the procurement of goods and services and in the planning and design of major capital projects.

This mirrors the experience from the Carbon Trust's Carbon Management programme where organisations with senior management engagement have put in place effective energy management practices.

Carbon Management

The Carbon Trust has assisted Scottish public sector organisations through the 5 steps of the Carbon Management process, this includes all 32 local authorities and the Scottish Government. A range of next steps are being considered to assist these organisations deliver the carbon reduction potential that was identified.

Informed Purchasing

Private sector organisations can benefit from Enhanced Capital Allowances ⁹¹ ( ECA) - a reduction in corporation tax. Although the public sector cannot make financial use of ECA, they can draw on the information the ECA provides on efficient energy products, and hence make better informed purchases.

Other sources of information include the EST's energy recommended website, which lists recommended products across a very wide range of goods.

Best Value

Best Value became a statutory duty following the Local Government in Scotland Act 2003. The objective of Best Value is to ensure that management and business practices in local government deliver better and more responsive public services. Achieving sustainable development is one of the key requirements under Best Value, and this encompasses energy efficiency.

Central Energy Efficiency Fund

In 2006/07, councils, NHS bodies and central government bodies spent at least £224 million on energy. The further and higher education sector also has significant energy costs. Reducing the energy spend of these public sector bodies could lead to significant monetary and carbon emissions savings.

The Scottish Government has set up the Central Energy Efficiency Fund ( CEEF) with an aim to improve energy efficiency throughout the public sector by providing interest free loans to fund the installation of energy saving measures. Only projects that give rise to cost effective savings (based on payback criteria) are eligible for funding. Since 2004/05 CEEF has provided £24 million of funding.

The loan repayments are assumed to be covered by the energy cost savings achieved by the measures implemented. When all of the loan repayments have been made, any additional savings that accrue can be made available to improve front line local services.

Support for NHS Scotland

In November 2008 further funding of £15 million was announced for NHS Boards. This capital grant scheme is to support investment in new technologies to reduce energy costs. The scheme is aimed at reducing CO ₂ emissions and can support renewable energy technologies.

Carbon Accounting

The Scottish Government made a commitment in the Spending Review Budget report to introduce a new system of carbon accounting across the whole Scottish Government spend. This is intended to be central to future budgetary processes, and will provide a mechanism to reduce the carbon impact of Government spend over time, in line with the target to reduce greenhouse gas emissions by 80% by 2050.

In parallel with the high-level assessment, the Scottish Government will require the carbon impact of individual Government policies and projects to be assessed. This will create incentives to find low carbon options and to comply with the highest environmental standards of design and performance.

These systems will encourage all future spending decisions to include full and proper assessment of the implications for climate change - addressing a key barrier - that short term spending decisions do not assess the long term energy and climate change impacts.

CRC early action

In the introductory phase of the CRC, participants can gain an enhanced position in the league table by undertaking "early action". This facet of the CRC is designed to reward organisations who have acted to reduce CO ₂ emissions in advance of the formal start of the CRC.

The CRC league table will be used to determine how much revenue from the sale of carbon allowances is recycled back to CRC participants. So improved league table performance offers a direct financial return.

The league table ranking is based on emissions reduction and "early action". Two types of "early action" are recognised:

• Certification against the Carbon Trust Standard.
• Installation of Automatic Meter Reading ( AMR) systems.

These will account for 20% of the league table score, with equal weighting between AMR and the Carbon Trust Standard. The Carbon Trust Standard is discussed under Cross Sector Issues.

AMR provide automatic reading of consumption data from metering devices such as gas, and electricity meters and the transfer of that data to a central database for analysis. A core principle of good energy management is measurement of energy performance. Hence use of AMR is highly valuable in its own right as well as supporting CRC compliance.

Interest Free Loans

The Energy Saving Scotland - small business loans scheme provides interest-free loans to improve energy efficiency within SMEs. The loan can be between £1,000 and £100,000, they are repayable up to 4 years and can cover 100% of project costs. The loan fund in 2008/09 is £2 million. With many SMEs in the commercial sector, this is an important measure as it is the main form of financial support available.

The loan can be used for energy efficiency or renewable energy investments, support and advice is available from the business advisers based in the local Energy Saving Scotland advice centre.

Enhanced Capital Allowances

Private sector organisations can benefit from Enhanced Capital Allowances ⁹² ( ECA) - a reduction in corporation tax. The ECA web site also provides information on the suppliers of efficient energy products and the specifications that qualify products as energy efficient. Hence buyers can make better informed purchases.

EPCs

Turnover of building stock in the commercial sector is likely to be more frequent than in the public sector. Hence the information in EPCs may be used more often than in the public sector.

The current economic climate will have an impact on property transactions - however where property is sold or let, the EPCs will enable a new focus on the energy costs of the property.

Climate Change Agreements

Climate change agreements are making a difference to energy consumption for the groups of users who are taking part. Some service sector companies are currently members of agreements (for example, supermarkets with in-store bakeries) although this is a small faction of the services sector.

In the commercial sector there is a large group of low energy intensity users. Although some have issues in common, many have their own specific circumstances. Targeting these and raising their awareness is therefore a more difficult task.

This suggests that early approaches to promoting energy efficiency should target larger organisations, partly due to the practicalities and cost effectiveness of reaching these organisations, but also a number of important drivers ( CRC, EPCs etc.) will provide additional motivation for action.

Smaller commercial sector organisations can also be influenced by this approach - e.g. through the supply chain for the larger players.

Energy a small fraction of business costs

Energy cost for a service provider is unlikely to be a major proportion of their overall costs. This means that energy issues and opportunities may not get attention. However, energy can still be a large cost in its own right. For most companies their energy bill is no more than 1% of their cost base, however for companies with significant turnover in the £100 m's, their bill could be a substantial cost.

Lack of knowledge and skills

In some parts of the service sector this is a real issue. This is particularly the case in smaller organisations and organisations that have less in-house engineering or building related technical skills.

Short term focus & the recession

The 2-3 year, short-term focus of businesses is a barrier as energy saving measures may have payback periods from 6-months up to 5-years or longer. Present economic circumstances will exacerbate this barrier.

A response that recognises this is to focus on low investment, quick to implement energy saving opportunities. Energy management and energy awareness campaigns are good examples.

Tenant Landlord

An oft cited problem is the tenant landlord barrier - where the tenant pays for energy costs but the landlord has the main influence over the energy performance of the building.

The introduction of EPCs is an important step in addressing this - but as EPCs have just come into force it is too early to assess their impact.

Building standards

Scottish building standards require architects and designers to build to minimum standards of energy efficiency. However few new buildings go beyond these standards and this has no impact on existing buildings, which dominate the energy use in these sectors.

The building standards were revised in 2007, tightening energy efficiency standards required for new buildings and are now proposed for revision every three years. A review of energy standards is currently in progress for revised standards for 2010.

Security of Energy Supplies

On the wider energy scene in Scotland there is increasing awareness of the changes that are likely to take place in the energy supply sector. This includes the planned closure dates of the main electricity generating plant (nuclear and coal) and the eventual decline of North Sea energy resources.

This promotes a debate about issues such as:

• Higher fuel prices, due to a longer term dependence on imported fossil fuels;
• Higher electricity prices, due to need for new investment (renewable and conventional) and achieving compliance with new environmental standards for power generation;
• Risks to interruption of fuel supplies from economies that are exposed to political or terrorist disruption;
• Decentralised generation.
• Impacts on CO ₂ emissions.
• Replacement investment
• Energy mix

At the moment significant amounts of oil, gas and electricity are exported from Scotland. Many of the facilities for this (terminals, pipelines and transmission lines) could be used to import energy. Hence some of the infrastructure required to support imports is available.

In any event, exploitation of energy efficiency and renewables clearly contributes to security of supply, offering indigenous means of reducing dependence on energy from other sources.

Decline of North Sea Resources

Oil industry estimates suggest that around half of the North Sea's economic reserves remain to be exploited. However these are likely to be in locations where the costs and risks of extraction are higher than in existing fields ⁹³. Thus the peak of North Sea activity has probably passed ⁹³. It is expected that the production decline rate will average 5% per annum over the next five years ⁹³.

This means changes are likely in the energy used in the extraction, transport and refining of oil and gas products.

Renewable Energy Targets

The proposed targets for renewable energy under the EU Directive on promotion of use of energy from renewable sources include electricity, heat and transport. As a result initiatives in future will promote a wider range of renewable energy technologies.

Overall the EU Directive set a 20% targets for the EU, with individual targets set for each Member State. The proposed UK target is 15% against a baseline of 1.3%.

In terms of renewable electricity the Scottish Government already has a target to generate 50% of Scotland's gross electricity demand from renewable sources by 2020, with an interim target of 31% by 2011. In 2006 renewable electricity generation was 16% of gross electricity demand, rising to 20% in 2007.

The Scottish Government published its proposals to meet a 20% target in the Renewable Energy Framework consultation ⁹⁴. The Framework proposes to build on the existing target by providing 11% of heat and 10% of transport energy needs from renewables - this is shown in more detail in the following table:

Scottish Action Plan for Heat

The Framework includes the Scottish Action Plan for Heat, this covers:

• Provision of information on renewable heat
• Setting the proposed target of 11%.
• Linking policy on renewable heat with policy on waste
• The role of renewable heat to address fuel poverty
• Linking with the proposals for zero carbon in the building standards
• Carrying out research on biomass and air quality
• Links with planning via SSP 6 and the Sustainable Communities Initiative
• Banding of the Renewables Obligation
• Financial & Regulatory Incentives such as the proposed Renewable Heat Incentive
• Skills and training, research needs for renewable heat

These actions are key to underpin the proposed increase in renewable heat in 2020.

Renewable Energy Proposals

The large number and scale of proposals for on-shore wind farms tends to dominate the public perception of renewable energy and hence discussions about alternative energy sources. There are currently 226 on-shore wind farm planning applications, totaling 8.45 GW installed capacity, some dating from 2000, in the planning process ⁹⁵.

There is less debate about other forms of renewable energy such as biomass, and marine energy. However there may be public issues yet to emerge regarding these other technologies, recent awareness of the link between biofuels, key food crops and the cost increase of these crops is an example.

The Saltire Prize

Scotland's renewable energy resources include wind, wave, tidal and biomass. The capacity of on shore wind generation is growing quickly and will be the main route to meet the 2011 renewable electricity target of 31%. In future other renewable electricity generation technologies will also be needed, with the wave and tidal resources off Scotland's coasts offering significant potential.

Recognising this, the Scottish Government has created the opportunity to award one of the biggest international innovation prizes through its plans for the Saltire Prize ⁹⁶ - a £10 million challenge prize for advances in wave and tidal energy.

The Saltire prize challenge has been set as:

"£10 million will be awarded to the team that can demonstrate in Scottish waters a commercially viable wave or tidal energy technology that achieves a minimum electrical output of 100 GWh over a continuous 2 year period using only the power of the sea and is judged to be the best overall technology after consideration of cost, environmental sustainability and safety."

The Saltire prize complements other incentives to encourage wave and tidal energy development such as additional ROCs for output from these technologies.

Renewable Energy vs. Energy Efficiency

Renewable energy and energy efficiency are sometimes seen as alternative options to meet energy needs. In reality both are needed.

Firstly energy efficiency is the lowest cost means of reducing carbon emissions. Secondly, although there are little fuel or carbon emissions associated with renewable energy, waste of renewable energy remains a waste. Even though the costs of "fuel" for renewable energy projects are normally free, there are costs for the capital and operation of the scheme.

Hence promoting and developing both energy efficiency and renewables offers a better use of resources.

Energy Efficiency Action Plan

The Climate Change (Scotland) Act 2009 requires Scottish Ministers to prepare and publish a report on energy efficiency setting annual targets for energy efficiency.

The Act also requires Scottish Ministers to revise the report on a regular basis, but as a minimum every three years in line with the Spending Review process.

This new requirement could provide a formal and highly visible reporting mechanism against which performance on energy efficiency can be measured. An outline of the plan has been published ⁹⁷.

Funding for Energy Efficiency

Finding the funds for investments in energy efficiency has always been a major barrier to uptake of energy saving measures that are proven and economic. In the current economic circumstances the decisions over investment are likely to be even more difficult.

In its report to the Scottish Government the Council of Economic Advisors ⁹⁸ recommended that further effort be made to transform energy efficiency, particularly in homes. The recommendations includes exploring ways to defray the up front costs, e.g. by working with energy suppliers and banks to add the investment costs to energy bills.

One of the measures proposed for the Energy Efficiency Action Plan is loans for householders to invest in energy saving measures ⁹⁹.

Carbon Trust Standard

Earlier sections on the industry and services sectors have covered the need for good carbon and energy management practices. This includes the setting of strategies, with setting of targets, reporting of progress and putting in place effective systems and resources to meet these targets.

In June 2008, the Carbon Trust launched a new accreditation scheme for organisations in both the public and private sectors. Called the Carbon Trust Standard ¹⁰⁰, the scheme will allow organisations to show that they are committed to making carbon reductions. Participation in this scheme will now be used to show 'early action' under the CRC.

To achieve the Carbon Trust Standard requires compliance in three key areas:

1. Calculation of an appropriate carbon footprint (initially electricity, gas and transport, increasing to include process and business travel).

2. Demonstration of carbon footprint reduction (either an absolute reduction or an equivalent reduction in a carbon efficiency benchmark ( e.g. tCO ₂ per £m turnover).

3. Evidence of good carbon management practices (policy, reporting, carbon accounting and carbon management).

As of January 2009, eleven Scottish organisations held the Carbon Trust Standard, including large multinational corporations such as Diageo, public bodies such as Fife Council, and SMEs such as FIS Chemicals of Aberdeen.

Energy & Carbon Labelling

Consumer surveys show a high awareness of climate change as a pressing environmental issue. However the research also shows a low level of awareness of the part that individuals can play in mitigating the risk of climate change. Many consumers place the onus of addressing climate change on industry or government. The Scottish Energy Study has shown that the two areas where consumers have most influence, energy use in homes and transport, are the largest and growing sectors for energy use in Scotland.

The energy or carbon labelling of products, from food items to cars and homes, is attracting particular attention as one way of addressing this. Some initiatives are driven by EU legislation, in the food sector this is being pushed forward by a range of organisations including supermarkets such as Tesco. This would help to inform individual consumers about their impact on climate change.

Jobs in Renewables

The size of Scotland's renewable energy resources offer significant economic and employment opportunities ¹⁰¹. Significant numbers of jobs have already been created in the implementation and operation of commercial wind energy projects, with growing numbers in the biomass and marine energy sectors as well as microgeneration. Moreover, experience and skills in areas such as off shore fabrication and installation of large structures can be transferred into the wind and marine energy sectors of the renewable energy market.

Careers Scotland launched the "path is green" initiative to raise awareness of the growing number of employment opportunities in the environmental sector, including renewable energy.

Importance of energy for heating

Volume 1 of the Scottish Energy Study shows that 20% of energy use is electricity with the majority of the remainder being fuels for heating and transport. Even when the higher carbon emissions from electricity use are taken into account, electricity is only 32% of CO ₂ emissions from Scotland.

Thus reducing energy use in heating (including using energy efficient boilers) and using low carbon fuels for heating will be key. Once energy efficiency measures have been implemented a range of technologies are available to provide renewable heat. These include solar water heating, biomass and ground source heat pumps.

Biomass

Scotland has significant quantities of forestry biomass, and in future years this is expected to increase. This is partly due to the expected rates of harvesting of existing timber and a target to increase Scotland's woodlands from 17% to 25% of land use.

In addition energy crops such as short rotation coppice can be viable in Scotland, even on lower quality (grade 4) land.

The location of the biomass resource may not be close to the main areas of energy demand. Hence local and small scale projects will need to be encouraged. The Forum for Renewable Energy Development in Scotland ( FREDS) report on biomass ¹⁰² recommends support for this type of development. Recent support measures include:

• Grant funding of £10.5 m for 70 projects to March 2008, under the Scottish Biomass Support Scheme, followed by further funding of £2 million from April 2009 to March 2011.
• Publication of the Biomass Action Plan for Scotland.
• The Renewable Heat Action Plan for Scotland
• The proposed 11% target for heat from renewable sources
• Banding of the Renewables Obligation
• The proposed Renewable Heat Incentive

Analysis for CCC and BERR shows that biomass is the most cost effective of the renewable heat technologies. Hence efforts to promote the use of biomass are particularly important.

CHP and District Heating

The development of CHP systems is closely linked to the heat loads that they serve. In Scotland and the UK the main model has been CHP serving individual sites. To achieve attractive investment returns these sites have high levels of heat use throughout the year - e.g. serve large process sites in the petrochemicals, chemicals and food sectors, with some smaller installations in the public and service sectors, hospitals, swimming pools, hotels etc.

These sites are limited in number and this model restricts the potential for CHP development. In many other countries the model has been to develop CHP in conjunction with District Heating ( DH) systems. The DH system comprises heat mains transporting heat from the CHP to heat consumers in all sectors. In these systems the fuels that can be used include biomass and waste materials, as well as fossil fuels.

DH with CHP could offer consumers who could not install their own low carbon energy systems a means to make significant carbon savings. A number of schemes in Scotland have been installed using capital grant funding available in the past.

New incentives for renewable heat and power, along with policy pressure to recovery heat from waste should act to make these schemes more attractive in future.

The use of low carbon District Heating or CHP, or other forms of communal energy generation is one of the elements in the Scottish Sustainable Communities Initiative ¹⁰³, which was launched in June 2008.

Economic Circumstances

Investment in energy saving measures has in the past been a low priority in many organisations. The rationale for investment has increased, due to energy price increases and many policy measures that encourage or require better energy performance.

While these factors are important, uncertainty in business will deter some from investing in measures with medium or long term financial returns. Hence encouraging low cost, quick improvements in energy management is likely to prove effective in the short term.

Academic Expertise

Scotland has world class academic expertise in energy and renewable energy technologies. However the numbers of senior, leading, academics in these fields are low. Hence Scotland's present position is at risk from migration and retirement of the key academic staff.

Business Risk

Starting a new business is challenging at any time, but when the company is in the business of developing ground breaking technology in a developing market, the challenges are multiplied.

Several Scottish businesses in the renewables sector have struggled to remain in operation, perhaps due to fluctuations in orders. Notable examples include CamCal ¹⁰⁴ in Stornoway and NOI Scotland in Kirkcaldy.