7 SCENARIOS REPORT
Introduction
7.1 The Domestic Energy Model for Scotland, DEMScot, was developed to allow policy makers to see the effect of different strategies for upgrading Scottish housing. It allows you to see CO 2 savings and financial costs. The CO 2 figures include both 'energy in use' (for gas, electricity, oil and solid fuel, sometimes called 'operational energy') and 'embodied CO 2' (from building new homes and/or upgrades to existing homes).
7.2 The financial figures include the cost of energy to households, the cost of building new homes, the cost of upgrading existing homes, and the 'Shadow Cost of Carbon' (promoted by the UK Treasury as the best way to account for the true cost to the economy of CO 2 emissions). The cost of upgrades is not necessarily negative because this represents an opportunity for job-creation and potentially switching from imported fuels to local employment - a boost to Scotland's economy and moving towards energy security.
7.3 The data underpinning the model is the best available, explained elsewhere. We have compared outputs from the model to known actual total CO 2 emissions from gas and electricity in homes in Scotland, and made minor modelling adjustments to ensure a good match between modelled and actual CO 2 emissions.
7.4 The model is extremely flexible, and you may alter any of its assumptions. However, most of the scenarios reported here assume that current trends in house-building, demolitions, electricity generation, use of heating, lights, appliances and cooking will continue. They all assume small increases in annual average temperatures, in line with the latest projections of the impact of climate change. Apart from specific exceptions, where the Government asked us to consider changes to house-building projections, the demolition rate or increasing the Shadow Cost of Carbon, we did not change any of the base assumptions for this work.
7.5 The Scottish Government asked us to use 2005 as a base year for scenarios in the model 37. This report was prepared using DEMScot v1.3, which was calibrated using BERR energy and CO 2 data for Scotland 38. (The calibration is described in Part 4, Section 6 of the Final Report.) Using official estimates of CO 2 from Scottish electricity in 2008 39, we took total CO 2 emissions from Scottish housing in 2005 to be 12.8 million tonnes.
7.6 The Scottish Government asked us to examine these ten scenarios.
They are examples of policy scenarios and do not represent policy intent.
1. Delivering 20% emission reduction* by 2020 (all fuel sources)
2. Delivering 40% emission reduction by 2020 (excluding electricity)
3. Delivering 50% emission reduction by 2020 (excluding electricity)
4. High growth housing supply (35,000 new homes/annum)
5. High demolition (8,000 homes demolished/annum)
6. Impact of a high shadow cost of carbon (£200/tonne CO 2) on the cost effectiveness of interventions
7. Different assumptions on the carbon intensity of electricity to see how it affects outcomes compared to base case
8. What is actually deliverable - what supply constraints exist and how this affects costs/number of measures to be installed, including transaction costs
9. Subsidised energy efficiency measures (cavity/loft insulation) by 100% for priority groups (as now) and 30% for all other groups. Cost and benefits to government and to householders.
10. 100% subsidy for other measures (low and zero carbon technologies) for priority groups and 30% for all other groups. Again, costs and benefits to government and householders.
*All reduction scenarios take 2005 as the base year.
7.7 The scenarios show that to meet the Scottish targets for reducing climate change emissions will be extremely challenging. On top of this, our modelling specifically excludes the 'rebound effect' (where people take part of energy efficiency improvements to their homes as improved comfort). This was planned for Stage 2 in the project. This means the findings reported here actually overestimate the real savings in CO 2 emissions from the upgrades we have modelled. As much as 50% of the savings shown here could actually be taken by improved comfort. (The rebound effect applies acutely, but not exclusively, to people in fuel poverty - who spend a high proportion of their income on energy costs. Many fuel poor groups could take all of the benefit of improved energy efficiency in better comfort, and consequently not cut CO 2 emissions or energy use at all.
7.8 All of the results presented here report CO 2 emissions and not emissions of other greenhouse gases. The model includes projections of nitrous oxides, methane and sulphurous oxides.
Main assumptions
7.9 There are around 50 assumptions in the model, described in detail in Part 4 of the Final Report. To summarise, for the base case we assumed that:
- Existing trends for house-building and demolition continue (25,000 new homes built/year and 4,000 demolitions/year)
- Existing trends for falling carbon intensity of electricity continue
- No step-change breakthroughs in zero carbon technologies for homes
- No major demographic shifts
- Households continue to run their homes broadly as they do now
- Methane and NOx emissions change in proportion to CO 2 for each fuel source
- The costs of upgrades are the same for all homes, and do not vary with uptake
- Future homes are simplified to just 12 house types (timber frame and masonry walls, built to 2006 Building Regulations and 2010 Building Regulations standards, in three different sizes and configurations - flats, semi-detached and detached).
7.10 These assumptions are broadly consistent with other models of energy use and CO 2 emissions from housing, but they have been tailored to Scotland and the Scottish housing stock.
Individual upgrades
7.11 To give an overview of how the model works, the table below shows all of the upgrades to homes that can be simulated. It also shows the effect on CO 2 emissions of carrying out upgrades to all homes that could possibly be improved in each way. The second column shows the saving in annual CO 2 emissions for all Scottish housing assuming that each upgrade is carried out in isolation, compared to 2005 emissions. The third column shows what proportion of total CO 2 emissions from housing can be saved by each upgrade. (The number of homes that can be upgraded varies according to the upgrade chosen.)
7.12 The savings cannot be added together simply 40, but the model allows users to calculate the effect of multiple upgrades. There is a net increase in CO 2 emissions for the 'High consumption users' category, which is the part of the model used to see the effect of changes in householder behaviour, see previous page.
1. Delivering 20% emission reduction by 2020 (all types of energy)
There are a variety of different ways of achieving this objective. DEMScot could not be designed for users to enter directly the emissions reduction target they wish to pursue (because there are multiple solutions). This means that CAR used trial-and-error for different packages of upgrades to achieve the objective.
We have assumed that the Government would want to meet this objective in the most cost-effective way possible, so we started by applying low-cost upgrades to homes.
We found that the most cost-effective way to achieve a 20% reduction by 2020 ( i.e. a saving of 2.56 million tonnes CO 2/year) is to carry out the upgrades shown in the table below.
(This table is drawn straight from the model. It may look daunting at first, but the upgrades are shown in the 'Option' column, and when they are shaded yellow and marked with 'Yes' in the 'Yes/No' column, it means they are selected. A 'No' in this column means that the upgrade has not been included. 'Planned uptake' states what proportion of the realistic maximum uptake for each upgrade you wish to model. The 'Realistic maximum uptake' is the technical limit of what could be achieved for Scottish housing from now to 2050. This is less than 100% for many of the upgrades because some homes are unsuitable for some upgrades for technical reasons. For example, homes without roofs ( e.g. flats below the top floor) are not suitable for photovoltaics or solar water heating; and some solid wall properties could not have wall insulation inside or outside because small rooms and land ownership outside the homes prevent such insulation.)
(The 'Short term upgrade package' consists of draught-proofing, pipe lagging, reinstating window shutters in homes where they exist, installing radiator shelves, putting insulated reflective foil behind radiators, and installing extra insulation on hot water cylinders.)
We did not model any change to occupant behaviour in this scenario because it has been disputed whether any positive changes are possible without changing the cost of energy. (If the Government thinks occupants can be persuaded to use less energy in the home it would be possible to meet this objective more economically. Nor did we allow for rebound effects, e.g. energy savings taken as improved thermal comfort, because this will be done in Stage 2 of the work.)
These actions would cause CO 2 emissions to fall to 10.3 million tonnes in 2020, and continue to fall to 8.9 million tonnes by 2050 with no further action, see graph. However, these savings assume that the carbon intensity of electricity falls over time, in line with projections for Scotland generated by Cambridge Econometrics 41.
The graph shows a steep decline from 2014 to 2015, due partly to the upgrades and partly to the anticipated fall in carbon intensity of electricity. From 2020 onwards there is a more modest decline, due entirely to carbon efficiency improvements in electricity generation.
The eight actions above would have a total cost in Scotland of £8.2 bn by 2020 (in 2008 prices). These costs, while considerable, are modest compared to the annual cost of energy and the cost of building 25,000 new homes each year, see graph next page. The graph shows that the cost of upgrades will be about half of the cost of building new homes each year until 2020, and about a quarter of the annual cost of domestic energy even at the beginning of the period. (These comparisons are useful in assessing the scale of investment needed - the upgrades are not an alternative to building more homes.)
This investment would result in new construction jobs in Scotland, and could increase tax revenue. The regional multiplier would mean that the economy benefits several times over as those employed directly in carrying out the upgrades spend their new income on goods and services.
2. Delivering 40% emission reduction by 2020 (excluding electricity)
The Scottish Government asked us to look at CO 2 emissions from only 'non-traded sectors' ( i.e. those not included the EU Emissions Trading Scheme - excluding CO 2 from electricity). In 2005, total emissions for Scottish homes excluding electricity were 7.6 million tonnes of CO 2 - representing 37,640 MWh of energy use. Meeting the 40% reduction target would require non-electric CO 2 emissions to be cut to 4.6 Mt.
Our modelling work found that this target can be achieved by 2020, even though it is unaffected by the expected reductions in the CO 2 intensity of electricity. However, meeting the target relies on making all possible non-electric upgrades extremely quickly - we assumed that:
A. all fabric upgrades except solid wall insulation and double-glazing would be complete by 2020, insulating 50% of the homes with solid walls that can be insulated and upgrading 60% of single-glazed homes by 2020, and
B. new technology upgrades (like solar water heaters, biomass heating and community heating with combined heat and power) would be complete faster than the supply chain could realistically respond - around 80% of the homes that could accept these technologies.
In reality, this would not be possible without immense effort by the Scottish Government and other agencies, as well as various supply chains. (Insulating 50% of the solid wall properties, in particular, would be very hard in 11 years. Solid wall insulation could be internal or external insulation, and this involves upgrading any walls with u-values worse than 0.5 W/m2k, using the equivalent of 50mm of blown polyurethane insulation.)
Nevertheless, we believe that this is a reasonable scenario to examine, and changes in occupant behaviour affecting how people run their homes could compensate for some slippage in Scotland's ability to upgrade housing.
These changes are very dramatic, and you would expect a significant impact on total CO 2 emissions from Scottish housing ( i.e. including electricity). The graph below shows just how much CO 2 emissions could fall (if it were possible to complete these upgrades in 11 years).
As the graph shows, total CO 2 emissions ( i.e. including electricity) would fall to 8.8MtCO 2 by 2020, and continue to fall to 7.5MtCO 2 by 2050 with no further action - assuming continued savings in the CO 2 intensity of electricity.
Naturally, it would be very expensive indeed to achieve these savings - most homes in Scotland would need to be improved, costing £16.1 billion. The annual cost is shown in the graph below.
The graph shows that the annual cost of upgrades would be £1,340 million - about the same as the cost of building 25,000 new homes each year, or about half of the annual cost of domestic energy for all homes. (Again, the comparisons are intended to help assess the scale of investment needed - upgrades are not an alternative to building more homes.)
3. Delivering 50% emission reduction by 2020 (excluding electricity)
Our modelling work found that it is not technically possible to meet this target by 2020. In part because this scenario disregards the anticipated savings in CO 2 emissions from electricity generation, even if you carry out every possible non-upgrade to all the available homes in Scotland, including changed user behaviour (moving from 30% 'low users', 40% 'medium users' and 30% 'high users to 40% 'low users, 40% 'medium users' and only 20% 'high users'), you still fall short of the objective. The upgrades modelled are shown in the table below.
We have major doubts as to whether this level of change could happen in practice, even with major effort by the Scottish Government and others. And there remains scepticism about the extent to which the Government can change householder behaviour so that they shift from 'high' to 'low users'. Nevertheless, if both of these things did happen by 2020, our model shows that there would only be a 48.5% saving in non-electric emissions compared to 2005: down to 3.9MtCO 2, when the target is 3.8 MtCO 2.
These changes taken together would reduce total CO 2 emissions (including those from electricity, assuming expected reductions in CO 2 per unit of electricity) by 42% by 2020, see graph next page.
Again, this represents a huge change, and inevitably costs would be high: £20.1bn or nearly £1,700 million a year. To give a feel for the scale of investment, this is about a fifth more than the annual cost of new homes, or 30% less than the annual cost of energy, see graph below.
4. High growth housing supply (35,000 homes/annum)
The default rate of housing supply in the model is 25,000 new homes a year - broadly in line with the rate of house building in Scotland over the last 20 years. House building has slowed down dramatically in the past two years, and is now substantially lower than this, but the Government asked us to assume that it returns to the medium-term trend for Scotland. This is still significantly below the Government's target of building 35,000 homes/year, and this scenario explores what happens to CO 2 emissions from housing if Scotland raises the number of homes built each year.
The scenario maintains the assumption that there are 4,000 demolitions of homes each year, as per the 'base case'.
A. Without upgrading existing homes
First, we examined the impact on CO 2 of higher house-building with no specific climate change policies that would lead to upgrades for new or existing homes. (The model assumes that new homes built from 2006-2010 meet the existing Building Regulations, and homes built from 2011 onwards meet the likely performance requirements of the revised Building Regulations 42, which will come into force in 2010. This is consistent with other models, but is optimistic because of the life span of building warrants and the tendency of the house-builders to lodge many building warrant applications immediately before new standards come into effect 43).
With 35,000 new homes built a year, there will be 3,655,000 homes in Scotland by 2050 (see graph next page), compared to 3,215,000 in the base model.
Under this scenario, total CO 2 emissions from Scottish housing will be 12.1 MtCO 2 by 2050 - still below the 2005 rate of 12.8 MtCO 2 (see graph below). This is because projected savings in CO 2 per unit of Scottish electricity are higher than the increased energy demand from new homes (in part because the tightening of energy standards means that new homes are built to be much more energy-efficient than existing homes).
However, if the projected savings in the carbon intensity of electricity are not achieved and the carbon intensity of electricity is unchanged to 2050, a very different picture emerges: total emissions of 16.5MtCO 2 by 2050 - 29% higher than the level in 2005, see graph next page.
B. With limited upgrades to existing homes
Given the Scottish Government's stance on climate change and recommendations made, for example, in the Sullivan Report, it is very likely that the Government will enact policies to upgrade existing homes. We modelled relatively modest changes to the existing stock, which are likely to be made by 2050.
We modelled the upgrades shown in the table below. We chose all of the upgrades that are currently deemed 'cost effective' (although there is considerable debate about what constitutes a 'cost effective' investment, with no clear consensus to date), 50% of the possible solar water heaters, and community CHP, which could become cost-effective between now and 2050.
When these upgrades are completed, CO 2 emissions are lower in 2050 than they are in 2005, even with a fixed carbon intensity of electricity, see graph next page. These upgrades would result in annual emissions of 12.8 MtCO 2 - the same as 2005, and a long way off the Government's objective of an 80% reduction in CO 2.
These upgrades would cost an estimated £12.8 billion at 2008 prices, or an average of £307 million/year.
Using Cambridge Econometrics' projections of future carbon intensities of Scottish electricity, annual CO 2 emissions from housing come down to 9.4 Mt, a 27% reduction on 2005, see graph below.
C. Major upgrades to the housing stock
Thirdly, we looked at the effect of carrying out a major programme of upgrading homes - doing all the tried-and-tested upgrades to as many homes as seems realistic, bearing in mind limits on the supply side for some of the upgrades.
These upgrades are shown in the table. All but photovoltaics and wind turbines are implemented on all homes that could realistically accommodate the upgrades, while pv and turbines are installed on a smaller subset of homes, which we think is achievable by 2050. (There is conflicting evidence about the efficacy mounted on buildings, and in some sites recorded power generation is very low 44.)
All of these upgrades together result in annual CO 2 emissions of 7.6 Mt. The trajectory of emissions is shown in the graph below.
The total cost of upgrades for these major upgrades in the scenario would be £36.0 billion, compared to a total cost for building new homes of £80.5 billion.
5. High demolition rate (8,000/annum)
The default rate of demolitions in the model is 4,000 dwellings per year - again matching the trend over the last 20 years. The model assumes that dwellings are demolished evenly across all house-types, ages and ownership classes. The Government asked us to model a substantially higher demolitions rate to see what effect this would have on CO 2 emissions. Eight thousand demolitions a year, with the default rate of 25,000 new homes/year in Scotland, would lead to a total of 3,039,000 dwellings by 2050, see graph below.
A. Without upgrading existing homes
First we modelled this scenario with no upgrades to existing homes, simply assuming that anticipated CO 2 savings from delivered electricity are achieved. This would lead to CO 2 emissions of 10.4 Mt by 2050. This trajectory is shown in the graph below.
B. With limited upgrades to existing homes
Next we ran the high demolition scenario with the limited upgrades used in Scenario 4. This resulted in annual CO 2 emissions of 8.0 Mt by 2050. Again, the trajectory of emissions is shown below, including the comparison with the 'base case' of no upgrades, still maintaining the higher rate of demolitions.
If you include embodied energy in the calculations (the thin line on the graph), annual emissions rise to 8.6 MtCO 2 by 2050.
The total cost of these upgrades would be £11.4 billion. However, we have not included any cost of demolitions in the model - because such costs are extremely variable. (A rough estimate is £70/m 2 for demolition costs above and below ground 45, or about £6,000 for an average 85m 2 dwelling) If these costs were included, the savings in upgrade costs would be much less pronounced, and may disappear completely.
C. With significant upgrades to existing homes
Thirdly, we looked at the effect of carrying out a major programme of upgrading homes - the same as for Scenario 4 above.
These upgrades are shown in the table on the next page. Again, all but photovoltaics and wind turbines are implemented on all homes that could realistically accommodate the upgrades, while pv and turbines are installed on a smaller subset of homes, which we think is achievable by 2050.
All of these upgrades together result in annual CO 2 emissions of 6.5 Mt. (Including embodied CO 2, this figure rises to 7.2 Mt) This work would cost £30.7 million.
6. High shadow cost of carbon (£200 and look at the differences that this would suggest for the cost-effectiveness of interventions)
To examine this scenario, we have analysed the costs and savings between 2009 and 2020 for each of the 18 upgrades in the model. We have built tables showing the cost and effect of 100% of the possible take-up of each upgrade:
- capital cost of interventions
- cumulative CO 2 savings compared to the base case
- cumulative financial savings of energy costs, and
- cumulative saving of energy costs plus the shadow cost of carbon at £26.50/tonne 46, and
- cumulative saving of energy costs plus the shadow cost of carbon at £200/tonne.
The first table below shows annual CO 2 emissions for 2020 if each of the upgrades is implemented individually. The scenario assumes that the carbon intensity of electricity will come down over the period in line with expectations for Scotland. It also assumes that energy costs follow Cambridge Econometrics' projections for Scottish domestic energy.
The second column of the table shows the cost of implementing the upgrade to all homes that could realistically be upgraded. Attaining this '100% uptake' by 2020 would represent a huge effort in most cases, and in reality it is unlikely to be achieved. Nevertheless, it shows that some upgrades (such as advanced controls) would be considerably cheaper than others (such as photovoltaics) if rolled out across all homes that could accept the upgrade.
The third column of the table shows how the annual emissions of CO 2 compare to emissions without any intervention (the base case). This shows that the biggest potential win for Scotland by far is community heating with CHP. This alone could save 7,730MtCO 2 annually. Biomass heating, solid wall insulation and our 'short-term package' (described above) could all make significant inroads in reducing CO 2 too. (Note that these savings cannot be added together simply - combinations of upgrades have complex results, and you need to run the model to see their effects.)
The fourth column shows annual savings by 2020 per pound invested 47. This indicates that community heating with CHP is by far the most cost-effective way to cut annual emissions. Cavity wall insulation is also a cost-effective upgrade, along with low energy lights and advanced heating controls.
We have also looked at cumulative savings in CO 2 and energy cost - i.e. the total amount of CO 2 saved compared to the base case in the period to 2020. This adds together the annual savings from each year. The results are shown in the table below.
The final table, over page, shows whether any of the upgrades repay the initial investment in savings from lower energy bills. Column 2 shows that just three upgrades repay the capital cost of implementation: low energy lights, advanced heating controls and community heating with CHP.
The table also shows the effect of different Shadow Costs of Carbon. Column 4 shows that a SCC of £26.50/tonne (the current rate as suggested by the UK Treasury) makes almost no difference to the economic viability of upgrades. Even with the Social Cost of Carbon included, just three of them would be justified on purely cost-benefit grounds by 2020. However, column 6 shows that a much higher cost of carbon - £200/tonne - would make a considerable difference.
At this rate, five of the upgrade options are justified on purely economic grounds: community heating with CHP, the short-term upgrade package, low energy lights, advanced heating controls, and cavity wall insulation.
The cost-effectiveness of interventions changes if you are considering the investment through to 2050, because the energy cost savings continue beyond 2020. (Another 30 years of energy cost savings accrue from nearly all of the upgrades.) This scenario is considered in more detail below in Scenario 8.
7. Different assumptions on carbon intensities of electricity to see how it affects outcomes compared to base case
The purpose of this set of model runs, in Scenario 7, is to identify the effect different carbon intensities of electricity have on implied domestic carbon emissions. Three scenarios have been tested against the base case:
1. Reference case: No change to the carbon intensity of electricity from 2009 onwards.
2. 80% reduction by 2050: The carbon intensity of electricity is reduced to 80% of the current level, broadly in line with the policy ambition, (linear reduction).
3. 100% reduction by 2050: Electricity production is zero carbon by 2050, (linear reduction).
The base case reflects CE's best estimate of carbon intensity of electricity in Scotland based on the extrapolation of bottom-up modelling to 2020.
Domestic CO 2 emissions
The 100% reduction case reduces CO 2 emissions from the domestic sector to 7.89MtCO 2 pa by 2050. By contrast, the increased use of electricity is highlighted in the Reference case when carbon emissions from the domestic sector increase to 15.24MtCO 2 as a result of carbon intensive electricity generation.
The main conclusion to draw from these results is that much more than decarbonisation of electricity will be required if the domestic sector is to reduce carbon emissions to meet the specified targets.
Points to consider
1. Different generation mixes, leading to different carbon intensities, are also likely to alter the price of (and therefore demand for) electricity.
2. Lower carbon intensities will also reduce implicit emissions from all sectors of the economy and the embodied CO 2 emissions of domestically produced goods.
8. What is actually deliverable - what supply constraints exist and how this affects costs/number of measures to be installed, including transaction costs.
The purpose of this scenario is to identify what is actually deliverable through the market and existing policy initiatives. The Stern report, the IPCC third and fourth assessment reports and the recent report by the Committee on Climate Change have suggested that measures to improve energy efficiency in buildings are so-called 'no regrets' options. 'No regrets' options or 'win-win' options are those options which are both economically cost effective and deliver an environmental benefit. However, it is clear that not all 'no regrets' options are taken up by rational individuals through the market. For example, in many cases, it seems economically cost-effective to install cavity wall insulation as the reductions in energy costs outweigh the initial capital cost. A number of factors have been identified in the literature to explain why economically cost-effective measures are not taken up by rational individuals:
- Information asymmetries: individuals are either not aware of the cost-effective options or do not realise that the options are cost-effective.
- Hidden costs: the literature identifies a number of costs which rational individuals might include in their decision making process; project identification costs, project appraisal costs, project commissioning costs, disruption costs and the risks to delivery.
- High discount rates: the literature also suggests that an individual's time preference for money is much higher than the discount rates used in individual project cost benefit analysis.
In order to estimate potential take up we have used the following method:
1. We have estimated a cost/benefit of each measure using a nominal discount rate of 10% by installing each measure, individually, in 2009, and discounting the future energy savings. The purpose of this is to reflect the decision making process of individuals.
2. If the measure is cost-effective on the above basis, it is taken up by everyone over the full time period to 2050. These measures are termed 'Cost Effective'.
3. In addition, we try to account for the renewal of certain measures. For example, every house is expected to replace its boiler once over the entire period to 2050 whether it is cost-effective to do so or not. Since non-condensing boilers are no longer available, this is equivalent to our 'boiler upgrade' in the model. We also assume that individuals renew their electrical appliances to more efficient appliances over the projections period. We have separated these measures into 'Renewal measures'.
4. We have also estimated a 'High Cost' set of capital costs allowing for project identification costs, project appraisal costs, project commissioning costs, disruption costs and the risks to deliver. The high cost calculations are based on the methodology in the Enviros (2006) 48 report. The purpose of the 'High Cost' model run is to give a comparison that tries to account for so-called 'hidden' costs.
5. The cost-effective measures in each run (regular cost and high cost), plus the renewal measures, are modelled to give the real (non-discounted) costs and benefits of the measures in the period 2009-2050 and the emissions reductions.
Results
The following measures are cost-effective on the basis described above and are likely to be taken up in the period to 2050.
No. | Option | Yes / No | Planned uptake |
|---|
1 | Changed user behaviour | No | 100% |
|---|
2 | Cavity wall insulation | Yes | 60% |
|---|
3 | Solid wall insulation | No | 90% |
|---|
4 | Loft insulation | No | 98% |
|---|
5 | Short term upgrade package | Yes | 100% |
|---|
6 | Low energy lights | Yes | 100% |
|---|
7 | Solar water heating | No | 80% |
|---|
8 | Double or secondary glazing | No | 100% |
|---|
9 | Advanced heating controls | Yes | 100% |
|---|
10 | Boiler upgrade | No | 100% |
|---|
11 | Biomass boiler | No | 100% |
|---|
12 | Combined heat and power ( CHP) | No | 50% |
|---|
13 | Ground Source Heat Pump ( GSHP) | No | 50% |
|---|
14 | Air Source Heat Pump ( ASHP) | Yes | 80% |
|---|
15 | Community heating with CHP | Yes | 10% |
|---|
16 | Improved electrical appliances | No | 100% |
|---|
17 | Photovoltaic | No | 80% |
|---|
18 | Wind turbine | No | 30% |
|---|
CO 2 savings (all cost effective)
Assuming that the take-up of measures is linear, the total carbon saving of these measures over the period is 46MtCO 2. By 2050, carbon emissions from the housing stock are reduced by 1.9MtCO 2 pa.
CO 2 savings (all cost effective + renewal)
The renewal measures have a moderate impact on CO 2 savings, reducing the total CO 2 over the period by an additional 1.8MtCO 2.
Measures taken up in the 'High Cost' scenario
Year | 2050 |
|---|
Title | All cost effective High cost |
|---|
No. | Option | Yes / No | Planned uptake |
|---|
1 | Changed user behaviour | No | 100% |
|---|
2 | Cavity wall insulation | Yes | 60% |
|---|
3 | Solid wall insulation | No | 90% |
|---|
4 | Loft insulation | No | 98% |
|---|
5 | Short term upgrade package | No | 100% |
|---|
6 | Low energy lights | Yes | 100% |
|---|
7 | Solar water heating | No | 80% |
|---|
8 | Double or secondary glazing | No | 100% |
|---|
9 | Advanced heating controls | Yes | 100% |
|---|
10 | Boiler upgrade | No | 100% |
|---|
11 | Biomass boiler | No | 100% |
|---|
12 | Combined heat and power ( CHP) | No | 50% |
|---|
13 | Ground Source Heat Pump ( GSHP) | No | 50% |
|---|
14 | Air Source Heat Pump ( ASHP) | Yes | 80% |
|---|
15 | Community heating with CHP | Yes | 10% |
|---|
16 | Improved electrical appliances | No | 100% |
|---|
17 | Photovoltaic | No | 80% |
|---|
18 | Wind turbine | No | 30% |
|---|
CO 2 reduction in 'High Cost' scenario
Cost and benefit of measures for all cost effective measures
The total cost of the measures, in 2008 real terms, over the period to 2050 is £7,321m. These cost-effective improvements reduce total energy spend by £24,490m in real terms.
Under the 'High Cost' model run the cost of the measures is £5,878m, in 2008 prices, as fewer measures are taken up. The resulting reduction in energy expenditure is £20,227m.
Supply side constraints
Futureskills Scotland's profile of the construction industry for 2007 indicates that the sector is characterised by extensive self-employment and above-average wages. Employer surveys suggest that turnover in the industry is similar to the Scottish average but that the majority of vacancies are classed as hard-to-fill owing to skills shortages.
With the onset of the recession, there have been concerns that the consequent reduction in the workforce will have a long-term impact on the industry's skills base. For example, Homes for Scotland has warned that, in light of data that suggest that home completions in 2008 could be as much as half the figure in 2007, the residential-construction workforce could be three-quarters its current size following the economic recovery. It is hoped that some of these workers will be absorbed into infrastructure projects, serving to preserve some of the skills base but the rising uncertainty and suspension of some public projects suggest the possibility of a substantial gap in skills in the medium term. Moreover, there is evidence that workers are already leaving the sector and entering industries such as oil and gas; there is also no guarantee that these workers will return to construction after the downturn.
The number of new apprentices is also expected to fall substantially in the short term, contributing to the likely increase in skills shortages and possibly casting doubt on the Scottish government's long-term target of 35,000 homes being built each year by 2015.
This may impact on the short term supply of skilled labour to meet the demand for installing domestic energy measures. However, in the medium to long term the demand for domestic improvements is likely to attract skilled workers to the market.
Points to consider
1. The DEMScot model assumes that capital costs will not fall with take up. This is valid and reflects the size of the Scottish market on international supply chains. However, if the Scottish market for a particular measure is a reflection of global take-up then it is likely that the capital costs will fall over time.
2. Individuals in lower income groups and pensioners might have much higher discount rates than the assumed 10% nominal private discount rate.
3. Individuals may act in an altruistic manner to install measures which are not cost-effective in an effort to lower their carbon footprint.
4. The linear take up of measures skews the debate between the stock of emissions or annual emissions. The take up of measures is unlikely to be linear to 2050. If, for example, all measures were taken up by 2015 the total MtCO 2 saving to 2050 would be much greater. But the reduction in annual emissions by 2050 would be virtually unchanged.
5. If information asymmetries persist they will limit the take up of cost-effective options - as the cost-effective measures will not be recognised.
6. Hidden costs highlighted in the introduction to this scenario might increase the capital costs of the measures substantially. However, the relative increase in the capital cost will be specific to the measure, the building and the individual. As such it is highly complex to model, or account for, hidden costs consistently and accurately across different types of measures.
7. Direct rebound effects could reduce the monetary benefit, which may instead be taken by increased thermal comfort, this will also reduce the CO 2 saving. This will be modelled in Stage 2 of the project if commissioned.
8. The economy-wide effects of a shift in the composition of spending away from energy (typically imported) towards improving the housing stock and therefore increasing demand for the construction industry are not captured in this analysis. The boost to the economy of investing in energy efficient building measures could be substantial. This could be modelled in Stage 2 of the project.
9. Subsidised energy efficiency measures (cavity/loft insulation) by 100% for priority groups (as now) and 30% for all other groups. Cost and benefits to government and to householders.
The purpose of Scenario 9 and Scenario 10 is to identify the cost and benefit of subsidising measures at different rates to different groups. In this scenario, priority groups receive a 100% subsidy on loft insulation and cavity wall insulation. Non-priority groups receive a 30% subsidy on the same two measures. We assumed that the subsidy induces individuals to take up the measure over the period to 2050.
Costs and Benefit of Cavity and Loft Subsidies (£2008m)
Group | Cost to group | Cost to government | Benefit to group |
|---|
Priority | - | 587 | 1,499 |
|---|
Non Priority | 312 | 134 | 993 |
|---|
All | 312 | 721 | 2,492 |
|---|
The results show a net benefit to society of £1,459m in the period to 2050. The total cost to government is just £721m and leads to a total carbon saving over the period to 2050 of 8.3 MtCO 2. The costs and benefits are not discounted and therefore reflect the real (2008 prices) benefit of reduced energy bills compared to the cost of installing the measures. The costs are the cumulative sum of the cost of the measures; these are either paid for by the government (100% subsidised) or by a combination of government and individuals (30% subsidised).
The cost table does not include the social benefit (in monetary terms) of reduced carbon emissions, which can be valued using DECC's shadow price of carbon (£26.50 in 2008), of £383m (not including embodied emissions). In total, then, the net benefit to society from these subsidies would be £2,875m.
CO 2 reduction (all)
CO 2 reduction (priority groups)
CO 2 reduction (non priority groups)
Points to consider
1. Linear take up to 2050 is unlikely - all groups could be targeted by 2020, priority groups could be targeted by 2015.
2. The 30% subsidies to non priority groups may not be enough to induce take up (although the results of Scenario 9 indicate that this might be a plausible assumption for these measures).
3. The overall cost does not account for the indirect effect of additional expenditure in the economy. A large proportion of the cost will be spent on the construction industry, which will in turn be spent throughout the economy. The positive benefit to the economy of a shift in spending towards construction and away from imported fuels is likely to lead to a much larger gain to the economy than indicated by the cost benefit table. This could be picked up in Phase 2 of the project.
10. 100% subsidy for other measures (low and zero carbon technologies) for priority groups and 30% for all other groups. Again, costs and benefits to government and householders.
In this scenario we investigate the cost and benefit of subsidising a range of other measures highlighted in the table below. As before, in this scenario priority groups receive a 100% subsidy on the measures, whereas, non-priority groups receive a 30% subsidy on the same measures. We assume that the subsidy induces individuals to take up the measure over the period to 2050.
Year | 2050 |
|---|
Title | Other measures |
|---|
No. | Option | Yes / No | Planned uptake |
|---|
1 | Changed user behaviour | No | 100% |
|---|
2 | Cavity wall insulation | No | 60% |
|---|
3 | Solid wall insulation | No | 90% |
|---|
4 | Loft insulation | No | 98% |
|---|
5 | Short term upgrade package | No | 100% |
|---|
6 | Low energy lights | Yes | 100% |
|---|
7 | Solar water heating | Yes | 80% |
|---|
8 | Double or secondary glazing | No | 100% |
|---|
9 | Advanced heating controls | Yes | 100% |
|---|
10 | Boiler upgrade | Yes | 100% |
|---|
11 | Biomass boiler | Yes | 100% |
|---|
12 | Combined heat and power ( CHP) | Yes | 50% |
|---|
13 | Ground Source Heat Pump ( GSHP) | Yes | 50% |
|---|
14 | Air Source Heat Pump ( ASHP) | Yes | 80% |
|---|
15 | Community heating with CHP | Yes | 10% |
|---|
16 | Improved electrical appliances | No | 100% |
|---|
17 | Photovoltaic | Yes | 80% |
|---|
18 | Wind turbine | Yes | 30% |
|---|
Costs and Benefit of Low and Zero Carbon Upgrades (£2008m)
Group | Cost to group | Cost to gov't | Benefit to group |
|---|
Priority | - | 23,309 | 23,280 |
|---|
Non Priority | 13,498 | 5,785 | 19,767 |
|---|
All | 13,498 | 29,094 | 43,047 |
|---|
The results show the net benefit in real terms (2008 prices) to society of £455m in the period to 2050, with no discounting. The total cost to government is £29,094m and this leads to a total carbon saving over the period to 2050 of 8.97 MtCO 2.
The cost table does not include the social benefit of reduced carbon emissions, which using DECC's shadow price of carbon works out at £4,109m (not including embodied emissions). The total net benefit to society of this scenario is therefore £4,564m.
CO2 emissions reductions (all)
CO2 reductions (priority)
CO2 reductions (non priority)
Points to consider
1. Linear take up to 2050 is unlikely.
2. The 30% subsidies to non priority groups may not be enough to induce take up (although the results of Scenario 9 indicate that this might be a plausible assumption for some measures)
3. The overall cost element does not account for the where in the economy the money is spent. As for the previous scenario, a large proportion of the cost will be spent on the construction industry, which will in turn be spent throughout the economy. The positive benefit to the economy of a shift in spending towards construction and away from imported fuels is likely to lead to a much smaller cost to the economy than indicated by the cost benefit table. In fact it may even lead to a positive benefit. This could be picked up in Phase 2 of the project.
Summary
7.13 The new model of Scottish housing and carbon emissions, DEMScot, is capable of simulating a wide range of different policy interventions and showing their likely impact on CO 2 emissions and cost.
7.14 However, there is a major caveat in this work: none of these simulations take account of:
1. The rebound effect - which means that part of any energy efficiency improvements are taken by householders as improved comfort rather than energy and CO 2 savings, or
2. Fuel poverty - which means that many people are living in what is viewed as inadequate comfort conditions because they cannot afford to heat and light their homes properly. Many people in this group are likely to continue to use just as much energy after their homes have been upgraded as they did beforehand. Effectively, many of these people take the whole benefit of upgrades as better comfort, with no saving in CO 2.
7.15 As a result, all of the scenarios over-state the extent of savings. Perhaps as much as 50% of CO 2 and cost reductions could be taken as improved comfort. This is a major cause for concern, which undermines the results. For this reason the research team thinks it is essential to go ahead with an initially proposed Stage 2 of the work, which was to look at the rebound effect and fuel poverty.