Over the past decade energy efficient product markets have seen phenomenal levels of growth in the UK. Sales have been booming for new products that can offer organisations greater efficiencies, significant cost savings and reduced carbon emissions. The UK market for energy efficient industrial products is currently worth approximately £15-20 billion a year.
Between 2003 and 2012 the market for some types of heat pumps grew five times, and the variable speed drive market increased seven times. Between 2005 and 2012 the market for biomass boilers grew a massive 64 times. Strong double-digit growth was observed across the board in most technology controls markets. New markets have also emerged such as LED lighting, which effectively did not exist in 2008, but by 2012 represented 13% of all energy efficient lighting product sales.
But these stellar successes did not happen by themselves - government intervention has been in part responsible. Over the last decade much change has occurred to deliver much-needed economic and sustainability improvements across a wide spectrum of industrial technology markets. Industry wide voluntary agreements, government interventions, and much improved product information have delivered real and positive change.
In a perfect world with perfect information then perfect decisions would be made. In this perfect world then market competition would drive forward product innovation, which in turn would lead to all products being highly efficient.
Reality is of course very different - markets are imperfect and governments take action to steer them in order to meet economic objectives. Even where technology manufacturers are investing in product innovations that deliver sustainability benefits, many of these benefits are difficult to communicate to customers.
Through a combination of incentives, providing advice or information, regulations and addressing barriers to positive change then it is possible to develop effective markets that consume resources efficiently and minimise social or environmental harm.
Shaping product markets is absolutely fundamental in addressing climate change and resource crunches. For example recent government analysis shows that policies promoting more efficient new products will have the greatest impact on driving down household energy bills, with an expected average reduction of £158 by 2020 compared to 2012. To put this into perspective this is almost twice the anticipated impact of smart meters and better billing, and over four times the expected impact of the Green Deal and the Energy Company Obligation.
A decade ago customers wishing to purchase industrial technology didn’t have ready access to the information necessary to make rational purchase choices. This was bad news for the customer, the UK economy and the environment. With limited information the customer was likely to make an irrational purchase – perhaps buying a product with a low purchase price but, in the longer-term, a high running cost.
If all customers made choices in this way the economy would suffer because resources would not be consumed efficiently - too much energy would be consumed to deliver the required level of production. In turn this contributes to increased environmental impact, such as additional carbon emissions or too much water being consumed.
Providing better information is just one of the many interventions that governments can make to help shape product markets. Of course just one new policy alone won’t address all the issues – for example even products that are labelled as being extremely efficient in their operation could have far greater impacts across their full life cycle – taking into account everything from raw material to disposal. But over the last few years a number of measures have converged, helping to magnify their impact and influence across some technology markets, increasing sales for efficient products and helping to remove inferior ones from sale. Some of the most important of these include:
- The EU’s EcoDesign Directive sets Minimum Performance Standards (MEPS) which bar the worst performing products from European markets. This means that manufacturers have had to redesign and innovate their products to achieve these standards.
- The Labelling Directive ensures better information on the performance of the products is provided to customers, so they can make better decisions. This is the source of the A to G labels seen on white goods and some industrial technologies such as heat pumps.
- The Enhanced Capital Allowance (ECA) scheme for energy saving technologies encourages, through a tax break, the purchase of products with top quartile energy saving performance included on the Energy Technology Product List (ETL). This increases awareness and incentivises demand for better performing products, that typically carry a capital price premium over less efficient alternatives.
- With general backing of industry, the government has provided tougher building regulations, which gently lead us to towards more demanding requirements that will deliver near-zero carbon building by 2016. These regulations directly influence the selection of more efficient industrial technologies within those buildings.
Taken together these market interventions positively impact the supply and demand for energy efficient technologies in the UK. They are expected to remain in-force for the foreseeable future. Forward momentum is ensured because over time requirements are gently tightened.
There are other effects: for example, manufacturers and the wider supply chain for their technologies, such as designers and installers, continue to have certainty that they can invest in development. This should drive a continued improvement in the energy efficiency of technology and use of those technologies, with benefits across the UK economy.
Since 2001 the Carbon Trust has tracked over 60 industrial technology markets supported by the ECA scheme. This has involved the assessment of over 50,000 individual products, supporting total sales estimated to be worth over £7 billion. Today the annual value of ETL qualifying sales is around £1.2 billion in markets worth a total of £5 billion. We estimate that the ECA scheme has delivered net economic benefits in energy savings in the region of £4–4.6 billion to date, and contributed to carbon savings of approximately 13MtCO2e in the last five years.
The growth in these markets is very promising but we are still quite close to the beginning of the technology innovation journey to sustainable products. The pace of innovation shows no signs of slowing. Encouraging this and supporting industries that help drive efficiency will be a very important part of helping to secure a sustainable, low carbon future.
 Carbon Trust analysis of capital allowances Structural Relief data provided in the HMRC document “Estimated costs of the principal tax expenditure and structural reliefs” ( see http://www.hmrc.gov.uk/statistics/expenditures/table1-5.pdf). Assumed top 25% of market sales are in energy efficient technologies.
 Relative to the baseline of purchasing more inefficient equipment