By Professor Karen Turner, Director of the Centre for Energy Policy, University of Strathclyde
ON Wednesday, the First Minister announced the Energy Efficient Scotland programme, a long-term, 20-year programme aimed at improving the energy efficiency of Scotland’s building stock. It aims to stimulate a mass programme of building improvements, insulation and installation of new heating technologies to make homes and workplaces warmer, reduce energy bills and address fuel poverty.
But Energy Efficient Scotland should have additional positive impacts, including on the health of Scottish people, the performance of the Scottish economy and the carbon emissions we generate. The focus of our work is the economy. Our team at the University of Strathclyde’s Centre for Energy Policy (CEP) have been exploring the potential long-term economic impacts of the residential side of the programme, both on individual sectors and on key macroeconomic indicators, including GDP, employment and public budgets.
We used our economy-wide multi-sector macro-economic model to estimate the impact of an £8 billion overall investment in improving the energy efficiency of Scotland’s housing stock. Based on a continuation of current levels and composition of real spending on Scottish residential energy efficiency, but shifting focus to the new 20-year framework, this total is made up of: 20 per cent in Scottish Government grants (all directed to low-income households), a further 15 per cent via the Energy Company Obligation (ECO) and 65 per cent in household contributions (via interest-free loans). Calculations using data provided by the Scottish Government and Energy Saving Trust suggest that that this may translate to an average 9-10 per cent reduction in physical energy requirements to run Scottish households, rising to 13 per cent in low income households, where most direct government grant support is directed. If this translates to lower energy bills, it suggests a boost to real incomes and spending power.
The question we focus on is whether this, combined with the planned long-term programme of activity in the Scottish construction and retrofitting sector and its supply chain, may result in a wider set of lasting benefits for the Scottish economy. Our results suggest the combined impact could potentially translate to an additional £7 billion in real Scottish GDP over the next 30 years (a time frame that allows time for programme work to end and all loans to be repaid) and about 6,000 sustained new jobs. At the peak of project activity (the actual retrofitting of insulation/energy efficiency measures) there may be as many as 9,000 additional jobs created in the economy. But over time, it is the impacts of Scottish households actually realising energy efficiency and real income gains that deliver sustained increased Scottish GDP and employment.
The strength of the estimated economic impacts depends in large part on the fact that we have modelled a projected 20-year programme of spending. Considering actual spending that may be announced over shorter (and less certain) timeframes, would impact the response of the supply chain actors we need to undertake the projects, and, thus, the extent of economic expansion. Similarly, if households cannot be persuaded to make the full spending contribution required on their part, and/or they fail to actually realise technically possible efficiency gains, a less positive outcome would be expected.
So, overall it looks like the Energy Efficient Scotland programme will not only deliver energy savings to help meet climate change targets but also help boost the Scottish economy. Of course, our economic model has generated estimates based on everything going to plan. The proof of the efficiency pudding will ultimately be in the eating.
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