How large is the energy savings potential in the UK?

A green leaf within a light bulb.

This study examines the impact of energy price shocks and the effectiveness of carbon taxes on different households. It also explores the potential benefits of improving energy efficiency in residential buildings, including energy, financial, and environmental aspects.

The researchers analysed detailed data on more than 50% of the building stock in England and Wales to provide insights and estimates.

The findings suggest that energy price shocks have a greater impact on wealthier regions compared to poorer ones. Overall, if buildings were upgraded to higher energy efficiency standards, it could lead to a significant reduction of energy consumption, potentially saving GBP 10-20 billion. However, the energy savings primarily benefit wealthier areas in England and Wales.

The study also highlights that current energy price setting policies, such as the UK’s energy price cap, discourage households from investing in energy efficiency upgrades. Paradoxically, these policies end up benefiting wealthier households the most. The researchers propose alternative policies that are more cost-effective, easy to implement, and better align incentives for energy efficiency investments.

In summary, this study shows that energy price shocks affect different households unequally, with wealthier regions being hit harder. Improving energy efficiency in residential buildings has the potential to generate significant energy, financial, and environmental benefits. However, existing energy price setting policies undermine incentives for energy efficiency investments and primarily benefit wealthier households. The researchers suggest implementing more targeted policies that would be cheaper and encourage energy efficiency upgrades in a fairer manner.

The original research paper: Distributional and climate implications of policy responses to the energy crisis: Lessons from the UK

Distributional and climate implications of policy responses to the energy crisis: Lessons from the UK

Thiemo Fetzer, Ludovica Gazze, Menna Bishop.

CAGE Working Paper No. 644/2022


Which households are most affected by energy price shocks and what can we learn about the incidence of carbon taxes? How large are the energy, financial, and environmental benefits of improved energy efficiency in the residential building stock? How do energy price setting policies affect incentives to invest in energy efficiency? We use granular property-level data representing more than 50% of the English and Welsh building stock to answer these questions and estimate the impact of recent energy price shocks on energy bills under different energy efficiency investments scenarios. We find that the energy price shock hits better-off regions more than poorer ones, in absolute terms. On aggregate, 30% of energy consumption, totalling GBP 10-20 billion, could be saved if buildings were upgraded to higher energy efficiency standards. Energy savings appear largely concentrated in the wealthiest parts of England and Wales. However, current policies, such as the UK’s energy price cap, weaken incentives for households to invest in energy efficiency upgrades and benefit wealthier households the most. Alternative, more targeted policies are cheaper, easily implementable, and could better align incentives.

Press Coverage

The paper received coverage in 2022:

Financial Times 🇬🇧.