Evaluation of Supplier Obligation Policy Options
1 February 2007
By Daniel Radov et al.
As part of its climate change program to reduce greenhouse gas emissions, the UK Government has identified improving energy efficiency, including the efficiency of households, as a priority. Current policy to promote greater efficiency focuses on obligations on energy suppliers through the Energy Efficiency Commitment (EEC), but the government has proposed that a new "Supplier Obligation" could replace it starting in 2012.
In this report for the UK Department of Trade and Industry (DTI) and the Department for Environment, Food and Rural Affairs (Defra), a NERA team led by Associate Director Daniel Radov examines the implications of different types of Supplier Obligation. The report assesses the rationale for involving suppliers in household energy efficiency and considers what role Energy Services Companies ("ESCOs") could play, if any. It then evaluates the relative merits of different policies -- focusing on the project-based approach in place under the EEC and an alternative cap-and-trade approach that would put a cap on household emissions. The authors discuss the relative risks of the different options and the implications for supplier costs, energy bills, and emissions reductions, and identify areas for further research.
The report was published on 23 May 2007, alongside DTI's Energy White Paper, which sets out the UK's long-term framework for action to address climate change and maintain stable and affordable energy supply at home and abroad.
