RSPB Discussion Paper

RSPB Discussion Paper:

Resource Savings and EcoHomes

CONTENTS 1. Summary...... 1 Environmental Analysis of House Building Scenarios ...... 2 2. Costs of Building Houses to Higher Environmental Standards ...... 4 3. Water ...... 6 The Current Situation - Resources ...... 6 The Current Situation - Quality...... 6 Environmental Implications of Water Resource Pressures ...... 7 Costs of New Water Resources...... 8 Costs and Benefits of Water Savings ...... 8 4. Energy ...... 11 The Current Situation ...... 11 Building Regulations...... 12 Energy Efficiency Commitment (EEC)...... 12 Benefits of Energy Savings...... 12 Energy Efficiency Savings ...... 13 5. Sensitivity Analysis ...... 14

This paper is intended to generate discussion, it gives provisional thoughts on the economic benefits of resource efficient homes. The author welcomes comments to help develop analysis of this important subject.

Ian Dickie, RSPB

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 1

1. Summary “Large scale house building demands… a respect for environmental limits… unless they are environmentally sustainable, they will never be truly sustainable at all”.1

Proposals to increase house building in the UK, and particularly South-east England raise questions over the sustainability of housing. An analysis of the costs and benefits of building new homes to Building Research Establishment’s EcoHomes ‘excellent’ standards is possible using reports from Defra2, UKWIR3 and the Housing Corporation4. These studies were not designed for direct comparison, so analysis is subject to a degree of uncertainty, but the results withstand sensitivity analysis of the major assumptions, so the conclusions are clear.

The costs of just the water and energy actions required in the EcoHomes excellent standard are estimated at £160 per home. Under the largest proposed increases in house building, these actions would cost society £575 m over 15 years. These costs might increase a typical monthly mortgage payment by a few pounds, but are more likely to be absorbed into developers’ costs. In addition, the resulting reductions in water and energy consumption will produce savings of over £100 per year on typical metered household bills. Therefore, the extra cost of building more resource efficient homes is unlikely to influence the housing market.

The benefits of the water and energy measures in the EcoHomes ‘Excellent’ standard include the avoided externalities from greenhouse gas emissions and avoided need for new water resource infrastructure. Under current and high house building scenarios, these benefits are estimated at £2.4bn - £4.6bn over the next 15 years. Compared to the costs of the energy and water measures in the EcoHomes ‘Excellent’ standard on all new homes, of £284m - £575m, the savings have a Benefit:Cost ratio of 8:1 – they are easily worthwhile for society. These resource savings are shown in table 1.

Sensitivity analysis shows that a significantly positive benefit:cost ratio is maintained in relation to large variations in the assumptions used. Therefore, building to EcoHomes excellent standards will not only help to keep new development within environmental limits, but is also clearly worthwhile for society.

1 HoC Environmental Audit Committee. Housing: Building a Sustainable Future. 19th Jan. 2005. 2 Defra (2004) Study Into the Environmental Impacts of Increasing the Housing Supply in the UK. Entec. 3 Chilton PJ, Guha P. Peach DW, Stuart ME & Whitehead EW. (2004) Implications of changing groundwater quality for water resources and the UK water industry: Phase 3 Financial and water resources impact, UKWIR Report Ref. No. 04/WR/09/8 4 Housing Corporation (2002) EcoHomes Costings. Report to the Housing Corporation undertaken by e2S environmental consultants.

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 2

Table 1. Summary of Costs and Benefits of Building Homes to Water and Energy EcoHomes Excellent Standards

Benefits Costs Per Home Costs of water and energy actions required in £160 the EcoHomes excellent standard per home Reduced Externality of Greenhouse Gas £510 Emissions per home over 30 years Avoided Water Infrastructure Costs per home £462 Total for water and energy efficiency £972 £160

Scenario A (148,800 new homes per yr) Reduced Externality of Greenhouse Gas £1.6 billion Emissions over 30 years Avoided Water Infrastructure Costs over 15 £0.8 billion years Total for water and energy efficiency over 15 £2.4 billion £284 million years

Scenario B (301,500 new homes per year) Reduced Externality of Greenhouse Gas £2.9 billion Emissions over 30 years Avoided Water Infrastructure Costs over 15 £1.7 billion years Total for water and energy efficiency over 15 £4.6 billion £575 million years

Benefit-Cost Ratio 8 : 1

Environmental Analysis of House Building Scenarios The pace of UK house building is set to increase. As it does so, the standards to which houses are built come under scrutiny. The Government is producing a voluntary code for sustainable buildings, and analysing its impacts on costs and the environment.

Building new houses brings a series of environmental challenges5, each of which requires detailed assessment. As with many environmental issues, summarising the impacts of new housing on the environment, and comparing them to economic and social factors is a complex task. In particular, it is difficult to express all environmental impacts in monetary terms.

5 RSPB (2005) Healthy, Wealthy and Wise. RSPB. Sandy.

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 3

This report considers whether higher environmental standards for housing are justified for the planned acceleration in house building. Reducing our consumption of natural resources such as water and energy can have a range of benefits: x The costs of building infrastructure to obtain those resources is avoided, and the costs of distributing them is reduced; x Any negative environmental externalities of consuming those resources are reduced; and x Household demand for those resources is lowered, which may in turn cut household bills.

The following analysis quantifies just two aspects of these environmental impacts: the avoided costs of building new reservoirs for water supply, and the environmental externalities associated with greenhouse gas emissions as a result of energy consumption. These environmental benefits have been analysed because they are the easiest to quantify in economic terms.

These environmental benefits will vary by region, but are represented in this paper by average figures. It is clearly most important to apply the EcoHomes standard in the locations where it has most value. For example, in water-scarce areas such as the Southeast, higher water efficiency standards than the ‘average’ likely resource saving modelled in this paper may be required.

This partial assessment of the benefits of building to higher water and energy efficiency standards is compared to the total estimated costs. The comparison is made using two scenarios, from a recent report for Defra6, on the possible expansion of house building: o Scenario A – continuation of the current rate of house building, at 148,800 new houses per year. o Scenario B – the highest housing expansion scenario looked at by the Barker Review7, of 301,500 new houses per year for 15 years.

Under these two scenarios, building houses to current standards and to BRE’s EcoHomes8 excellent standards are compared.

These scenarios serve to illustrate the potential scale of future house building and associated environmental impacts, both of which are clearly of national significance. The exact number of houses in the scenarios is not crucial, as under the assumptions made in this study, the ratio between benefits and costs will hold for any scenario of increased future house building.

6 DEFRA (2004) Study Into the Environmental Impacts of Increasing the Housing Supply in the UK. Entec. 7 Barker (2004) Review of housing Supply. HMSO. 8 http://www.breeam.org/ecohomes.html

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 4

2. Costs of Building Houses to Higher Environmental Standards

The costs of building to the EcoHomes excellent standard vary by site and dwelling type, but a ‘typical’ capital cost has been taken from a 2002 Housing Corporation study9 as between £1,700 and £3,000 per home. The total discounted cost of building new homes to EcoHomes excellent over 15 years is estimated £3bn - £5.8 bn under scenario A, and £6.1bn - £10.8 bn for scenario B. Doing so would of course bring a range of environmental benefits (e.g. energy and water efficiency, sustainable use of timber, less waste and reduced transport emissions etc.).

This EcoHomes excellent cost is not huge, being equivalent to 2% extra on the average house price. However, roughly half of this cost is related to sourcing environmentally sustainable timber supplies10. Using timber certified from sustainable sources is necessary to make new houses truly sustainable, as it avoids the negative impacts of unsustainable logging.

Since this costing was made in 2002, a number of factors may have altered the costs of EcoHomes: x Total inflation between 2002 and 2005 is estimated at 7.4%. x The price of inputs may have changed since 2002; in particular, labour costs may have risen. x Understanding of ‘sustainability’ and its integration in government policies, planning and developments has increased. x Environmental technologies have developed, in some cases making them cheaper to implement (e.g. solar power).

The costs may have risen since 2002, particularly in terms of labour costs of the skills required to build EcoHomes. Equally, costs may have fallen as understanding and technologies have developed. For example, the costs of sustainable timber may have fallen due to increased availability, market penetration and customer specification of sustainable legal timber11 in the UK. Defra’s Central Point of Expertise for Timber,

9 Housing Corporation (2002) EcoHomes Costings. Report to the Housing Corporation undertaken by e2S environmental consultants. 10 With other costs relating to building footprint, NOx emissions, cycle facilities, noise insulation, waste seperation and daylight 4. 11 For info on UK’s timber usage, see: Thomson, M. (2004) International markets in wood products. July 2004. FC Information Note 60. Forestry Commission, Edinburgh. http://www.forestry.gov.uk/PDF/fcin060.pdf/$FILE/fcin060.pdf

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 5

‘CPET’12 advises UK Government and devolved administrations on the specification and procurement of timber. It endorses the FSC and the Canadian CSA standards13 as being credible ways of determining the ‘legality’ and sustainability of timber.

It is assumed that the 2002 Housing Corporation assessment of the costs of EcoHomes is still broadly accurate. Based on their study, the capital costs of only delivering the water and energy actions required by the EcoHomes excellent standard, are estimated at up to £160 per house. Although in some instances (e.g. installing water-saving devices) the extra cost in new-build can be zero14.

Table 2. Costs of Building New Homes With Water and Energy Actions Required by the EcoHomes Excellent Standard Cost Cost over 15 years, discounted @ 3.5% Home One-off £160 - Scenario A £24 m per year £284 m Scenario B £48 mper year £575 m

The market impact of any increase in house building costs will not necessarily fall on house-buyers. The have estimated the additional one-off capital costs of reducing resource (water, energy, waste) consumption by new homes by 25% at £800 per home. If these costs of building to higher environmental standards were passed onto house-buyers, at current interest rates roughly £4 per month (£48 per year) would be added onto a typical mortgage. These measures can reduce energy bills and metered water bills by a total of £138 per year, giving them a payback period of 6 years15.

The Sustainable Buildings Task Group16 recommended a code for sustainable building should be based on the EcoHomes system. It concluded that implementing such a code would be cost-effective in both the short-run and over the lifetime of developments.

Homes that are more resource efficient can be more affordable overall, particularly for those on low incomes who spend a higher proportion of their income on bills. Therefore, the extra costs of building a home to higher levels of resource efficiency are unlikely to mean homes that are more expensive, or any disruption to the housing market. Overall, residents of EcoHomes can live more sustainable, and cheaper, lifestyles.

12 CPET stems from UK Govt WSSD 2002 UK Forest Partnership for Action commitments on timber procurement (see: http://www.forestry.gov.uk/website/pdf.nsf/pdf/ ukforestpartnership.pdf/$file/ukforestpartnership.pdf) 13 See: http://www.defra.gov.uk/news/2004/041109b.htm; 14 EA (2005) Sustainable Homes – the financial and environmental benefits. 15 James & Desai (2003) One Planet Living in the Thames Gateway. WWF. 16 Sustainable Building Task Group (2004) Better Buildings - Better Lives.

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 6

3. Water

The Current Situation - Resources The UK Water Industry is made up of private companies who are controlled by a government-appointed regulator, Ofwat. Under the regulatory process, the Water Companies agree business plans with Ofwat through Periodic Reviews. Water Companies produced water resource plans as part of the 2004 Periodic Review. Details of these, released by the Environment Agency17, reveal the following information in relation to water resource needs: x In the South and East of England, there are plans for 4 new reservoirs, 2 raised reservoirs and 4 desalination plants. x Rising household demand is the main reason behind the identified need for new water resources. Non-household demand is predicted to decrease further. x Water companies in Kent, Surrey and Sussex have predicted that by 2030, 31 out of 40 water resource zones (77%) could be in deficit. x Across the South and East of England, (the areas where the majority of new house building is planned) the majority of catchments’ water resources are fully exploited. x The relevant water companies have included the need to supply the new house building outlined in ODPM’s sustainable communities plans into their future forecasts, but not the larger housing increases in the Barker Review. x The water companies have assumed that these new households will be only 5-8% more water efficient than the current standard (as there are no guarantees in place that further water efficiency will be achieved).

Ofwat have included £3.1 billion in their price determinations for ‘maintaining the balance between supply and demand’. This includes most of the schemes listed in water company’s water resource plans; both actual scheme delivery in 2005-10 and preparatory work for future delivery. It reflects the need to connect around 900,000 new properties, between 2005 and 2010, for water services at a cost of £685 million and sewerage services at a cost of £334 million.

The Current Situation - Quality As discussed above, water quality is linked to problems with water resource availability. Some 95% of supplied water already re-enters river systems through sewerage treatment works discharges. In many catchments, there is little or no capacity to assimilate further sewerage treatment works discharges into the environment (in some southern catchments, treated discharges can make up to 75% of total river flows in summer).

17 Maintaining water supply, Environment Agency (August 2004)

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 7

Even after treatment processes, some nutrients remain, and eutrophication is already a widespread environmental problem. Eutrophication is also affecting groundwater, which is the source of almost two-thirds of drinking water in the Southeast of England. New housing implies a greater demand on available resources, and increased pressure on water quality through reductions in flows (and therefore assimilative capacity) and increases in discharges. In the short term, maintaining water quality in the face of these challenges will require higher standards of sewerage treatment, which generally mean greater cost and energy use. In the long term, changes that reduce treatment requirements (e.g. reducing phosphate releases from household products and agriculture) may be a more cost-effective way of maintaining water quality standards.

Environmental Implications of Water Resource Pressures The environmental implications of increasing pressure on water resources include: x A higher risk that current environmental protections (e.g. minimum river flows or groundwater levels) will be breached. x Environmental capacity to assimilate pollutants will be reduced, and therefore problems like eutrophication will become more significant. x New resource development is not (necessarily) environmentally benign and may lead to loss of semi-natural habitats and risk damage to river systems and wetlands (from changes in flow regimes and increased abstraction). x Resource development and increased competition for water resources is likely to restrict our ability to deliver statutory requirements to reduce abstraction levels to protect nature conservation sites. Up to 130 SSSIs18 may already be at risk of damage from existing levels of water abstraction – increased demand could lead to further risk.

The majority of these impacts relate to environmental externalities. They are difficult to capture in evaluations of impacts of water use, and are not reflected in market decisions. As water gets scarcer, the cost of the marginal environmental damage of water consumption increases and resource management decisions should adjust accordingly. For example, from a social welfare perspective, (which should be taken by the regulator) a higher environmental externality from water use increases the value of reducing leakage. Therefore, the ‘Economic Level of Leakage’ (ELL) for companies should fall and more leakage reduction should take place.

Social impacts resulting from these environmental pressures could be that lower water levels and/or quality will reduce the quality of natural green space (e.g. wetlands). Such sites provide important local amenity, and play a role in providing green space for physical activity (a vital part of public health19) and enhancing the image of an area (e.g.

18 Sites of Special Scientific Interest, designated and protected under national law for their wildlife and geology. 19 www.rspb.org.uk/policy/health

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 8

The Thames Gateway20). Lower river flows and increased nutrient content will lead to more fish deaths and loss of amenity to the UK’s recreational anglers.

This range of external impacts means that the valuation for Defra21 of potential damage to the water environment from housing expansion is an underestimate.

Costs of New Water Resources As noted previously, around £3 bn of Water Company costs were allocated to supply and demand issues in PR04. The costs of developing many mega litres (M/l) of water resources to supply new homes depend on the available sources22. However, water sourced from surface or ground waters is unlikely to be available in the proposed housing growth areas, which lie in the South and East of England where most catchments’ existing water resources are fully exploited, and are subject to increasing pressures as a result of groundwater pollution19.

The only feasible options for developing new water resources are desalination plants (costing £2.7m - £4 m19 Ml/day23) and new reservoirs (costs estimated at £0.5m – £5m19 and £2m24 per Ml/day). However, desalination is unlikely to be available to supply the majority of the population in the southeast, and brings requirements, both for the treatment, and to pump the potable water into the network. Furthermore, a proposed desalination plant at Beckton has recently been refused planning permission on grounds of energy use and sustainability25.

Therefore, in the following analysis it is assumed new supply capacity will be provided by new or enlarged reservoirs. It is assumed that new reservoirs will cost between £2m and £5m per M/l, or £2 and 5 per litre, per day of capacity.

Costs and Benefits of Water Savings A crude comparison can be made between the costs of increasing water supply capacity and the costs of building water efficient housing (to the EcoHomes Excellent standard). Building to the EcoHomes excellent standard includes measures to reduce the demand for water. This therefore reduces the need to develop new water resources (at the margin) in the future. Given the scarcity of new water resources, is assumed that both

20 Greening the Gateway, ODPM, 2004. 21 DEFRA (2004) Study Into the Environmental Impacts of Increasing the Housing Supply in the UK. Entec 22 RPA (2002) in Chilton PJ, Guha P. Peach DW, Stuart ME & Whitehead EW. (2004) Implications of changing groundwater quality for water resources and the UK water industry: Phase 3 Financial and water resources impact, UKWIR Report Ref. No. 04/WR/09/8 23 Megalitre per day. 24 Government Office for the South East (2005) Infrastructure in the South East. 25 The ENDS Report, May 2005.

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 9 demand reductions and new resource supply increases have an equivalent impact on long-term water supply capacity.

Building to EcoHomes excellent standards could save between 15% and 40% of average water consumption per year. The per water saving modelled in the report for Defra26 is 15%. ODPM have set aspirational targets for new homes in the growth areas to use 25% less water than current building regulations standards27. Higher levels of water efficiency than those specified in the EcoHomes excellent standard are technically feasible. Existing EcoHomes excellent developments are known to be capable of 40% lower water consumption per person than average28. EcoHomes ‘excellent’ standard is achieved through a mixture of environmental improvements (at present, developments can theoretically be rated as excellent with little effort made in water efficiency). For developments in water-scarce catchments, it may be appropriate to specify the adoption of the highest water-efficiency standards.

Average water consumption is 154 litres per person per day29. Average household occupancy is 2.4 people per household30, so average household water consumption is 370 litres per day. Therefore, the potential reductions in water consumption discussed above are equivalent to savings of 55 litres (15% reduction), 92 litres (25%) and 148 litres (40%) per household per day.

Water resource savings can also be economically beneficial to the householder. For example, simple technologies in new homes, such as dual/low flush toilets, low flow mixer taps, water butts, and low flow showers, can save 23 litres per occupant per day (15% of water use); reducing the average household water bill by £43 in the first year31. Water efficiency in the BedZed development saves 40,000 litres of water and £31 per person (c. £74 per household) per year32.

The savings per household per day could be achieved for all new houses built to the EcoHomes excellent standard. Under house building scenario A, this equates to water savings of 8.2, 13.8, and 22 Ml/day, and under scenario B to 16.7, 27.9 and 44.8 Ml/day of savings, in each year. These savings will displace the need to construct new reservoir capacity costing between £2m and £5 m per M/l per day of capacity. They will be

26 Defra (2004) Study Into the Environmental Impacts of Increasing the Housing Supply in the UK. Entec. 27 OPDM (2003) Creating sustainable communities: making it happen 28 Bioregional (2004) Beddington zero (fossil) energy development – toolkit for carbon neutral development – part 2 29 Ofwat (2005) Security of supply, leakage and the efficient use of water 2003-04 report 30 Defra (2004) Study Into the Environmental Impacts of Increasing the Housing Supply in the UK. Entec. 31 EA-OFWAT (2001) Water Efficiency Awards 2001. 32 Bedzed is a zero-energy development in Beddington in south London. See Lazarus (2003) Beddington Zero Energy Development. Bioregional.

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 10 realised cumulatively over 15 years of building homes to the EcoHomes standards, so need to be discounted and summed over that time period. A 3.5% discount rate (Treasury’s recommended social rate) has been used. The total value of these water savings in shown in table 3.

Table 3. Volume and Value of Potential Water Resource Savings of New Homes With Water Actions Required by the EcoHomes Excellent Standard

Reduction in average water 15% 25% 40% consumption Saved water resources per day Household 55 litres 92 litres 148 litres Scenario A 8.3 M/l 13.8 M/l 22 M/l Scenario B 16.7 M/l 27.9 M/l 44.6 M/l

Value of Avoided New Water Resource Capacity/yr (range relates to new water resources costs at £2–5/litre) Household £111 - 277 £185 - 462 £296 - 739 Scenario A £17 – 41 m £28 – 69 m £44 – 110 m Scenario B £33 – 84 m £56 – 139 m £89 – 223 m

Value of Avoided New Water Resource Capacity over 15yrs, discounted at 3.5% (range relates to new water resources costs at £2–5/litre) Household N/A 33 Scenario A £197 – 492 m £328 – 820 m £525 – 1,311 m Scenario B £399 – 996 m £664 – 1,661 m £1,063 - £2,657 m

The water resources savings are therefore worth between £17m and £223m per year to society. This gives estimated cost savings (benefits) in 15 years time of between £0.2bn and £2.7bn. Plans for housing growth are focussed on the south east of England, where the higher price of land (for reservoirs), could push the resource saving estimate towards the top end of this range.

The value of the saved water resource costs, as a result of building to EcoHomes excellent standards, is estimated at £462 per household per year. This gives annual savings of £69m under scenario A and £139m under scenario B, and cumulative savings over 15 years of £820m under scenario A and £1.66 bn under scenario B.

33 One-off capital investment savings do not accumulate to individual households over 15 yrs. Benefits accumulate under house building scenarios as new construction takes place in each year.

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 11

4. Energy

The Current Situation Climate change is already here: the 10 hottest years ever-recorded have all occurred since 1991. The Inter-governmental Panel on Climate Change (IPCC) predicts that, if no action is taken to stem climate change, we may see a rise in average global temperature of up to 5.8 degrees Celsius in this century. This would cause havoc to nature: under moderate warming ‘scenarios’, up to one third of all land-based plants and animals could be committed to extinction by the 2050s34. Climate change is now the greatest long-term threat to wildlife – and a severe threat to us all.

Climate change is the result of changes in the concentrations of greenhouse gases in the earth’s atmosphere. The most important (but not the only) greenhouse gas is carbon dioxide. Government statistics show that carbon dioxide emissions from domestic sources have reduced by about 3.2%, from 41.7 million tonnes of carbon (MtC) in 1990 to 40.4 MtC in 200235. These domestic sources represent around 30% of all UK carbon emissions.

However, since 1990, total household energy consumption has increased by 19% to 62 million tonnes of oil equivalent. The increases in carbon dioxide emissions that, all else remaining the same, would have arisen from an increase demand for energy services (i.e. heating, lighting and power for domestic appliances) have been cancelled out by technological changes. The main changes involved are improvements to energy efficiency, and reductions in the carbon intensity of electricity production – a result of the increased use of gas. Hence, consumption has risen but carbon dioxide emissions have remained fairly static.

Given that the carbon intensity of energy is unlikely to reduce further in the short- medium term and the number of households will continue to grow, it is clear that achieving carbon savings in the domestic sector will depend on: x Reducing the rate of growth in demand for energy services; and/or x Increasing the rate at which energy efficiency improvements are delivered.

At present, the two principle instruments that the Government expects to deliver the necessary carbon savings in the domestic sector are Building Regulations and the Energy Efficiency Commitment.

34 Thomas et al. (2004) Extinction Risk From Climate Change. Nature. 427: 145-148. 35 Defra website. http://www.defra.gov.uk/environment/statistics/globatmos/kf/gak07.htm

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 12

Building Regulations The Government has recently consulted on amendments to Part L of Building Regulations36. They are expecting their proposals to deliver an improvement of around 25% in the performance of new buildings, and other savings arising from the wider application of the requirements to more types of work on the existing stock of buildings. It is estimated that the proposals will deliver a saving of 1.09 MtC per year by 2010, at which stage further revision to Building Regulations would be expected.

Energy Efficiency Commitment (EEC) The EEC has set energy suppliers targets to improve energy efficiency by providing energy efficiency measures to households across the UK. The EEC is primarily a carbon saving programme and, as such, is part of the Government’s Climate Change Programme. Defra has set an overall energy saving target for the EEC of 130 Terawatt hours 2005 – 2008.

The Office for Gas and Electricity Markets (Ofgem) administers the Energy Efficiency Commitment and works to ensure a fair and transparent regulatory regime for embedded generation (e.g. renewables, CHP etc). The majority of electricity generated in Great Britain consists of output from large power stations, transmitted via the national grid. The term 'embedded generation' relates to electricity generation connected at distribution rather than transmission voltages. There remain outstanding questions about embedded generators treatment in the electricity market, and their accommodation in electricity networks.

Benefits of Energy Savings The report for Defra37 estimates that the EcoHomes excellent standard would result in average CO2 emissions per home of 1.8 tonnes per year, compared to 4.05 tonnes per year at present. Therefore, building to EcoHomes excellent standards could save 2.25 tonnes of carbon equivalent per household per year for each new home. The report38values reductions in carbon emissions at £19 per tonne, which the RSPB considers to be at the low end of the scale of reasonable estimates. Much higher estimates of the potential future damage from climate change have been made39, and if these are adopted, the value of greater energy efficiency becomes even higher.

36 Proposals for amending Part L of the Building Regulations and Implementing the Energy Performance of Buildings Directive. A consultation document. ODPM. July 2004 37 DEFRA (2004) Study Into the Environmental Impacts of Increasing the Housing Supply in the UK. Entec 38 DEFRA (2004) Study Into the Environmental Impacts of Increasing the Housing Supply in the UK. Entec 39 Previous studies have identified a higher range of values per tonne of carbon, at around £70 per tonne: eg. Clarkson & Deyes (2002) Estimating the Social Cost of Carbon Emissions, GES WP140.

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 13

The savings from more energy efficient homes will accumulate for as long as the housing remains in use, which is likely to be more than 100 years. For the purposes of this analysis, the potential emissions saved over the next 30 years, as a result of building more energy efficient houses over the next 15 years, have been valued.

The total value of the avoided carbon emissions is based on table 5.5 in ENTEC’s report to Defra40. The table identifies the present value of the total external costs of carbon emissions for houses built to current standards in the next 15 years at £3,721 million over the next 30 years under scenario A. If the houses are built to EcoHomes excellent standard, the external costs are estimated at £2,168 million. The difference, £1,553 million, is the value shown in table 4 below (£1.6 billion).

Table 4. Volume and Value of Potential Carbon Savings of New Homes With Energy Actions Required by the EcoHomes Excellent Standard

Saved carbon per Value of avoided Total value of year Carbon avoided Carbon Emissions/yr Emissions over 30 @ £19 per tonne yrs, discounted at 3.5%* Household 2.25 tonnes £42.75 £510 Scenario A 310,000 tonnes £5.6 m £1.6 bn Scenario B 678,000 tonnes £13 m £2.9 bn *Note: Emissions savings are cumulative over 15 years house building and 30 years house occupancy.

Energy Efficiency Savings Higher levels of energy efficiency than those specified in EcoHomes are possible. EcoHomes ‘excellent’ standard is achieved through a mixture of environmental improvements. Given the importance of climate change as an environmental issue, higher energy efficiency standards than those specified in ‘EcoHomes’, or those proposed for Part L of the Building Regulations, may be justified.

Existing projects demonstrate that higher energy efficiency standards are possible. For example, BedZed is a zero-energy development in Beddington in south London. It achieves a zero energy footprint through high levels of energy efficiency in design, construction and operation, and the integration of energy technologies into the development, such as solar panels and biomass generation.

40 DEFRA (2004) Study Into the Environmental Impacts of Increasing the Housing Supply in the UK. Entec

Ian Dickie, September 2005 [email protected] RSPB Discussion Paper 14 5. Sensitivity Analysis The significant number of assumptions and estimates in this report makes sensitivity analysis of the conclusions wise. The key impacts that make up the central estimate of the cost and benefits of building new houses to the water and energy efficiency standards for EcoHomes excellent have been varied to determine the sensitivity of the cost-benefit ratio. The results are shown below:

Table 5. Sensitivity Analysis of Results

Assumptions Benefit : Cost Ratio Central estimate 8 : 1 Discount rate of 10% on benefits 5 : 1 EcoHomes costs increase by 50% 5 : 1 Water resource benefits reduced by 50% 6 : 1 Carbon saving benefits reduced by 50% 5 : 1 Water resource and carbon saving benefits 3 : 1 both reduced by 50%

The sensitivity analysis shows that the positive benefit:cost ratio is maintained in relation to large variations in the assumptions used.

Ian Dickie, September 2005 [email protected]