How Improving Household Efficiency Could Boost the Scottish Economy

While European governments continue to invest in energy efficiency as a key tool of energy and climate policy, there is increased interest in the broader economic benefits of energy efficiency in a social and economic context. Recent studies show that, beyond the direct effects on energy use and spending, multiple positive impacts of energy efficiency improvements exist in the wider economy as a whole. Gross Domestic Product (GDP) increases linked to household efficiency enhancements could well be an outcome of both implementing and realising energy efficiency measures. A team from the Centre for Energy Policy (CEP) and Fraser of Allander Institute (FAI) at the University of Strathclyde have used modelling and simulation to explore the economy wide impacts of energy efficiency improvements in households.1 A clear, long lasting stimulus to the economy is triggered by improving the energy efficiency of homes; this is because the disposable income of householders increases as a result of saving money on energy bills. The team used modelling to trace the economic impact of this disposable income increase. The simulation suggested that a spending-led GDP boost can be triggered and could have wider impacts in employment and public budgets. Associated with the increased economic activity will be an increase in energy use that tends to reduce the ultimate level of energy savings from an energy efficiency action. Such an effect is called “rebound”. However, by encouraging spending in low carbon products and services, the erosion of energy savings could be minimised