Energy Bill and plans to pay firms to cut energy use due

The UK government is considering paying firms for cutting electricity use as part of plans to try to save energy and reduce costs.

It is one of a number of proposals to be published alongside the Energy Bill.

The government outlined the Bill last week. It included extra investment in gas, renewables and nuclear to be paid for by households.

But it was criticised for failing to show how the plans would save the need for energy in the first place.

Proposals to cut energy use will be published alongside the Bill when it is formally published on Thursday.

Ministers say a 10% reduction in electricity demand could produce savings of around £4bn in 2030, which would more than compensate for the cost of making efficiency investments upfront.

The government is now considering paying firms for each kilowatt-hour saved through energy-saving measures such as low-energy lighting, and offering financial incentives to encourage people to buy efficient equipment for homes and businesses.

'Disappointing'

But critics are angry that the energy saving measures will appear as a consultation document, whilst the Bill itself concentrates on creating more power.

Matthew Spencer from the parliamentary group Green Alliance has been lobbying the government on the issue.

He told the BBC: "It is disappointing that we have to wait for another consultation before government decides whether to help people use less electricity. They should be using the Bill to create a market for electricity saving, which would avoid the building of as many costly power stations. It would put money back into people's pockets."

This is especially sensitive as a report this week estimated that energy-saving budgets for the poorest households had been halved by government.

Ministers will attempt to help households by announcing funds for advertising the so-called Green Deal, which will allow people to borrow cash to insulate their homes. The scheme has got off to a very bad start.

Abandoned target

Last week the government announced how they had resolved a bitter coalition row over energy. They agreed plans for households to spend nearly £100 a year subsidising renewables and nuclear, but abandoned long-term carbon emission targets for electricity.

The chancellor was the centre of controversy in those negotiations, and more questions will be asked of him today. His planned environmental tax, the Carbon Floor Price, will raise the cost of energy from fossil fuels.

This will push up people's energy bills, but the chancellor will keep the tax. Green groups say he should be recycling these funds into energy saving.

Energy will generate fierce debate in other areas too. Alongside the Bill, ministers will announce plans to exempt energy-intensive industries from additional costs arising from the transition to low-carbon energy.

Energy Secretary Ed Davey said: "Decarbonisation should not mean deindustrialisation. Energy-intensive industries are an important part of the UK economy. There would be no advantage - both for the UK economy and for global emissions reductions - in simply forcing UK businesses to relocate to other countries.

Losers

This move will be welcomed by business as it is pointless forcing industries to migrate to countries with lower pollution standards.

But environmentalists warn that some big firms are playing carbon rules to their own advantage.

The think tank Sandbag estimates that iron, steel and cement firms could have made 3.8bn euros thanks to their effective lobbying on European carbon allowances.

Smaller firms say they are often losers from energy prices. A survey by British Chambers of Commerce of almost 3,500 businesses showed that nearly 40% felt that rising costs have stunted their growth.

Over 60% were unaware of the Green Deal. Of those which knew the scheme, 30% doubted that savings anticipated by the government will actually be achieved.

'Rising costs'

Most businesses recognise the need to improve their energy efficiency, with 63% saying they are motivated to reduce their energy usage by environmental concerns

Dr Adam Marshall, director of policy at the BCC, said: "We have heard endless concerns about the rising costs of energy bills on households, but the impact that rising energy costs are having on businesses across the UK deserve the same attention."

The professional services firm, Ernst & Young, warned this week that government infighting and prevarication over clean energy investment has harmed the UK economy by deterring investors in low-carbon generation.

Many commentators will be relieved that the Bill is finally out.

Follow Roger Harrabin on Twitter: @rogerharrabin