Energy efficiency in Liberalised energy markets – implications for a low carbon futur

Nick Eyre University of Oxford

Full liberalisation of retail gas and electricity markets in Great Britain was implemented in 1998. At the time, it was recognised that the new market would provide a complex set of new risks, opportunities and incentives for energy efficiency. The most obvious effect – a reduction in prices driven by competitive pressures – would be damaging for energy efficiency; and there would be risks of existing regulatory-driven programmes being discontinued in a competitive market. On the other hand, transparent re-regulation of natural monopolies provided potential new policy levers. And liberalised markets themselves opened new opportunities for market actors to implement energy efficiency. A dozen years on, this paper reviews the actual outcomes. How important was each of these factors? How important has energy market structure and regulation been, compared to other factors, for energy efficiency? The paper seeks to draw some lessons for what might have been done better. And, for a world in which policy makers might be prepared to be intervene more strongly to secure low carbon and energy security goals, it draws some conclusions for the role of energy markets in reducing energy demand.