Can different approaches to funding household energy efficiency deliver on economic and social policy objectives? ECO and alternatives in the UK

Residential energy efficiency is a core element of the decarbonisation policy in many nations. In the UK, the established approach to enabling efficiency gains through centralised retrofitting programmes involves socialising costs via consumer energy bills through the Energy Company Obligation (ECO). One UK policy concern is whether less affluent households should receive greater access to ECO funding. However, there is a broader concern that the use of constrained public resources should be justified through wider and sustained economic returns emerging. Here, we consider the (centralised) ECO approach to cost recovery alongside alternative (decentralised) approaches to delivering energy efficiency programmes that either pass costs to beneficiary households or fully socialise costs via income tax. We find the key drivers of both household and wider economy outcomes are the absolute levels of resources actually devoted to enabling efficiency gains and household disposable income freed up to power expansionary processes. The latter in particular brings challenges and trade-offs in terms of meeting both economic performance and social policy objectives, given that resources targeted at higher income households can ultimately free up more real spending ability and sustain greater gains in GDP, employment and household incomes.