Designing the Energy Bill for success

Every government comes in with good intentions on energy saving, and leaves having made only a marginal impact on UK energy demand.  This government has ambitions to change that with the Green Deal.

Chris Huhne has said it will be a “radical programme to bring our houses out of the dark ages”, while Greg Barker  has called it a “game changing way of improving energy efficiency.”

The Green Deal certainly has great potential. But as governments in other countries have learnt, removing the upfront cost of insulation and other energy efficiency measures doesn’t mean that people will install them.

One American study of over 150 energy efficiency loan schemes in the US found that most of the programs reached less than 0.1 per cent of their potential customers in 2007. Not quite game-changing.

Neither carrot nor stick
The problem is that a loan for energy efficiency is neither a carrot nor a stick for householders. It only removes a financial barrier. To get widespread take-up of the Green Deal beyond a small engaged minority, government knows that it needs to design a scheme that works well, but also put measures in place to drive demand for it using “triggers and nudges” as Chris Huhne says.

There are many possibilities for driving demand, including stamp duty rebates, regulating private landlords or linking the Green Deal to the roll-out out of smart energy meters.  As our recent report Bringing it home argues; the government also needs to give clear signals that every household should consider taking up energy efficiency measures, that these investments have lasting value and that their actions are adding up to something bigger.

Designing for success
To get these kind of measures introduced will require greater political support across government than DECC has been able to harness so far. Whilst a stamp duty rebate was mooted in March, it was nowhere to be seen when George Osborne stood at the dispatch box to announce the budget.

A strong Energy Bill, with a clearly stated ambition for how the Green Deal will help to meet targets set by the Climate Change Act, would help give strength to the arguments across government for these kinds of supporting measures.

Making clear the amount of carbon savings to be delivered by the Green Deal would also make obvious any shortfall, and would quantify the carbon savings that other policies, such as the new Energy Company Obligation, will have to deliver.

Only with this kind of ambition in the Energy Bill will government break the historic trend of energy demand and set us on a path to successfully meeting our carbon budgets.

7 comments

  • A key barrier to action is that consumers don’t think it’s their responsibility to deliver emission reductions and the financial savings aren’t big enough to make it worthwhile. Even though it is unpalatable, the Government will have to set a regulatory framework that will deliver a clear and consistent message to the market (you can’t sell a G-rated property) to get the refurbishment revolution going. Otherwise this is going to take an eternity. Recently I overheard someone saying “I’d rather someone told me that I had to install cavity wall insulation, instead of making me waste my precious time looking into it”. Let’s call it a push, rather than a nudge shall we?

  • Richard Burnett-Hall

    I fully agree with all that Rebekah says. But economic instruments – taxes, financial incentives, carbon price floors, etc. – work inefficiently, or hardly at all, if those they apply to do not behave in the way that the hypothetical rational economic person is supposed to by economists. Businesses are sensitive to extra costs, because for them the bottom line is what it is all about. Most people I know who are above the poverty line earn (and spend) their money so they can enjoy their lives, and can ignore the bottom line as much as possible. People (not me) still buy gas-guzzlers, and some even flaunt the fact that they can afford them.

    If beer duty were to double, I would change to cider, because to switch is easy and no hassle – i.e. there is a high elasticity of demand. But if heating my house costs more, I’m much more likely to grumble and make my old banger last a year or two longer, than to go through the disruption and potential loss of attic space, from installing insulation that may not make a very dramatic difference to my energy costs anyway. Especially if I am likely to move house in a few years, as most people are. Leaving the problem to the next person is far easier. So the elasticity of demand is much lower. That could be overcome by raising the energy costs for domestic housing hugely with a swinging carbon tax, and applying the proceeds to subsidising those who could not afford to heat their homes at all. But it would be a very brave politician who tried that. Which indicates that other forms of persuasion are needed.

    Tradable personal carbon allowances for domestic energy and transport that give the same annual ration, reducing slightly each year, to everyone, would be fair and effective, as the marginal costs of buying extra allowances could be made to be significant by fixing the ration at the right level. There would inevitably be administration costs, and these might prove to be disproportionate, though I personally doubt that.

    In the longer run, a large and increasing proportion of the housing stock must be modern buildings with the highest possible insulation standards, demonstrating the major savings that are possible. That should eventually make most older housing simply uncompetitive, no longer viable, and fit only for demolition or major reconstruction. It would require Government to require all new housing to be built to zero carbon standards, and to ignore the remonstrations of developers, despite the higher upfront costs entailed. Ex hypothesi the extra investment would be well worth it over the lives of the houses, and must be finance-able.

    Ultimately, therefore, the solution is intelligent regulation, and not nudges.

  • The link to the American study of energy efficiency loan schemes is broken. Any chance you could put the right one up?

    I agree with Mark’s comment, that some sort of push is needed, and the time of sale or rental of a property seems ideal. Also, it would be good if estate agents made more of the benefits demonstrated by EPCs, such as highlighting how properties with A or B ratings are likely to be more comfortable in winter, and much cheaper to run.

  • Pingback: Why energy certificates for non-domestic buildings are a no-brainer | the green living blog

  • Hi Cathy,

    Sorry about that – the link works now. It’s a report by the Energy & Resources Group at UC Berkeley from 2009, and its recommendations are definitely worth a look.

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  • Pingback: Elemental » Interesting links for June 18th through June 21st

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