What if someone else designed energy policy?

"If only I were in charge..." says CSE’s Ian Preston

12 December 2013

All the recent debate about ‘green taxes’, lack of Green Deal activity and the Government’s review and announcements on the Energy Company Obligation leads me to ask, how would I design energy policy if I had the opportunity?

I’d start by telling you a story about my two children. Firstly, my daughter recently asked to make a Christmas charity box for a child in Africa. I said that’s a lovely idea, and she pledged to use all of her pocket money to fund it. I thought that whilst that was touching, she ought to be able to keep hold of a bit of the money she’s saved all year, so I said I’d match whatever she spends. And I think that for every pound spent on energy efficiency that comes from energy bills, we should match that with a pound from general taxation.

Secondly, my son has recently become obsessed with the Wii and when I say he can’t play on it he attempts to scream until I let him. Like any good parent I don’t immediately cave in to his demands because I know what’s good for him. The Government’s recent announcement to review the ECO, which followed EDF restricting itself to a 3.4% price rise as long as the ECO was dropped, looks far too much like pandering to a child. The same child didn’t seem to scream about the ‘green taxes’ on bills which are set to net them £7 billion from Contracts for Difference to build a new nuclear plant at Hinkley Point (with a potential 10% profit margin). It seems it’s only the green taxes that benefit consumers that are a problem...

Before I outline the four major building blocks to my new blueprint for energy policy, let’s first consider the fairness in energy policy; who pays and who benefits. The current mix of energy policy has been shown by our work for eaga ct, JRF and Consumer Futures to be regressive, in that the poorest pay disproportionately towards the cost of energy policy. In particular, our report on ‘the hardest hit’ shows that those using electric heating get (by 2020) 7% of the measures or benefits, make up 10% of the market share and pay 20% of the policy costs. This is clearly unfair as more low income homes use electricity to heat their houses.

Generally, taxation is more progressive and should be used to fund those measures which may not currently be market ready because the supply chain requires development. The Renewable Heat Incentive is one area where the Government has got this right, as low income households are unlikely to install these measures, so using their energy bills to fund them would be wrong. There is a clear argument that the ECO, or its successor, shouldn’t fund the development of the supply chain for solid wall insulation in the owner occupier (able to pay) sector.

My energy policy, in four sections:

1. The Energy Savers Scheme - £1Bn per year (funded from energy bills)

  • Targeting and eligibility: Households with cold-related illness OR low income
  • Funding: Energy efficiency measures will be fully funded
  • Measures: Households will be improved to a basic standard of energy efficiency with a minimum standard for insulation and heating controls (EPC band C to 2020)

2. Greener Homes Fund - £1Bn per year (funded from taxation)

  • Targeting and eligibility: Open to all householders
  • Funding : A range of finance options will be available. Grant funding will be supplemented and matched by loans (mortgages extensions), Green Deal finance, home owners’ own funds, etc.
  • Measures: The level of grant funding will vary by measure to reflect the supply chain development. Rates will be adjusted each year to reflect any changes to delivery cost – thus avoiding the feed-in tariff rate debacle).

3. A state-run energy supplier

Due to a lack of competition in the energy market there needs to be a way of ensuring that the so-called ‘sticky customers’, or those on unattractive tariffs, are protected from a broken system. Our recent collective switching campaign failed to attract a decent offer for prepayment meter (PPM) customers. Despite the project actively seeking to find a competitive PPM tariff, we were unable to offer one, as suppliers weren’t interested in this customer group.

The Government already procures significant amounts of energy through the Government Procurement Service. So why doesn't it set up and run its own energy company and actively compete in the energy market? If the civil servants were at the coal face of energy supply then perhaps they’d finally understand it.

To make things more interesting, under my policy if you haven’t switched supplier for more than two or three years, you’ll default to the Government-owned supplier who will put you on their cheapest energy tariff. Of course you could opt out of defaulting to your state-run supplier if you wanted, but at least this way once every two or three years your energy supplier might write to you and offer you something of interest, rather than just inform you of their latest price rises that are all to do with green taxes and nothing to do with their profits.

4. Housing regulation (where is DCLG?)

If you speak to DECC civil servants about HM Treasury or the Department of Communities and Local Government (DCLG), their eyes roll. They feel beaten before they even enter the room to have a discussion on policy ideas or suggestions. HM Treasury clearly has an active role to play in reducing public expenditure, but DCLG is a department which has previously played an active role in delivering policies which transformed the housing stock – such as the Decent Homes Programme. So here are a few key policy areas for DCLG which would support the delivery of my Greener Homes Fund:

  • Stamp Duty Rebates: If you make your home more energy efficient you reduce the level of stamp duty on your property or you benefit from a rebate. Either way, you begin to create a concrete link between the value of your home and its energy efficiency.
  • Consequential Improvements: The failure of DCLG to change building regulations to improve homes to a certain standard of efficiency is well documented. Dubbed the ‘Conservatory Tax’, like New Labour before them, this Government failed to introduce a measure that would help bring energy efficiency improvements further into the mainstream of the building profession.
  • Enhanced Decent Homes Standards: The DHS is a well-documented success story with 92% of social housing meeting the standard for energy efficiency and modern facilities (by the end of 2010) [1]. The Greater London Authority commissioned CSE to examine the potential for an enhanced Decent Homes Standard (eDHS) spanning thermal efficiency, water efficiency and summer overheating. A second ten-year programme of an eDHS would not only create jobs and improve housing, it would also help develop the skills required to meet the housing challenges of the next century.

The costs and economic benefits of these four proposals could be captured from numerous angles: impacts on the householder (lower bills and more money for other goods), jobs, reduced emissions, improved health outcomes, etc. But we need political vision and will – sadly, two things we are desperately lacking. Instead we seem to have a Government and opposition that are focussed on political points scoring rather than tackling the more endemic problem of a failed energy market.

If only I were in charge...

[1] Homes and Communities Agency

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