For a policy intended to unleash ‘a third industrial revolution’ creating up to 100,000 new jobs, the government’s flagship ‘Green Deal’ programme might appear slightly underwhelming.
There’s no massive pot of public money to be invested in grants, loans or tax incentives. The proposal to allow households to fund energy efficiency improvements to their home at no upfront cost, with repayments attached to the property rather than the individual, is unlikely to have viewers up and down the country spluttering into their beef wellington as they watch the evening news.
With limited public finance available, the Green Deal is designed to encourage households to invest in measures such as loft and wall insulation, double glazing, and energy efficient boilers themselves.
When these measures are undertaken, payment will be met in instalments taken from the household energy bill. According to the ‘golden rule’ of the scheme, these will always be less than the savings on the energy bill achieved as a result of the improved levels of energy efficiency, so the household saves money. If whoever owns or rents the property moves, responsibility for payments will transfer to the new occupant.
Liberated from the risk of exposure to ongoing liability for payments for measures from which they no longer benefit, rational economic households will rush out to install the products that will save them money, as the government and energy suppliers assure them it will. You can see the potential flaws in this assumption. With no incentive beyond the market benefits of energy efficiency, there is a danger that scepticism about the projected savings, stubborn wariness over an ongoing charge or sheer apathy will remain barriers to uptake.
The hope is that the purveyors of these energy efficiency products, such as homeware stores and energy suppliers, will counter this effect by bringing their considerable marketing expertise to bear in promoting the scheme.
This model has much to commend it. Where energy efficiency improvements will ultimately benefit households financially, it makes sense for them to fund the process rather than the government.
However 43% of UK homes are classified as ‘hard to treat’ meaning that energy efficiency improvements will be a costly process that won’t necessarily yield a return on the upfront investment. For households in fuel poverty who don’t have the heating on because they can’t afford it, there will not be much of a reduction in energy bills to cover the Green Deal repayments.
Therefore, the ‘golden rule’ is not going to work for everybody. Indeed the people for whom it won’t work include those most in need of more energy efficient homes. So the scheme is a positive starting point for the coalition’s efforts to improve home energy efficiency. But some more splutter-inducing measures may also be required.
Luke Hildyard is a researcher at the New Local Government Network, which will shortly be publishing some research on the Green Deal with British Gas.
