Since Ed Miliband announced Labour’s plan for a 20 month energy price freeze at Labour conference in Brighton energy has never strayed far from the top of the political agenda.
Freezing prices for 20 months, whilst we implement our broader package of reforms, would allow us to give consumers a much needed reprieve whilst we reform the energy market to prevent the overcharging that we have come to see as the norm.
However, we have to be honest about the strategic direction and implications of energy policy. A combination of increasing demand from across the world for fossil fuels and our desire, rightly, to decarbonise our own supply means that the unit cost of energy is unlikely to go down considerably in the near future. So if we are going to help people see an overall reduction in their energy bills we need a relentless focus on reducing consumption, and we know that the best way to do this is through improved energy efficiency.
In 1996 almost one million homes had the lowest energy efficiency rating possible. But by 2011, the investment that came through the Labour government’s decent homes programme meant that this number fell to around a tenth of the 1996 figures. Much of the ‘low-hanging fruit’ of energy efficiency measures – better loft and cavity wall insulation – was addressed. But despite this success there are still around 2.6 million people living in fuel poverty and the UK lags considerably behind the rest of Europe, primarily because our housing stock is so much older.
The government’s flagship energy efficiency programmes – the Green Deal and the Energy Companies Obligation (ECO) – have simply not been working as they should. Despite the insistence from ministers that the Green Deal would be the biggest home improvement programme since the Second World War, after almost 12 months only 219 properties have taken out Green Deal financed packages. On top of this, ECO, which is the only scheme that offers help to the fuel poor and those at risk of slipping into fuel poverty, has been very poorly targeted. Some estimates suggest that around 80 per cent of spending is going to households that are not classed as fuel poor.
The challenge for Labour is to ensure that we can deliver a more effective set of energy efficiency programmes whilst keeping the cost to consumers at a sustainable level. This would mean reforming the Green Deal, and improving ECO so that it helps those who need it most.
An improved ECO would need to be expressly targeted at reducing overall fuel poverty to ensure the money was going to those in greatest need, whilst delivering improvements on a geographical (rather than individual) basis in order to achieve the economies of scale that will allow this work to be done efficiently. Local government would be a natural partner to get this work done, not least given its new responsibility for public health.
The problems with the Green Deal centre around a lack of demand for the product, and an insufficient offer from the government so far. A combination of upfront costs for assessments, hidden penalty charges, and sub-optimal interest rates has deterred people from taking advantage of the scheme. The Green Deal shouldn’t just be a good deal – it should be a great deal. People should feel this an opportunity that they simply cannot afford to not take up.
So as well as ensuring that the scheme is a good deal for consumers, we also need to look at how we can incentivise people to take advantage of it, something the Green Deal does not currently do. One possibility would be to introduce a form of tax incentive that would reward people for making their property more efficient. A similar system already exists for road tax – it works not just because of the amount of money involved, but because it begins to change how people think about the subsequent energy use when they purchase the product. We are currently discussing these issues with industry and other stakeholders, and will be bringing forward our ideas in a green paper next year.
In the discussions I have had on this issue one of the things that has stood out is how strongly businesses feel about the need for us to get this right. Investment in energy efficiency creates jobs, with some estimates suggesting that a reformed ECO alone could see 46,000 new jobs created in the next two years. The economic multiplier for spending on energy efficiency is incredibly high, due to the labour intensive nature of the work, which can also have a very positive effect on domestic supply chains. Industry groups have already expressed serious concern regarding the government’s recent speculation about the possibility of scaling back energy efficiency programmes and the effect this could have on jobs.
Reducing consumption by improving energy efficiency would help people get their bills down, create jobs, and help us to meet our carbon reduction obligations. This is a national priority and if we want to make the kind of progress we need then our policies have to be ambitious.