By Steven Heath: Director of Public Affairs and Strategy (Knauf Insulation Northern Europe)
‘OK, let’s take time out and take stock…’ words perhaps uttered in Whitehall only for the next round of monumental upheaval to render efforts pointless. However, after almost two weeks of calm let’s attempt a stock take.
To mention just a few departures, we are down; one Prime Minister, a Chancellor, the bulk of the cabinet, the shadow cabinet (but not a leader of the opposition), a strong currency, manufacturing productivity, the UK’s credit rating and of course the Department of Energy & Climate Change (DECC).
Initial efforts to read the runes on that last demise were contradictory – some suggested a significant downgrading of priorities for both energy strategy and action on climate change. Others suggested ‘energy’ would now sit in a more powerful Department and surely climate change should be a key strand to consider in all Government Departments rather than a standalone issue.
Before offering a view, let’s take a moment to re-cap on DECC’s energy efficiency performance from the beginning of the previous coalition to now. We can say DECC has presided over; the disappearance of Treasury funded efficiency schemes, halved the Energy Company Obligation (ECO) funding while signposting the intention that the pool of potential beneficiaries of the ECO scheme will go from the whole UK housing stock, 27 million homes, down to around four million homes likely to be occupied by the fuel poor.
The backdrop to these decisions was the abandonment of the Green Deal grand plan with no sign of a replacement many months on. While the choice to cut schemes likely came out of No 11, subsidy is not the only tool to drive renovation activity. In fact, driving work at the lowest cost through energy supplier subsidy, as Energy Supplier Obligations are designed to do, has implications on what type of work is driven. Implications the Bonfield Review is having to work through.
So, if the ECO is destined to become a fuel poverty alleviation tool servicing a small subset of UK households rather than an energy security and carbon emissions mitigation one, then a 23 million home gap will open up in UK energy policy. And I do mean energy policy, rather than energy efficiency policy. Both the Treasury, in the UK Infrastructure Plan, and the National Infrastructure Commission, are at last talking about the ‘whole energy system’ rather than just energy supply with an afterthought reference to energy efficiency.
The ultimate legislative driver for carbon mitigation policy that mechanisms such as ECO sit under is the Climate Change Act. This was a UK inspired initiative (so not under threat from Brexit) which set a series of carbon budgets requiring UK Governments to cut carbon emissions by 2050. These carbon budgets need a UK building efficiency strategy if they are to be delivered cost effectively. Amber Rudd, in one of her last acts as DECC Secretary of State, pushed through the 5th carbon budget and on a public platform stated she had assurances of support for the Act from Theresa May.
But grand declarations of intent such as the Climate Change Act and signing the Paris Agreement are one thing; the reality is that no clear Conservative ‘centre-right’ strategy for living up to these declarations has yet been articulated. And a coherent long term energy plan, supported by long term mechanisms driving energy efficiency, must be part of that strategy.
So a good first question to ask after DECC’s demise is: do the new incumbents in the relevant offices of state have the desire to articulate such a strategy. Well, given the personnel, the answer is likely yes. Both Greg Clarke, the new Secretary of State for Business, Energy and Industrial Strategy (BEIS), and Nick Hurd, the new Minister of State, are very much of the centre-right camp in the Conservative Party. They are also on record making strong statements calling for action on climate change. Indeed, Nick Hurd appears to be calling for that climate action on Twitter since his appointment in an apparent act of self-lobbying.
Even Philip Hammond, the new Chancellor has called for a ‘conservative response to climate change’ in a recent stirring speech made as Foreign Secretary. But if there is the heart to articulate a centre right vision, what tools may be available to them? Well any Government intervention to bring about change in the status quo has limited tools available to it. Regulation or subsidy are the two obvious tools although going down either route will inevitably result in a few ideological clashes with colleagues.
More recent fashion has been around ‘nudges’. These are designed to create a change in the way we make our day-to-day decisions – one example would be changing the default choice in organ donation from ‘opt in’ to ‘opt out’. But, traditional nudge theory is about making a small tweak to a system – to ‘turn the dial’ a few notches. If we are to deliver against carbon budgets, we need large numbers of home owners to act on home efficiency.
Blunter tax-linked incentives are another option. A cost neutral (to Government at least) tax nudge linking energy efficiency to property stamp duty rates at the point of sale are a leading contender. This is recommended by several centre-right Think Tanks including Policy Exchange. The stamp duty option has the potential to peg something relatively undesired in energy efficient renovation to something highly desired in enhanced property value.
The holy grail of creating system change is to make people want to bring the desired change about themselves with no regulation, subsidy or tax nudges – so called paradigm shift. But the temptation is to chase such a dream without any real understanding of how to bring it about. So instead, nothing happens. This is not a strategy.
Perhaps key in treading this path will be the view of Baroness Neville-Rolfe as the BEIS energy efficiency brief sits with her. She has both a civil service and business background but few energy related views on record. However, as a former Director of the Cabinet Office’s Deregulation Unit, we might expect her tools of choice to lean towards nudges rather than regulation.
So, we now have a Department charged with developing an Energy Strategy which we hope will include energy in buildings. We also have the National Infrastructure Commission, backed by Treasury, exploring a long term ‘whole energy’ system strategy out to 2050. We may even have a sympathetic chancellor recently freed from tight spending limitations and in search of shovel ready infrastructure projects.
Given we now know who is charged with the work, what would be a good outcome from the latest upheavals? Well a successful stock take this time next year would suggest firstly, that an energy strategy has been developed, secondly that an energy in buildings plan is set in that wider energy infrastructure strategy, and thirdly that strategy had the investment to make it a reality.
Lastly, we would ask that strategy drive innovation. The approach taken by the Energy Company Obligation is to dictate the measures permitted while the energy companies effectively dictate the cost envelope the work will be done for. If we ultimately want to persuade householders to want energy efficient renovation and even pay for it – paradigm shift in other words – the approach has to initially be set up to offer them the best outcome. That is not the approach set out in the Energy Company Obligation.