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Why aspirational targets are helping no-one

ImageWithout a legal obligation energy-saving targets can always be amended to suit the Government in charge. But it sends all the wrong messages to companies wishing to invest in developing new technology

If you don¹t know where you are trying to go. And if you can¹t work out if you are on the right path. Then clearly you are not into M&T.

M&T? Monitoring and Targeting. The mantra for every energy manager for the past thirty years. And probably the best mantra for any halfway decent energy policy.

Or, for that matter, climate change abatement policy. Which if truth be told, still revolves around a Kyoto target set back in 1997. There is no question that the existence of a binding legal requirement, to reduce greenhouse gas emissions by 12.5% between 1990 and 2010, is what has driven forward policy programmes on climate change.

Prior to that Treaty, all ambition was purely aspirational. There was no target to hit. And thus no reason to monitor progress.

Next month the government will conclude its big consultation exercise on climate change, considering where we should be heading post-the first phase of Kyoto. It has one overarching objective: to match the goal set by the Royal Commission on Environmental Pollution, of achieving a 60% reduction in emissions by 2050. That was the goal endorsed by the Prime Minister, Tony Blair, when he launched the first Energy White Paper for a generation. That is the over-arching brief given to the Carbon Trust, turning us into “a low carbon society”.

But is this target firm and binding? Can those who must undertake the millions of investments necessary to realise it depend upon it? The answer is, quite simply: no. Indeed even if you look more short term, at where we might wish to be in 2030, or 2020, or even 2015, there can as yet be no confidence that potential investors can truly know where the government wishes to be.

I know there are aspirational targets, for all kinds of sectors. But most have no legal force. And whilst they may appear in ministerial speeches, White Papers or political manifestos, you cannot take such aspirations to the bank. Such casuistry matters.

Consider the market for Combined Heat and Power (CHP). I have lost count – although I am sure its trade association has not ¬- of the number of official statements to the effect that the UK will have 10 gigawatts (Gw) of CHP in place in 2010. Not one of these statements has been legally binding. Investors cannot therefore have confidence that, come hell or high water, the government will ensure that the policy instruments are in place to ensure that this target is realised. So the investment is not forthcoming. And hence the complete stagnation of that market, at under 6Gw.

Contrast that with the position enjoyed by those making energy saving equipment for the residential sector. They began the decade with similar comfort, with various government statements saying that efficiency in this sector could be improved by 20% by 2010. This metamorphosed in the 2003 White Paper into the same target, expressed as 5 million tonnes of carbon (MtC) reduction for the sector.

Investors took note. But remained wary. There had been false dawns before. What was the status of this target? They sought, and received, umpteen official reassurances over the ensuing year.

But then a year on from the White Paper, came a bombshell. The Energy Efficiency Implementation Plan was issued. Overnight, the official target for 2010 dropped by a massive 16%, down to just 4.2 MtC.

All hell broke loose. Manufacturers considering expansion reassessed their plans. So did those who trained and employed people who would install the conservation measures. They demanded to see ministers. They saw them. They told how such volte-faces created uncertainty in the market, deterred investment, increased borrowing costs.

I well recall sitting last June with the CEOs of several such companies, as they outlined in detail to the Energy Minister (Stephen Timms) and the Energy Efficiency Minister (Lord Whitty) the enormous problems that the change in target was causing. The Ministers listened intently. And to give them their due, acknowledged the difficulty. And took steps to rectify it.

Which is why, when the Housing Act was approved last autumn, ministers had amended it. So that it contained, again, precisely that original 20% improvement/5MtC saving target by 2010 in homes. And this time it had real credibility.

For one simple reason. Because this target reduction -¬ just like the one at Kyoto -¬ is a legally binding one. So that whilst the government now acknowledges that “even greater levels of improvement” will be required, the relevant manufacturers and installers are now able to invest, in the confidence that the demand for their products and services definitely will be there. It is the law of the land.

The lesson is clear. If you have a woolly, vaguely aspirational target, the chances are you won¹t meet it. Even if you do, it will probably be via a more expensive route than necessary. If however government states in law what it wishes to achieve, and by when, and with enough notice, the ingenuity of the private sector will certainly ensure the target is reached. But if government procrastinates, and changes its mind, it causes confusion and despair.

The climate change review must set firm targets. And then enshrine them in law.

 

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