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The penalty for losing out to Germany

ImageThe UK and Germany have almost identical climate change commitments But both have very different approaches to hit their targets. Who is right?

I was at a rather grand luncheon in the House of Lords. The guest speaker was the chief scientist at the Department of Energy & Climate Change. He waxed eloquent about how the UK’s climate change commitments were being met. By 2050 practically everything would be run by non-fossil electricity – industrial processes, motor vehicles, heating and hot water. Consequently, he projected our electricity consumption will be twice, even three times, present levels.

As it happens, the luncheon was sponsored by the German company, Bosch. Germany has a virtually identical climate change commitment, of 80 per cent lower greenhouse gas emissions in 2050 than today. But in contrast the Berlin government equivalent is postulating a 25 per cent reduction in electricity consumption, together with a 53 per cent overall reduction in primary energy use (3,942 to 1,950TWh).

By 2050, the two countries are projected to have very similar population levels, and numbers of households. Even today, we are less energy efficient. Despite our lower Gross Domestic Product, both per capita and per household annual consumption are respectively 10 per cent and 20 per cent higher in the UK than in Germany. Sadly, that differential is set to worsen.

On most of the scenarios within the UK’s Pathways exercise, the UK’s per capita 2050 energy consumption is due to be 20 per cent (23.7 as opposed to 19.7MWh) bigger than in Germany – in some scenarios, the gap will be far larger.

The difference in consumption levels between what the UK chief scientist is projecting for us, and where the German government thinks electricity demand can be, is simply explained. The German policy was created after analysis of the cost optimal approach, an exercise we in the UK have yet to undertake.

The German government emphasises that cutting out waste is far more cost-efficient than building new power stations, large or small. As it happens, no new nuclear plants have been built in Germany for 25 years – just as here. But whereas our government projects a family of up to ten new nuclear fission plants, nobody in Germany plans to build any.

Why no comparisons?

For the past 30 years, countless Parliamentary and other independent inquiries have posed the question: why do we in the UK never undertake such comparisons? As a 1981 Parliamentary report asked: “Why has the Government still no idea whether investing billions in a single nuclear plant is as cost-effective as spending a similar sum to promote energy conversation?” Worryingly, the initial papers issued for our forthcoming electricity market reforms look to be continuing down this same siloed pattern, of treating energy-saving programmes as irrelevant to new supply projections.

In contrast, for many years, German governments of all political hues have run long-term, consistent and purposeful energy efficiency programmes, designed to minimise new supply requirements.

Significantly, the German finance ministry has long recognised that ‘investing to save’ covers more than just fuel bills. Certainly on the debit side is the cost to public funds of the assistance provided for improvements. These are significant.

On-site energy assessments are subsidised between €300 and €360; if the recommendations include electricity saving, an additional €50 is covered. Infrared imagery and air pressure testing are underwritten by €25 and €100 respectively.

These costs are handled by the KfW bank, the brief of which is a little akin to that for the UK’s forthcoming Green Investment Bank – although the latter at present seems set perversely to concentrate only on assisting energy supply investments. KfW offers subsidised loans for major refurbishments, which themselves are averaging €250m2. Favourable-term mortgages are available for property purchase, a loan transferable to new owners (as will the UK Green Deal).

Separately, a straight subsidy for refurbishment costs is available. The more energy efficient the subsequent building is, the higher the funds provided. Those amount to €2,500 for standard improvements; €5,625 for those slightly better than building regulations standards; and €13.125 for those that end up using 45 per cent less primary energy than current new build requirements.

But the Berlin finance ministry appreciates that such investments bring more than just fuel savings into the equation. The calculation is that major refurbishment also delivers higher property and income taxes. It avoids unemployment costs and revives neighbourhoods.

Taken overall, there is a consensus that these benefits greatly exceed any public expenditure involved. It means that there is far less energy being consumed. This is not just an ecological benefit. It means less vulnerability to energy imports, both regarding pricing and availability. It also means that the German GDP is set to grow faster than that of the UK.

From today’s position, we still project doubling, even tripling, consumption of electricity. In contrast, Berlin is seeking to cut consumption.

There is one outstanding question to ask. And that is, quite obviously, why is it the Germans have got it all so economically wrong yet again?

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