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‘Investing-to-save’ approach shows UK the way forward

ImageThe new German Chancellor, Angela Merkel, is heralding a new era in energy efficiency that could put the UK’s stumbling efforts to shame

It is less than three years since the UK Prime Minister, Tony Blair, launched the first White Paper on energy policy since 1967. But that has not stopped him setting up the current review into how well it is working.

Bearing in mind how central to the policy improving our energy efficiency is supposed to be, some have been concerned that any changes the review might recommend would weaken the new emphasis upon the “energy demand” side.

As it happens, the UK has not been alone in putting energy issues under the policy microscope. For the first time ever, energy policy formed a significant part of the Heads of Government summit held at Hampton Court, under the recently concluded UK presidency of the European council. And across Europe, other national governments have been re-examining their approaches to energy.

In Europe’s largest and richest nation, there has also been some heavy consideration of these issues. And the conclusions reached should give considerable encouragement to those worried about the potential consequences of the UK energy review.

Last autumn Germany gained a new Chancellor, Angela Merkel. Her government is a coalition of the two largest party blocks, her own Christian Democrats and the Social Democrats – who had provided her predecessor.

In many ways, the energy problems that faced the German government were very similar to those which the UK energy minister, Malcolm Wicks, is charged with addressing. Higher oil and gas prices, growing energy imports, leaky elderly housing, a need to reduce greenhouse gas emissions.

Like the UK, the German government has a relatively good record on climate change: its carbon emissions are also much lower than those recorded in 1990. It is certainly due to meet its 2010 target. For years, it has been committed to lowering these further. Consequently the Merkel government has undertaken that, by 2020, greenhouse gas emissions will be 30% lower than in 1990. In contrast, the UK still has no firm commitments more than four years from now.

Like the UK, the German government has an ageing stock of nuclear power stations. It too has examined whether a new generation of such stations is required. It has concluded that it is not.

But it is on energy efficiency that Chancellor Merkel is taking a giant step forward, In common with all European countries, Germany has building regulations standards, designed to minimise energy losses in new buildings.

Like many others, such standards really only began to have any teeth in the late 1970s, after the Yom Kippur war and the first great energy price hike

So the new Chancellor has set up a new programme, designed to bring all pre-1978 homes “up to contemporary energy standards.” Each year, some 5% of such housing will be refurbished. So that by 2025, the entire Geran building stock will be an exemplar for energy performance.

To achieve this, Merkel has set out a new financial policy, probably best translated as “investing to save.” Whereas most other areas of public expenditure have been either held constant or even reduced substantially, she has adopted precisely the reverse policy for her energy efficiency budget.

Her predecessor had an annual budget to encourage energy saving, mostly via low interest loans, of 360 million euros (around £240million). She has decided to quadruple the finances, to 1.5 billion euros a year (£1 billion).

She has also switched from financing loans to funding direct subsidies, in the belief that such direct financial inducements are much more likely to achieve success.

As we know, for the past 18 years the UK Treasury has not made available any direct fund to encourage householders to install energy saving measures. It certainly does provide funds to improve the homes of those in fuel poverty – but as a social welfare matter, not to reduce energy consumption.

Instead it has preferred sticks to carrots: mandating that only more energy efficient boilers or glazing replace those in existence, but providing no financial assistance. Consequently there has been every incentive to “patch and mend”, rather than install new equipment. Since the requirement for only A or B rated domestic boilers was introduced last April, overall boiler sales are down by a staggering 100,000.

Last August the Construction Minister Yvette Cooper announced an interdepartmental taskforce to look at how we improve energy use in existing buildings. Early this summer this task force will issue its conclusions – around the same time as Mr Wicks’ energy review completes its work.

Logically the two reviews should be running closely, even in parallel. With the buildings sector responsible for almost half energy use, joined-up government would surely dictate that.

Operating in tandem they can surely deliver an end result which will provide that genuine step-change in energy efficiency which the 2003 Energy White Paper predicted. Not just the gentle shuffle forwards we have seen to date.

If Germany can manage such radicalism, surely so can we.


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