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Don’t write off the Green Deal. It might just work

ImageDespite dire projections from DECC this showpiece concept might just work – but it will need a little extra help from Government

Throughout Europe governments are seeking to reduce energy usage in buildings. The reason is simple. Almost half of all energy is consumed in buildings.

Motivations differ. They range from a desire to reduce consumer costs. Or reduce the need to invest in new power plants. Or reduce carbon dioxide. Or increase construction industry jobs. Or improve the quality of some of the largest capital assets. Or even to improve run-down neighbourhoods.

To stimulate investment, each government tends to publish forecasts of the levels of demand for these products. In almost every case, these project soaring levels of demand for energy-efficient products. The prospect of a fast-expanding marketplace should entice otherwise footloose capital investment.

Borrowing capital

The exception is the United Kingdom. Our Foreign Office may be running road shows around the world to promote the government’s showpiece Green Deal concept – the idea that an occupier can borrow all the capital needed to make a building energy efficient, and be able to pass on that debt to future occupants. But our Department of Energy & Climate Change sadly is projecting it will not catch on.

The only official forecasts placed in the public domain suggest that, far from expanding, the marketplace for residential energy-saving measures will collapse once the Green Deal is introduced. Cavity wall insulation will drop by two-thirds, loft insulation by 90 per cent, between this year and next year. Not very encouraging for potential inward investors!

How has this happened? Each new policy is subject to a formal Impact Assessment. It is the most crucial aspect of “evidence-based policy-making”. These starkly depressing projections appear in the formal Impact Assessment published smack alongside the official Green Deal proposals.

It is difficult to conceive of a more effective way of setting out to undermine credibility in a government policy. In contrast to the siren promises of ever-expanding markets from other European capitals, our own government is sending a very different message. It is clearly saying: “Never mind the political rhetoric of making 14m homes, 2m SMEs far more energy efficient across the decade, we reckon the policy is a train crash waiting to happen.”

Such overt pessimism may be most unusual. But it may also be wrong. Because while these calculations may have been made by distinguished economists, they cannot possibly take into account in their calculations the impact of supportive policies yet to be declared.

Certainly the decision to outlaw the letting of F or G energy-rated buildings would have been known, and factored in to the calculations. But of course these requirements don’t kick in fully until 2018. And, with the average residential tenure under 24 months in length, are unlikely to resonate much in that marketplace for many years yet.

But subsequently we have seen the announcement by the Chief Secretary to the Treasury, that £205m would be available to pump-prime Green Deal investments for the initial 18 months from its launch this October. We have seen the creation of the Green Deal Finance Company, with the commitment behind it of at least £500m from the new Green Investment Bank.

Building expansion

We should see from this October a requirement that, whenever an existing building is expanded, energy efficiency investment worth at least 10 per cent of that expenditure must be undertaken upon the original building (“consequential improvements”). This measure is set to be widened and strengthened considerably in April 2014.

Similarly, those who receive subsidies from the government under the Renewable Heat Incentive, or from other electricity consumers (the Feed in Tariffs) must make sure their building at least has an D rating.

All these initiatives will undoubtedly help to turn around those dire projections for the Green Deal. But in all probability we shall need some even more game-changing initiatives to make the difference.

As we are dealing with the building stock, we ought to be considering manipulating the most obvious buildings-related taxes to encourage investment, and penalise the laggards. The Council Tax is entirely building related so offering the potential for long-term rewards (and penalties).

And what about the overt use of government grants to stimulate Green Deal take-up? Each year from now on, the Government is set to increase its energy consumption revenues by an average £4,000m – due to revenues from the sale of previously free allowances under the European emissions trading system (EU:ETS), and via the new “floor price for carbon.”

Most European governments are using all or most of these windfall revenues to assist energy consumers, from whom they are ultimately extracted. We should be prepared to dedicate at least part of such funds to ensuring the success of the Green Deal. That way, we can ensure that its own infamous Impact Assessment turns out to be horribly wrong.

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