Blog from Berlin Part Drei – Welfare and Sustainable Energy Transitions
Caroline Kuzemko, IGov Team, 6th November, 2014
In this last of the ‘Blog from Berlin’ trilogy I highlight an under-researched area: that of how questions of welfare tie in with successful energy transitions. When analysing and debating transitions we often talk about how to develop new ways of producing and using energy – emphasising environmental aspects of sustainability. This is, of course, incredibly important but we spend relatively less time considering how to make sure that energy systems are transformed in a manner that is sustainable in an equitable sense. At the heart of interactions between welfare and transitions lies the issue of how the costs and benefits associated with redesigning energy systems are being distributed.
There are clear dangers of pursuing energy transitions without sufficient regard for questions of welfare and distribution. The politics of the both the UK’s and Germany’s energy transitions (uneven as these might be) are currently centred around affordability and energy poverty. In Germany there are mounting fears about the ability businesses to compete internationally when faced with high energy prices; objections to new overhead power grids but also to the fact that electricity prices are becoming less affordable. In Germany, as in the UK, costs are passed onto consumers – but not all consumers are treated equally with industrial/high volume users shouldering less of a burden.
There have, however, been differences in how welfare has linked with energy policy in Germany. Firstly, the principal problem has been an escalation in electricity prices with relatively less concern about costs to heat homes. This is partly because of Germany’s relative emphasis on wealth redistribution and its well-developed welfare system which covers the reasonable costs of heating bills for the unemployed (with a cap). In this way winter deaths (and other health issues) associated with not being able to sufficiently heat homes are largely avoided. Vulnerable energy consumers are not defined separately under Germany law but assistance is provided under general social laws and related support schemes.
Secondly, partly in response to the impact of transition on prices (but also in response to EU concerns about subsidy levels) Germany has pulled back on subsidies available under the German FiT for renewable electricity rather than reduce commitment to energy efficiency. Indeed, the responsibility for energy efficiency in homes has passed to the Environment Department and this is read, by some, as good news for efficiency programmes in future. This is important because of arguments, in the UK and Germany, that greater efficiency should lead to affordability improvements.
Furthermore, comparative analyses of home energy efficiency schemes in the UK and Germany claim a higher degree of success in reducing demand – partly because of better organisation and financing (the KfW offers loans for improvements from as low as 1%). According to analysis by UCL between 2006 and 2009 the KfW Bank retrofitted 1m existing homes with energy-efficient products, and approximately 400,000 highly energy-efficient homes were built directly. This generated a quarter of a million jobs per year – largely in the construction and supply chain. Because of this, and specific regulations around training for new innovations, many new, expert businesses have grown up and, in addition, high levels of customer satisfaction have been achieved.
Lastly, when considering issues of how the benefits, rather than costs, of sustainable energy transition are distributed it is worth considering Germany’s decentralised energy system. Here not only do householders benefit from producing their own electricity (65% renewable electricity is owned by individuals and/or community projects) but community schemes also provide routes for affordable investment in innovations. This is about building towards a more equitable future system that benefits a greater proportion of groups in society rather than about providing ad hoc protection against the impacts that the costs of transition can have. In addition it is worth remembering that the costs of producing energy from renewable sources (in particular solar PV) are falling dramatically thereby relieving pressures on FiT subsidies. In Germany technology costs are regularly assessed by independent research institutions and regular rate adjustments are overseen by Parliament.
Taken together then welfare aspects of sustainable transition remain in the political spotlight but Germany has thus far managed some alleviation of the impact through broader welfare provision and through energy efficiency improvements in homes. Furthermore by distributing the economic benefits of sustainable energy transition more broadly Germany maintains wider support even at pinch points. More analysis, however, that seeks to explore other ways of improving the equity of transitions must be of high importance if we are to pursue an energy future that is sustainable both in environmental and welfare senses. At IGov we are working hard to understand how we can better pursue demand efficiencies in the UK and this should assist in improving affordability partly by reducing demand.