Tom Steward, IGov Team, 10th December 2013
Last Wednesday (4th December 2013) saw the launch by Government of the latest Infrastructure Spending Plan, followed on Thursday (5th December 2013) by George Osborne’s Autumn Statement, energy was a hot topic across both of these, notably with confirmed CfD strike prices and announcement of tax breaks for shale gas. What was lacking however was meaningful discussion around the county’s aging and leaky (thermally speaking) housing stock. Given that the housing stock is valued at £4.2trillion (making up approximately 57% of UK total estimated net worth), I propose it is one aspect of UK infrastructure worthy of more consideration.
Previous blogs have addressed the flaccid nature of Green Deal uptake, and the importance of ECO for the fuel poor. Putting those issues to one side for a moment, it is important to address why the poor state of the housing stock is allowed to perpetuate?
The UK has a long and chequered history of domestic demand-reduction policies stretching back as far at the 1970s oil shocks, when they were introduced in the form of tightened building regulations. Since then, alongside such energy security considerations, demand-reduction has been allied with the need to combat the threat of climate change. However, the dots are yet to be joined in policy between reduction in consumption, and reduction in bills. Instead, the coalition has been working hard in recent weeks to convince us that we are helplessly at the mercy of the all-powerful energy companies, and international energy markets, and that all that can be done to help is fiddling around the edges of bills by watering down socially necessary policies like ECO. The key question for me is, given that those at the top are evidently aware of public concerns around energy bills, and at least notionally aware of the huge potential that exists for efficiency improvement, why is this natural synergy being ignored?
Although the Coalition’s primary focus has been one of deficit reduction, a primary concern of current government is the promotion of economic growth, an issue which gains even greater traction in the wake of recession. This goes some way to explaining the level of support from the treasury for ‘big kit’ energy infrastructure such as fracking rigs, new nuclear power, and new conventional forms of electricity generation. Given that the business case for these is largely reliant upon continuing high levels of native demand, it is perhaps unsurprising that there is a lack of focus on demand reduction. Any policies which successfully reduce demand, or at the very least were seen as credibly likely to do so, would threaten the investment cases for these big-ticket projects.
However, if it were purely a question of stimulating growth, then it could in fact come from demand reduction (the energy efficiency market is currently valued at £17.6bn). Insulation installers, boiler engineers, and window firms (to name but a few) would undoubtedly flourish if strong policies to reduce demand were brought forward. It is evident therefore that the lack of attention to the demand side is far more complex – relating to (at least) four other areas:
Votes: Firstly, an obligation on home owners to improve the efficiency of their properties may risk alienating core parts of the electorate. This appeared to be the case with the ‘conservatory tax’ which was met with fierce opposition in the right-wing press, and resulted in a swift U-turn in spite of widespread support from large parts of the ‘retro-fitting’ industry.
Ideology: Secondly, traditional Tory doctrine is one supportive of neo-liberal ideology, this suggests that individuals should be treated as economically rational beings – meaning that wherever it is in their interests to install demand-reduction measures, that they will do so. This also means that financial support, or regulation, leading to reduced demand is simply paying/regulating for something already adequately encouraged by market forces, and likely to result in unnecessary market distortion.
Power: Thirdly, large-scale centralised projects such as the development of nuclear power, by their nature attract a small number of big investors. In this situation, the government may converse directly with this limited community of powerful institutions in order to better negotiate terms that suit state interests. However, domestic demand-reduction is by its nature widely dispersed, both geographically and institutionally, thus limiting opportunity for this sort of direct governmental involvement.
Lobbying: Lastly, currently the domestic sector is responsible for just under a third of all UK energy consumption, and it is in the interests of the incumbent energy firms that this high level of domestic demand continues. Although the number of households is on the rise, increasing efficiency standards for boilers and lighting filtering down from Europe mean existing low-efficiency properties will in future years play an increasing role in supporting the size of the supply market. It is therefore currently in the common interest of all suppliers to de-rail any regulation that might force domestic consumers to reduce demand.
Overall, it is clear that the possible reasons for the UK’s inadequate demand-side policy are multi-faceted and deep-routed – a great deal of which stems from the drive for continual economic growth. Tim Jackson’s report ‘Prosperity Without Growth‘ makes a strong case for an alternative paradigm, but changes such as this can be notoriously glacial in arrival. During which time, energy bills are rising, capacity margins falling, and ever-more carbon is being pumped into the atmosphere – we cannot afford to wait. Change must occur now, within the confines of the existing pro-market, pro-growth paradigm.
Complex challenges require detailed solutions – far beyond the remit of a short(ish) blog entry, however there are three over-arching factors that need to change if any progress is to be made:
1) Top of the list is political leadership that understands the issues, is able to communicate them, and take voters with her/him. The public must be shown the importance, and the opportunity, that reducing consumption represents.
2) Stimulating the market for demand-reduction measures. This could be in the form of legislation to improve the efficiency of homes, or reform to make space in the supply market for Energy Service Companies (ESCOs) to operate, or financial incentives for households to reduce demand. Whatever the mechanism may be – there is a clear market failure for domestic demand reduction that is in need of addressing.
3) The power of lobbies must be reviewed. Last year it was reported that the treasury spends considerably greater amounts of time with energy-intensive users, than green groups, with an inevitable impact on policy. More equal access must be granted to lobbyists from a full range of industries – covering both supply and demand of energy. This will support point 1.
We in the UK do OK at technical innovation – what is needed now however is policy innovation.