Tackle fuel poverty and climate change together

Editorial
The Observer,
Sunday August 3 2008

Since oil and gas are costly to produce and much in demand, it makes sense that they are expensive to use. Given the additional cost to Britain of dependency on unreliable energy-exporting regimes and the cost to the world of climate change it is also, arguably, no bad thing if high prices encourage people to be frugal with fuel.
But that is no consolation to those who struggle to pay for even modest energy consumption. It is the poorest in society who suffer most when heating bills soar.
So when last week, customers of British Gas learnt simultaneously that their fuel bills would go up by around a third and that the company's owner, Centrica, made profits of £992m, they did not accept the news as evidence of global markets not working properly. They were angry.
That puts pressure on the government to intervene with a windfall tax on energy companies. The appeal, both political and moral, of taking from rich businesses and giving to poor households at a time of great economic anxiety is straightforward, the arguments against such a course of action less so.
The energy companies insist that there is no simple correlation between the profits they make from diverse global operations and the amount they charge UK customers. They also argue that they need money to invest in infrastructure, especially if they are to meet government targets for developing renewable sources of energy.
Business leaders and some Conservatives state a more dogmatic free-market case in defence of the energy industry. Windfall taxes, they say, frighten investors and damage Britain's competitiveness, signalling that profitability is liable to be punished.
There is some reason in those arguments, but no solution to the basic problem: how to alleviate fuel poverty next winter and consume less energy in the future.
The government sees this as a competition between short-term and long-term goals: either bail out customers now or let companies keep their money in the hope that they will invest for greater benefits later on. Labour is not minded, according to Energy Minister Malcolm Wicks, 'to sacrifice fuel poverty on the altar of climate change'.
The reality is that fuel poverty and climate change can and must be tackled together. But it requires sufficient vision on the part of government - literally insulating the nation from the twin threats. At least 12 million UK households are poorly insulated, costing each around £200 per year in higher bills. As more than a quarter of UK carbon emissions come from heating and lighting, the environmental impact of this wastefulness is huge.
There are schemes, like the government's 'Warm Front' grants, to help people conserve energy. But there is nothing approaching the kind of mass programme that would make a difference to the way the average Briton consumes fuel. And while energy companies have shown some willingness to help people conserve energy, their efforts have been largely symbolic. It runs counter to commercial logic for any business to spend significant resources discouraging the use of its product.
A much more activist approach is required by government. That does not mean hitting the energy companies with a crude tax that would, in all likelihood, by purloined by the Treasury to cover its other liabilities. A neater solution has been identified by the Liberal Democrats. They advocate compelling energy producers to divert money they have made through the European Union emissions trading scheme. Since they got those lucrative permits free from the government, they have enjoyed a de facto subsidy - £9bn over five years, according to energy regulator Ofgem.
The government is prevented from embracing such a scheme through fear of anything that looks like state meddling in the affairs of private companies. Tories do not so much fear apparent meddling as despise it on ideological grounds.
So it is to the Liberal Democrats' credit that they have grasped some simple truths about the relationship between climate change and household energy use: protecting people from the cold is an urgent public good, not a private consumer choice. Likewise reducing household carbon emissions.
The utility companies have responsibilities to the public just as pressing as the commercial dues they owe to shareholders. Ideally, they can be enlisted in voluntary partnership with government in an ambitious strategy to transform the way Britain's homes are powered. But if they are not willing, government has a moral right - a duty even - to force them to meet their social obligations.