So much hot air

The PM trumpets his energy deal, yet power firms have escaped a windfall tax for a piffling investment in low-carbon homes

Oliver Tickell
guardian.co.uk,
Thursday September 11 2008 21:39 BST

Gordon Brown has finally got something right. His initiative to make energy companies invest more in improving the efficiency of their customers' homes reflects all the attributes that once made him such a respected chancellor: prudence; thinking for the long term; and putting an end to the economics of boom and bust – in this case, by generating new employment in the UK's collapsing construction industry. It will also help the UK to meet its mandatory carbon emissions cuts to be set in the Climate Change Act.
So how many cheers? Just the one. His £910m home efficiency programme is a move in the right direction, but its scale is hopelessly inadequate. To bring the UK's housing stock up to a high standard of energy efficiency by 2050 will need an investment over 600 times greater than the new money announced this week – this figure thanks to Brenda Boardman of Oxford's Environmental Change Institute. In her detailed 2007 report Home Truths, Boardman calculates that, for every household, in the UK to qualify as low carbon by 2050, £12.9bn must be spent every year in a package of grants, loans and tax incentives. This would produce an 80% cut in carbon emissions from the UK homes, and a £12.3bn cut in fuel costs as average bills fall from £725 per year to £250 per year (based on 2007 fuel prices). With average bills now £1,300 a year, and set to rise above £1,400 in 2009, the benefits look certain to be far greater.
By contrast, the government's new scheme is a drop in an ocean of need, representing just over £300m per year of new cash. Energy companies will have targets to reduce customers' carbon emissions under CERT (the Carbon Emissions Reduction Target) increased by 20% from the current 154m tonnes of CO2, and they will have to provide a further £350m to a Community Energy Saving Programme. This will cost them £910m over and above the £2.8bn cost of the existing CERT programme. But these costs are spread over three years, so the total annual cost will be about £1.2bn.
This is less than one tenth of the £12.9bn annual investment need identified by Boardman. Or to look at it another way, at this rate of spending, all the UK's homes will be low carbon after four and a half centuries – just in time for the 2472 Olympics.
Do we really want to wait that long? Indeed, can we wait that long? The Climate Change Act will require the government to cut carbon emissions by 60% by 2050, and to meet this target our housing must contribute its share of savings. By 2050, we will probably have 23% more housing in the UK than at present, according to Boardman. And some people will take some of their energy efficiency gain in increased warmth and comfort, rather than lower bills. Combining these two factors, our housing will need to meet the low-carbon standard by 2050, if the UK is to comply with the legal obligations created in the Climate Change Act.
And it's not as if the energy companies can't afford to stump up a great deal more. Thanks to energy price increases, windfalls from the deeply flawed Renewables Obligation and the extraordinary give-away of emissions allowances under the EU's emissions trading scheme, estimated by Ofgem to be worth £9bn between 2008 and 2012, they are literally awash with cash. In 2007, they paid out dividends of over £1.6bn to shareholders – and that was before the latest round of price increases.
For all his talk of a "real and lasting change", Gordon Brown has won a poor deal. The energy companies can even pass the extra £910m cost onto their customers; and, on past form, they probably will. They must be laughing into their sleeves.