How Berkeley's Bank could help fight climate change

Berkeley in California is issuing loans to property-owners who install solar power systems. Paid off through taxes, the cost remains with the property so that whoever lives in it pays off the loan and receives the benefit.

By Joel HaganLast Updated: 2:39PM GMT 27 Nov 2008

Despite the recent fall in wholesale energy prices, the struggle of energy supply to keep pace with demand means the era of plentiful and cheap power is well and truly over.
Even if it were not, our environmental responsibility would require us to manage its use far better.
Home and water heating dominate energy consumption; between 60 per cent and 80 per cent of energy goes on this, a much higher figure than elsewhere in Europe.
Our housing stock is exceptionally thermally inefficient, probably because unlike many continental countries we have a temperate climate with no great extremes of heat or cold and because for a quarter of a century, while North Sea oil and gas remained abundant, energy prices were low.
What is to be done? Lag the loft, fit a jacket on the hot water tank, fill the cavity walls, install double glazing, put in a more efficient boiler. These things all cost money and the payback takes years.
Even in good times inertia is high and as we head for a global recession people will be even less inclined to stump up the £10,000 or more required to make an existing home truly energy efficient. Those planning to move house within 20 years will doubt that they will ever recoup their investment.
It is good that the government has secured a commitment from the energy companies to spend £910m over three years on energy efficiency, but large as this sum sounds it will not go far.
It will probably improve the insulation of somewhere between 100,000 and 200,000 homes in each of the three years – a drop in the ocean when there are around 22.5 million homes in the UK. Of these 8.5m have unfilled cavity walls and 12m have inadequately insulated lofts or no loft insulation at all.
The domestic housing sector is responsible for around a third of total UK C02 emissions. We clearly cannot go on as we are.
Berkeley in California may have the answer.
The City council there has devised a scheme called Berkeley First that creates a "Sustainable Energy Financing District" fund, which will give loans to Berkeley property-owners who install solar power systems.
Those loans can be up to $22,000 (around £13,000), are paid off over 20 years, and are collected through a local property tax.
If used to promote energy saving this idea solves two problems at a stroke: there is no need for individuals to raise the money on their own account to make their homes more energy efficient, and the cost remains with the property so that whoever lives in it pays off the loan and receives the benefit.
In the UK, we could go beyond Berkeley. We could fund all energy efficiency improvements through loans, collecting the repayments through the council tax. Local authorities might raise the money initially either through traditional borrowing or by issuing bonds.
It may be objected that now is not the best time for local authorities to incur additional debt, but the credit crunch will not last forever and in a chastened banking system innovative lower risk schemes might be attractive.
Such a scheme has much else to commend it – the investment would be an engine to drive economic recovery, and it is generally recognised that new life needs to be breathed into local government to make it more relevant to the needs of people and communities.
An alternative way of financing such home improvement would be to encourage, or possibly to require, energy companies to offer a similar scheme, with repayments made through the energy bill.
Such a notion, however, suffers from the significant complication caused by the movement of consumers between suppliers as they seek the best tariff in a competitive market.
Unless loans remain with the property rather than following the customer one of the key benefits of the scheme would be lost, but it would be unacceptable for it to become a means to lock customers into their suppliers.
One solution would be a pooled fund from which loans would be made, to which all suppliers contribute.
Whether held by local government or utilities, the "Berkeley Pool" could also be the repository for the sums energy suppliers undertake to contribute to broader causes as part of their corporate social responsibility programmes.
The details of any such schemes would need careful study, but the effort would certainly be worthwhile. Bold thinking rather than tinkering at the edges is required. We must seek to bring about structural change.
It is vital that the government's time and attention, and taxpayers' money, are devoted to finding long-term remedies to major structural problems.
Joel Hagan is CEO of Onzo which designs global home energy management systems