Big and dumb or small and smart? UK energy and climate policy at a crossroads once more

Energy efficiency is of central importance in meeting a raft of the UK’s infrastructure demands, as well as its climate targets. Ambitious energy efficiency implementation minimises the cost and maximises the benefits of decarbonisation. It addresses fuel poverty, enhances productivity and competitiveness, creates and supports quality jobs, improves energy security and boosts GDP, and can render potential ‘white elephant’ investments on the supply side unnecessary.

Energy efficiency’s track record speaks for itself. In homes, gas and electricity demand has fallen by 21% and 13% respectively since the peak of 2004. This despite there being over two million more households, higher indoor temperatures, and more lamps and appliances in each home. Thanks to insulation, efficient boilers and appliances, energy bills were £500 lower in 2017 than they would have been without energy efficiency improvements since 2004. With residential energy efficiency policy having slowed to a crawl in 2015, and the rate of insulation down 95% compared to 2012, there is now a real risk that these trends reverse. This risk must be overcome, and energy efficiency’s enormous remaining potential – which could slash household energy demand by 50% – realised.

Given energy efficiency’s central importance, the Government’s ambition for home energy renovation in its Clean Growth Strategy – for all homes to achieve an Energy Performance Certificate rating of C (on the A to G scale) by 2035 – is a good start. However, policy and investment to achieve it is severely lacking. The annual investment needed from public and private sources to 2035 is £5.2 billion. Public investment in 2017/18 was £0.7 billion. This draws in little to no private investment and there are no plans to change this amount or the way in which it is invested, leaving an annual gap of £4.5 billion.

Thought and practice on how to effectively drive greater demand for energy efficient renovation – including by harnessing the £27.6 billion market for housing repair and maintenance – is well established and needs to be acted on in the UK. In a new report out today, case studies of peer countries France, Germany and the Netherlands – and a case study of Scotland owing to its own advanced approach – demonstrate combinations of policies and public investment that are far more effective at raising renovation rates and unlocking more private investment.

Considering the UK has substantial energy efficiency policy capability and experience spanning decades, these case studies inspire the belief that the UK must be capable of doing better. But it will require a greater commitment of public capital investment and better-organised delivery to achieve.

Now is an important time to capitalise on momentum for greater ambition. Some incremental policy steps are being taken by Government following the Clean Growth Strategy’s publication last October. In March, the retail finance sector, through the Green Finance Taskforce, made strong recommendations to Government that would enable it to mainstream the financing of home energy improvements.

Crucially, the National Infrastructure Commission, having established energy efficiency as one of its priorities, has a unique opportunity to make big picture recommendations for greater energy efficiency investment as part of its first five-yearly National Infrastructure Assessment to be published on July 10th, 2018.

It must inspire Government to follow up with a more coherent and ambitious approach that treats energy efficiency as a national infrastructure priority and weaves in those steps the Government is already taking, including in response to the Green Finance Taskforce’s work. This encompasses:

1. Confirming energy efficiency as a national infrastructure priority, with clear governance arrangements, targets, a long-term action plan and funding, as in Scotland;
2. Additional public capital investment of £1 billion per year to 2035 – much of it supporting low income households – that can help unlock £3.5 billion of private investment, closing the £4.5 billion gap;
3. Adequate incentives for ‘able to pay’ homeowners and landlords, such as lower Stamp Duty for more energy efficient homes and 0% interest loans;
4. Robust regulation, strengthening over time towards an EPC rating of C, that requires some homeowners to take action and inspires others to plan and invest for the future;
5. A long-term approach to delivery in which local authorities play a core role in tackling fuel poverty, creating demand and growing local supply chains;
6. Strong advice provision and quality assurance and safety standards.

What is the prize, aside from meeting our climate targets in the most cost-effective way, of doing so? Everyone gets to live in a safer, more comfortable home that is cheaper to run: quintessentially ‘no regrets’.

Pedro Guertler is a Senior Policy Adviser at E3G, an independent climate change think tank. You can read the full report here.

The views expressed in the article are those of the author, not necessarily those of Bright Blue.

Reflections on Bright Blue's Green conservatism conference

On Wednesday 1st November, Bright Blue hosted its inaugural Green conservatism conference – a day-long event of panel discussions and keynote speeches, all feeding in to some of the most pressing debates currently taking place in the environmental sphere. Specifically, we endeavoured to examine four distinct areas of interest: agriculture, conservation, the role of markets in energy, and energy security.

The day began with a keynote speech from the Minister of State for Climate Change and Industry, Claire Perry MP. She struck an optimistic tone about the economic and industrial opportunities the UK has going forward as a cleaner and more environmentally sustainable nation – citing the Government’s work in pioneering the Contracts for Difference reverse auctions which have led to a blossoming, and ever cheaper low-carbon power sector, and unprecedented investment in renewables like solar and wind since 2010. Perhaps most interestingly of all, the Minister acknowledged that current policy does not allow onshore wind projects to bid for low-carbon contracts, and that this inconsistency is something the Government is actively seeking to address.

Agriculture and CAP reform

The first panel of the day sought to explore the current and future status of agriculture in Britain, particularly in the context of Brexit. A vigorous debate ensued, with the panel divided as to what the future status of rural payments to landowners and farmers ought to be in the coming years.

Arguments were advanced both for and against maintaining large-scale state support for the agricultural sector. Those backing a continuation of payments made their case for doing so largely on the basis of food security and food standards, as well as to remunerate farmers for the various aspects of environmental stewardship they provide.

On the other side of the argument, however, the contradictory nature of CAP payments vis-à-vis environmental sustainability was advanced, along with the economic inefficiency which some believe they have encouraged in Britain’s agricultural sector. Regarding the stewardship role of farmers, it was argued that this could still be retained, albeit through a more targeted system of commissioning public ecosystem services where they are demanded.

The future of conservation

There was consensus on our second panel about the need to be doing a good deal more conserving. Each panellist, however, contributed a unique perspective on just what, exactly, the focus of conservation ought to be. Suggestions ranged from raw materials to soil quality, and ancient woodland to native species of flora and fauna.

One point of contention among the speakers was over the use of targets within conservation policy. Arguing against targets, some vocalised how they can give conservation efforts ever narrower focuses, whereas it can be more effective to examine issues of this kind holistically. The risk that a plurality of targets can quickly become contradictory of each other was also raised.

Nonetheless, other panellists defended this approach, largely on the basis that targets can serve as a spur to much needed action – for example, as we have seen with the phase out of petrol and diesel cars, or recycling rates. Furthermore, it was argued that targets may also usher in better data collection which can be crucial to understanding what elements of conservation policy are going right, or, importantly, wrong.

The panel also touched upon question of rewilding. Again, all broadly agreed that a degree of rewilding could be agreeable, yet there was debate around how far it should go. Some favoured the reintroduction of species like the lynx and beaver, but others drew the line at restoring native habitats, such as rewetting peatlands and reforesting upland woodlands which have been lost to agriculture, for instance.

Strengthening the role of markets in energy

Among the third panel of the day (and the first on energy), there was a general recognition that markets can and should be strengthened to deliver better outcomes for consumers. Different panellists highlighted the role that different technologies could play in revolutionising how we consume energy, such as big data, blockchain, connectivity, interconnection, and also demand flexibility services. As these cost-effective technologies develop and expand in the market, there will be greater scope for reducing government intervention.

Whilst there was broad praise for the Contracts for Difference reverse auctions which the Government has been conducting to drive down the costs of low-carbon power subsidies, the panel was split on the efficacy of large-scale nuclear projects like Hinkley Point C backed by now seemingly exorbitant strike prices. Some saw them as a necessary price to pay to ensure a secure supply of low-carbon energy, others as overly expensive and incompatible with a more decentralised, flexible electricity grid.

Energy security in the UK and Europe

Much in the same way as some members of the first panel on agriculture questioned the need for food security, so too was there scepticism on our fourth panel about the idea that the UK should be worried about energy security. Indeed, the panellists drew an important, under-appreciated distinction between self-sufficiency, which means that all energy is produced and generated domestically, and security, which means that energy supplies are secure through having diverse and reliable sources.

The panel was quite clear that we should not overstate the importance of Russian energy imports in the context of UK and European energy security, citing the maxim that “Russia needs Europe more than Europe needs Russia”. There was also significant optimism that improvements in renewables like wind energy will make domestic production easier, while new technologies such as electric vehicles and advancements in batteries will also help to bolster our storage capacity.

If there was one outstanding note of caution raised by the panel, it was that as our energy networks become increasingly interconnected and convergent, the potential danger of a successful cyber-attack on the system escalates. This, more so than conventional energy security fears, seemed to be where the panel thought resilience in our energy sector would be most needed.

Conclusion

The final two speeches were delivered by two former Environment Secretaries from the Major Government. While divided on the question of the UK’s membership of the EU, they are united on the imperative of protecting our environment.

First, the Rt Hon Lord Deben, Chair of the Committee on Climate Change, spoke of how business needs to assume a greater responsibility for tackling climate change, especially now that the science so clearly supports anthropogenic climate change. He stressed the idea of doing more to internalise hitherto externalised costs of pollution associated with consumption – in basic accordance with the ‘polluter pays’ principle. Furthermore, he highlighted how much more energy efficient everyday living has become as a result of EU regulations.

Second was the former Leader of the Conservative Party, the Rt Hon Lord Howard. Speaking with reference to his role as Secretary of State for the Environment during the Rio Summit of 1992, Lord Howard raised how, contrary to popular assumption, rising living standards and decarbonisation need not be antithetical – citing evidence that the UK has witnessed both the greatest decline in carbon emissions and greatest rise in per capita economic growth of all G7 countries over the past 25 years. He argued that Brexit would allow the UK to become even more environmentally friendly than it currently is.

In summary, the Green conservatism conference successfully brought together a range of policymakers, experts, and practitioners, particularly on the centre-right, with the shared ambition to realise a greener, more sustainable world, yet with different perspectives on how to achieve that desire. The debates which took place were testimony to the long-standing, but underacknowledged conservative commitment to environmental stewardship and conservation.    

Eamonn Ives is a Researcher at Bright Blue