Government favours energy efficiency over windfall tax

The government’s announcement of a major home energy efficiency package has received a lukewarm response from campaigners and guarded support from the insulation industry.

"No-one will be able to say they do not know how to reduce their energy bill," the government claimed as it made a long awaited announcement on helping people this winter with soaring bills.

Ministers opted for a package based almost entirely on better energy conservation rather than handouts to low-income households. But the extra savings in greenhouse gas emissions will be modest, possibly less than one million tonnes of carbon dioxide a year out of a national total of some 550 million tonnes.

The package, worth some £1 billion extra over three years, relies mainly on stepping up programmes funded by the energy companies to improve home insulation and energy efficiency.

The government eventually decided against a windfall tax on energy company profits resulting from free allocation of emission permits under the EU Emissions Trading Scheme. It had also considered raising the proportion of auctioned permits in the current phase of the EUETS to raise money for cutting household fuel bills. It eventually decided against this on the grounds that it risked being ruled unlawful under the scheme’s rules.

While the extra spending by energy firms should help hundreds of thousands of households cut energy use and so save money, it is still unclear how much of their expenditure the firms will pass on in energy bill increases. If they do so in full, Gordon Brown’s package set out on 11 September would cost each home £15 per year.

But Garry Felgate, chief executive of the Energy Retail Association, which represents the gas and electricity suppliers, said: "This is a highly competitive market and all the suppliers will try to absorb the cost as they do with other costs such as investment and generation. The government has indicated it will monitor energy companies’ pricing strategies to ensure consumers are treated fairly."

The package’s biggest element is a 20% expansion of the existing Carbon Emissions Reduction Target. CERT already forces energy firms to invest £2.8 billion in home efficiency - mainly insulation and efficient heating and lighting - over three years to April 2011. The government will legislate to raise this by £560 million, and electricity generators will be included for the first time.

David Porter, chief executive of the Association of Electricity Producers, said this was "astonishing… generators sell into the wholesale market; they’re not familiar with consumers. They probably don’t even know what the CERT programme is."

A further £350 million will go towards a new Community Energy Saving Programme. This will see local authorities, voluntary organisations and energy firms calling house-to-house to offer help in some of the most deprived areas of the UK. This could result in as many as 100 schemes, the government estimates.

John Mason, head of policy and communications at the National Insulation Association said: "We very much support this, but we’re hoping there’s a sensible delivery plan." Insulation firms had already increased staff levels significantly and the industry was confident it had the capacity to meet increased demand.

"The question for us is how much of the 20% is going to be tangible benefits and how much will be soft measures like advice to householders," he added. "Advice has its place, but what we want to know is how many extra homes they want insulated this winter."

The government has also announced an extra £74 million over the next two years for its Warm Front scheme, which offers up to £2,700 worth of central heating and energy efficiency measures to low-income households and pensioners. The extra represents a partial restoration of the scheme’s budget, following last year’s decision to cut it by around £200 million between 2008 and 2011.

To back up the package, the government plans a joint propaganda offensive with the energy firms on saving energy and cutting fuel bills, with TV and newspaper advertising and a personal letter to every household. This relies heavily on the Energy Saving Trust’s existing helpline and network of advice centres.

Jenny Holland, parliamentary coordinator at the Association for the Conservation of Energy, said the package was a step in the right direction, and much better than taxing energy companies to provide handouts to the fuel poor. But it was far from adequate.

"What we’ve got now is roughly £1.6 billion being spent on CERT and Warm Front, but we need £4 billion," she said. The Environ-mental Industries Commission also called for higher spending on improving the energy efficiency of poorly insulated housing.

Friends of the Earth and Help the Aged said they were pressing on with their plans to seek judicial review of the government’s actions on fuel poverty. The Warm Homes and Energy Conservation Act 2000 requires the government "as far as reasonably practicable" to end fuel poverty for vulnerable groups by 2010, and for the rest of the population by 2016 - but with soaring fuel bills those targets cannot be hit. There will be a court hearing in October.

Energy regulator Ofgem published its first assessment of CERT in September. This revealed that energy companies have already achieved over a quarter of the carbon savings required through the three years of CERT, mainly through carry over of its predecessor scheme, the Energy Efficiency Commitment.1

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