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Deal or no deal?

by on October 8, 2013

Hailed as ‘a revolutionary programme to bring our buildings up to date’ (HM Government 2010, p.2), the UK government’s Green Deal promised much but as a report released earlier this month demonstrated, has so far failed to live up to expectations.

Recent data on uptake of the scheme, reported in the Guardian, revealed that of the 71,000 homes which have had an assessment done since 2011, only 384 have signed up for improvements. There is considerable speculation as to the reasons for this incredibly modest uptake (see articles in the Guardian and Inside Housing for some sense of this) but there is far more the government should be concerned about than uptake.

The Green Deal will entail fundamental reform of domestic energy efficiency by moving towards a market-led system of refurbishment of the UK housing stock, away from a grant and subsidy approach. The central premise of the deal is that reductions in energy use incurred by the improvement of the building’s energy efficiency will generate cost savings on heating and electricity bills such that the costs of installation or loan are met by the savings made on monthly bills (pay-as-you-save). This is backed by the ‘golden rule’ which states that the ‘expected financial savings must be equal to or greater than the costs attached to the energy bill’ in order for the loan and installation to commence (HM Government 2010 p. 5).

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Initially the Green Deal was positively viewed as a policy which would simultaneously reduce greenhouse emissions and therefore contribute to reducing climate change, whilst improving the lived experience for the 4.5 million UK households that experienced fuel poverty in 2008 (HM Government 2010). However, there was lukewarm reception from organisations such as AgeUK, WWF, and Friends of the Earth, reflecting serious concerns about the ability of the deal to deliver such promises, especially given the lack of specific targets. The benefit of hindsight, in light of the report released last week, seems to show that these concerns were well placed.

In my view, the problems with the Green Deal surround a few key ideas: 1) the distributional effects of energy policy and impact on the fuel-poor and how the Green Deal may perpetuate these; 2) the effects on the housing system, particularly the private rented sector and whether the Green Deal may artificially increase rents; 3) whether the projected environmental benefits will be realised.

Firstly, although the ECO is designed to protect those vulnerable households for whom energy bills are unaffordable, I think the Green Deal poses a particular risk that by passing responsibility to energy utility companies, the problem of fuel poverty will be privatized. Fuel poor households living in remote and rural areas of the UK will be especially likely to feel the costs of increased (policy-induced) energy tariffs and at the same time suffer as a consequence of being far-from-market. Evaluation of the regressive nature of the deal is needed, to bring to the fore questions about how current policy directions may be in resolving problems related to inequality, injustice and marginality.

Secondly, the Green Deal could induce asymmetric effects in the housing system, impacting more favorably upon some sectors and actors than others. Of particular concern is the way in which changes to the private rented sector will not be progressive as those who already own rental property may benefit from net financial gains at the cost of those less fortunate (e.g the bill payer (renter) pays for the improvements but the owner/landlord recoups the benefit of these through increases in rents or value when the property is sold). Moreover, the social housing sector, which provides a vital service for the most vulnerable groups of society, may find themselves challenged by the deal, adding to their already difficult workload.

Lastly, and perhaps most problematic are the predicted carbon savings. The rebound effect is estimated by the government to be 15%, meaning that 85% of the expected energy savings will be achieved. Admittedly, there has been substantial discussion about the size, impact, and calculation of rebound effects (Sorrell 2007), it is important to acknowledge that the rebound estimates for the deal have been criticized for being low (Jowit 2010). Indeed, the 15% estimate is below the accepted standard used by the EU environment directorate of 20-80% (Jowit 2010). Moreover, personal communication between Jowit (2010) and the Department for Energy and Climate Change revealed that in reality the government expects the effect to be between 15-40%.

Importantly, the 15% rebound effect does not consider the indirect or wider rebound effects such as an increase in foreign holidays, which may arise from the cost savings of the deal. Thus, an affluent household that recoups financial savings by installing energy efficiency measures could use those savings to buy long-haul flights for a family holiday, meaning that the deal could potentially help to support even greater detrimental environmental impacts. There is, therefore, a very real danger that the deal maintains the existing fallacy, by appearing successful in changing purchasing behaviour (energy efficiency technologies are installed) without corresponding reductions in environmental impact (cf. Southerton et al., 2011).

Given these concerns, if last week’s report is the first nail in the coffin for the Green Deal maybe that wouldn’t be such a bad thing. It will certainly be interesting to see what the future holds.

References:
HM Government (2010) The Green Deal – A Summary of the Government’s proposals

Jowit, J (2010) Green deal is not a good deal for all home owners, The Guardian 24th November.

Southerton, D., McMeekin, A., and Evans, D (2011) International Review of Behaviour Change Initiatives: Climate Change Behaviours Research Programme, Scottish Government Social Research Publication.

Sorrell, S (2007) The rebound effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency, UK Energy Research Centre Report

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