In October, the United Kingdom will embark on a national program to make millions of homes and businesses more energy efficient. Until then, officials are busy educating the British public about the Green Deal—a program giving people access to funding for energy efficiency upgrades at no up-front cost—and answering queries from foreign businesses and policymakers about the novel new funding mechanism, and the economic opportunity it creates.
The business angle
Articulated in the The Energy Act of 2011, the Green Deal aims to retrofit 14 million British homes and businesses by 2020 and another 12 million by 2030. The means for reaching this goal is a financing mechanism for property owners and tenants to make energy efficiency improvements at no up-front cost and pay them off gradually via the energy bill.
The Green Deal will allow ratepayers to borrow up to £10,000 ($15,830) to use on energy saving measures to be carried out in their home that will reduce their energy bill. Like the short-lived PACE programs in a handful of US cities that tied energy efficiency improvements to property deeds, these loans would be linked to the property, but done so through the electrical bill. The costs for the retrofit are fixed to the energy bill until they are paid off. In most cases, and depending upon the kind of work being done, customers should see nearly immediate savings on their monthly energy bill, allowing them to absorb the added financial weight of the loan without spending any more money on their monthly bill.
One of the biggest benefits of extending the program beyond property owners to tenants is, according to Dan Monzani of the Department of Energy & Climate Change, “It does get over the split incentive between tenants and landlords.”
Monzani, who is Deputy Director, Green Deal Legislation & Finance at Department of Energy and Climate Change was in the US recently with a delegation of British government and business leaders talking about the novel new policy and the market and supply chain opportunities it can create.
What kind of opportunities? “All sorts of things,” Monzani says, “from heating controls, smart meters—you’ve got some real good possibilities with heating controls—smart meters, and heating, ventilation and air conditioning systems.”
If the UK is going to make headway on its national goal of reducing carbon emissions by 80 percent by 2050, the country will need to continue to develop the “charismatic” projects—massive offshore wind farms and tidal power plants—but also the less charismatic ones like insulating walls and installing heating controls.
The politics angle
The official British Government Position on the Green Deal is that “it is the most ambitious and comprehensive home improvement program Britain has seen since the second World War.” The plan, however, is not without critics.
When government data recently revealed that the number of households receiving British Government support for insulation was projected to fall from 1 million per year to 70,000 per year, because of lackluster Green Deal buy-in Labour derided the untested plan, criticizing it as regressive. “These stunning figures show that the government’s green deal is in danger of becoming a car crash,” said Luciana Berger, Labour’s shadow climate change minister. Guardian columnist George Monbiot called it a “useless, middle-class subsidy.”
When I asked Mr. Monzani about these critiques he said the Green Deal is “actually very progressive,” because of the additional funding made available to poorer households via the so-called Energy Company Obligation.
Perhaps more importantly, however, Monzani says, “this is not a government subsidy. There is no government subsidy.”
And that is the key point. The money will still be available to the least financially able households, except now it will be coming from constructive loans tied to the residence, energy savings, and if need be, the energy companies.
No one can really be sure of the impact UK’s Green Deal will have on Britain’s poor, how effective it will be as a policy to cut carbon and how stimulating it will be to the UK economy until it has been put in place and tested. Until then, the Government should take the recent data about predicted levels of low opt-in rates to heart and work diligently to educate the public, streamline the process, and build the safeguards and programmatic infrastructure needed to protect the vulnerable.
Too much is riding on the policy mechanism as an innovative funding mechanism to dismiss it outright. I can say that because I don’t have a dog in this hunt. I can also say it because I’m hoping I might see it in the U.S. someday.
Article by Timothy Hurst, appearing courtesy Earth & Industry.