Being able to bank on long-term government help is crucial to energy-saving
The good news is that the government has decided to top up its system of grants for ordinary people to install energy-saving technology in their homes, after it embarrassingly ran out of money a week ago.
Given that the Stern Review on climate change, out today, will warn that the costs of inaction will be the worst recession in global history, the government could hardly do anything else.
Those hoping to order a solar, wind or geothermal system for their house or flat, will have been dismayed to read in the Guardian a week ago that the Low Carbon Buildings Programme (LCBP) – the government’s grant system for renewables – had used up all its money half way through the current fiscal year.
Surely some mistake, you might ask? Unfortunately not. The government’s support for household renewable energy has long been plagued by a stop-go cycle and the latest muddle is typical.
The current scheme was launched in the spring with a pot of £6.5m to support household renewables over the next three years. It was split £3.5m this year, £2m next and £1m in 2008/09. Trouble is, the popularity of renewables meant this year’s £3.5m was used up in just six months. Energy minister Malcolm Wicks last week shifted another £6.2m from other parts of the LCBP into the household renewables pot last week.
But the amounts are paltry for the world’s fifth-largest economy to be spending on supporting renewables, given that the government has declared climate change to be the biggest challenge we face.
£80m pot is laughable
Sir Nicholas Stern’s review for the Treasury will say the world needs to spend 1% of gross domestic product to combat global warming. For Britain, that would be £11bn a year from industry, government and ordinary people. So the LCBP pot of £80m – which includes support for commercial renewable projects – over three years, is laughable.
That amount might build a hospital or two, but it’s hardly going to make a dent in global warming.
The amounts are a fraction of the scale of the Marshall Plan which rebuilt Germany after the second world war or President Roosevelt’s New Deal in the 1930s which helped pull the United States out of the Great Depression.
The Marshall Plan was worth about $130bn (£68bn) in today’s money, incidentally. The government argues that microgeneration is an industry that should need a bit of pump priming and then should be able to stand on its on two feet. Hence the time limit of the subsidies of 2008. In theory, of course, that is right. Governments are not the best at deciding which industries thrive and which don’t. But, given the urgency of the situation, I would argue that a longer-term commitment is needed.
Other forms of energy, be they coal, gas, nuclear or whatever, have never developed in fully open markets. All have had some sort of subsidy, often running to billions of pounds, over many years. So why should renewables not benefit from a decent level of support?
I am not pretending that micro-generation at the household level is the complete answer, but it is one of the things, that are going to be needed, as the Stern Review will make clear. It is also a key part of changing people’s attitudes to energy use and carbon emissions.
For households and firms that are offering solar, wind and ground source heat pumps, to home owners, the constant disruption to grant flows is unhelpful at best.
Everyone needs a simple, guaranteed flow of funds from government if they are to take the sort of long-term decisions that renewables involve.
As the popularity of the grants shows, there is a huge constituency out there wanting to do their bit for the planet and they should be helped by the taxpayer because the high upfront costs and long paybacks of things like solar power or ground source heat pumps mean many people simply can’t afford them. There is, though, from an economics point of view, a question as to whether a grants system is the way to go. They are expensive to administer, a pain for people to understand, and likely to run out of money at the whim of government. They can also distort market signals.
There are alternatives. Dr Jim Watson, of Sussex University’s energy group, says it would be better to support renewables through the tax system, either through tax returns, or through an initiative such as supported home computer purchase. This could leave grants just for those on lower incomes.
“As businesses get incentives for investment in renewables or energy saving, so should individuals,” he says. “People’s thirst for doing something about global warming should not be scuppered by grant systems running out of money.”
He also says the government needs to create a more coherent system for people with micro-generation to sell any surplus electricity they generate back to the grid. At the moment this is difficult and consumers often get paid much less for exported current than they pay when importing it.
Stuart Elmes, head of Viridian Solar, which makes solar thermal panels for house builders, thinks the best way would be to provide support both for renewable energy and energy saving through council tax. “Grants are messy and difficult to administer. If you give discounts on council tax, according to how much energy consumption is reduced, you provide a double incentive. That way, you also leave it to people to decide best how to save energy and use renewables instead of the government trying to do it.”
This point is key. For houses with a south-facing roof, solar might be the best. For those near a coast with good wind, a wind turbine may be good.
People with a big garden who have an old heating system may fancy replacing the whole thing with a ground source heat pump system. Each house is different. Give people a simple tax break and they will figure out for themselves what they install. This must be better than the government deciding different grant levels for different technologies, according to what it thinks their value is.
Rush into technology
There is also the issue of whether they distort market signals. Energy expert, Dan Lewis, of the Economic Research Council, points out that grants available in several European and Scandinavian countries for solar photovoltaic cells, encouraged a big rush into the technology, thereby pushing up the price of silicon, from which they are made. “This led to a 20% profit margin on PV cells which probably discouraged the search for other materials to make PV panels from,” he says.
There are also simpler things the government could do, such as banning ordinary light bulbs. This could make a big impact on emissions, as domestic lighting accounts for a quarter of electricity use and low-energy bulbs burn a fifth the amount of electricity.
It should also mandate that all new buildings have solar roofs (China does this) and even that car engines have a maximum size. Does anyone really need bigger than, say, a 2-litre engine?
For households, of course, there are many simple things that can be done like low-energy bulbs, draught-proofing and roof insulation. Another good way to go green, says Mark Todd of is to switch your supplier to one that uses renewable power, such as wind or hydro. The main ones are Good Energy, Ecotricity and Green Energy. “It takes a 15-minute phone call to change,” he says, adding that green energy companies are now cheaper than some “brown energy” companies as traditional utilities are called.
Clearly, we can’t all switch to these tariffs because of the lack of generating capacity but there are a half a million green slots to be taken and that would channel more money into renewables.
Energy savings and microgeneration alone will not solve climate change. But they can make a significant contribution. We need a proper system of support from the government, and we need it now. It could be financed, of course, by a tax on airline fuel.
That would need international agreement, but the idea that airline fuel – a key culprit in global warming – is not taxed scuppers any pretence the rich world may have that it is going green.