Steven Heath; Director – Public Affairs and Strategy, Knauf Insulation Northern Europe
SSE’s announcement to fix energy prices to January 2016 saw David Cameron and Ed Miliband competing to claim the credit. With the other energy suppliers coming under pressure to follow SSE’s example, let’s consider what the real cost of this price freeze amounts to. And consider if there is really any credit to claim!
Labour announced a popular plan for an energy price freeze. Soon after, energy suppliers announced energy price rises – the fault, we were told, lay with Green Taxes. Government reacted by cutting the one Government backed energy efficiency scheme that helped hard working households reduce their energy bills for years into the future.
This cut allowed Government, in a deal with energy suppliers, to give back a one-off saving on energy bills this year or indeed an energy price freeze as SSE have announced. So a long term substantial saving for many is sacrificed for a short term saving for all that equates to between 70p to £1 a week.
But let’s be clear, David Cameron did not cut a Green Tax in this deal, but rather a National Insurance programme. Not ‘the’ National Insurance scheme taken from our salaries to cover us should we need hospital care, or have no company pension to fall back on but ‘a’ national insurance scheme none the less.
The Energy Company Obligation (ECO) protects us as a society, and individually, from the nasty surprises life might just hold for us. You may not have heard of the scheme, but if over the last decade you have been offered loft or cavity wall insulation or a subsidised boiler, you have come across it. Over its lifetime it has insulated over 12 million of the UK’s 27 million leaky housing stock.
Those 12 million households pay less for their energy year after year saving ever more each year as energy unit prices rise, but the programme still has over 14 million homes to do and many of those are the more expensive ones! Given the Government’s decision to reduce insurance premiums paid through our energy bills, what greater risks are we as individuals and as a nation now exposed to?
Let’s look at the function it performed as a society safety net. For many energy bills are the biggest outlay after rent or mortgage. Across the UK 6.59 million* households are in fuel poverty and there are over 30,000 excess winter deaths with many households facing the choice of heating or eating. But don’t look on this as a situation for others if you are sitting comfortably at the moment. Rather, given the housing stock we have will be around for another 50 to 100 years, you should be asking; if things don’t go well for me and I end up without much money and possibly poor health in old age, what are my chances of ending up in a home that costs little to heat and is comfortable to live in?
For those well off and confident of remaining so, a sobering note to consider is that the correlation of excess UK winter deaths, amongst the highest in Europe, is not with age of the occupant and level of household income, but rather age of the occupant and the age of the property.
Our capacity to react to geo-political events as we’d wish is also diminished. A successful 10 year energy efficiency programme reducing the UK’s gas requirements to heat our homes by a third would place a British Prime Minister in a better negotiating position, should gas supplying nations try annexing their neighbours. However, rather than bolster an energy efficiency programme in light of Russia’s actions, Cameron has used the events to push shale gas as a national priority.
What of Climate Change? Perhaps ECO would better be described as a ‘National and International’ Insurance scheme here but let’s look at the recent UK floods. No direct link can be proven to climate change but the climate models predict ‘freak’ weather events such as the recent storms. They also predict increasing numbers of them. Ignore the talk of those that ‘believe’ or ‘don’t ‘believe’ in climate change and instead consider risk and insuring against risk.
If 97% of scientists agree there is a high likelihood of a man-made link to climate change, statistically should you, or Government on your behalf, ignore that risk or insure against it. Once again, removing a 1/3 of the heating demand from the UK housing stock goes a long way to hitting our UK carbon obligations and puts us in a stronger position when asking others to do likewise.
Some suggest it’s more economically sound to move away from ‘mitigating’ climate change and say we should ‘adapt’. Why not take money away from policies like energy efficiency, which seek to reduce the impact of a changing climate, and build more flood defences in the expectation that climate change is inevitable.
These arguments miss the importance of the positive feedback loop. The more CO2 you pump out, the greater the warming and the more severe and common the freak weather events. So removing mitigation funding would likely require ever greater amounts ploughed into adaptation.
Again, here the ECO acts as an insurance policy that attempts to reduce the risk of flood frequency and severity reducing the number of, and cost to, households affected and how often they are affected.
So what specifically has the Government done to ECO and what will the impacts be? The accompanying infographic tells the story of the lack of ambition the ECO scheme had before the recent Green Levy furore, when compared to the previous scheme, CERT. It then shows the further cuts to ambition detailed in the Autumn Statement. All this, we are told will result in money back to the consumer, or indeed an energy price freeze as SSE has announced.
While the cost of living debate is very real, there is a real need to insure ourselves against the risks of ever spiralling energy costs. Rolling back the ECO scheme ambition will only expose householders to the vagaries of both wholesale gas prices and subordinate our views to the foreign policies of those selling it.
Given the current list of risks our National Insurance payments cover us for including the National Health Service, unemployment benefit, sickness and disability allowances and the state pension, then perhaps funding for a national energy efficiency programme would better sit there rather than on all our energy bills. Fixing contributions to the amount we earn would be fairer than fixing it to the amount of energy we need to heat our homes.
Of course, there are differences from a standard insurance policy. ECO does not wait for a claim to be made, but rather starts insulating householders from high energy prices from the moment measures are installed. It also creates local jobs reducing those on unemployment benefit. What’s not to like?
It is unlikely our political parties will be rushing to claim credit for any additions to National Insurance even if it does mean a cut to energy bills. Unless of course one of them feels like grasping the nettle and explaining why we won’t have ‘Green Taxes’ in the future but rather a ‘national energy efficiency insurance policy’ worth the name.
*statistics taken from the Energy Bill Revolution Fuel Poverty 2014 update
To view Knauf Insulation’s infographic in full, click here http://visual.ly/gravity-eco-cuts