15 Mar 2010

Improving the Incentives

I keep chewing over these incentives and thinking what a missed opportunity they are. The government is at long last prepared to throw a lot of money at greening our buildings. That's the good news, and what is just as good is that this intention will, in all likelihood, survive into the new administration after the election. But having decided to press the green button for GO, they've gone and designed up a series of initiatives that hit the wrong targets.

Easy to sound ungrateful and to carp, but how could the incentives be improved? Well, it looks like Feed-in-Tariffs are in place and have to be lived with, despite being comprehensively torpedoed by George Monbiot recently. But the Renewable Heat Incentive and the Household Energy Management Strategy are still taxiing for take off and could yet be redesigned.

I think the answer is not to scrap them, but to integrate the RHI and HEMS into one combined initiative. Rather than subsidising plant, it would be better to incentivise people for undertaking energy upgrades, and not to tie this to any particular system or technology. The combined incentive could be a mixture of grant and zero- or low-interest loans - repayable on the sale of the property - and the aim would be to get all buildings up to the A standard by 2050. Incentives (and taxes on fossil fuel) would be adjusted at frequent intervals to alter the speed of the national conversion process, so that the goal is achieved to timetable.

• We already have in place a system of Energy Ratings for buildings - far from perfect, for sure, but at least it's there.

• We have plenty of advice on how to improve energy efficiency in all manner of buildings, be it by insulating or fitting low carbon heating.

• And we have building inspectors and professionals capable of both detailing and overseeing such works. For some it might be insulation, or triple glazing, for others it might be a heat pump or a biomass boiler, or an innovative ventilation system, or it could be a fuel cell or a district heating system. But critically, people would be rewarded for carrying out coherent and effective improvements. Each house, each building is different, and the most cost effective way of making them A-rated (which is close to what the aim actually is) may vary significantly.

• We have past experience of schemes like this, notably the Improvement Grant schemes, popular in the 1980s, which were used to do up much of our Victorian housing stock and which, incidentally, I first cut my building teeth on in the backstreets of Cambridge. People were awarded a grant of roughly £6,000 for undertaking around £15,000 of improvements, as specified by the council. This initiative could reward people incrementally for pushing the energy performance up the chart towards the A rating. Going from a G to an A in one leap might be very tempting with the carrot of a £25,000 grant and a £50,000 low interest loan.

• And ultimately, it would become very expensive for those who chose not to carry out improvements. The stick part of it would be higher fuel bills and maybe higher council taxes, stamp duty, etc. Easy to design a complementary set of fiscal incentives and penalties to encourage change.

It's not so far from what is happening at the moment as to be politically unachievable. Yet it is much more coherent strategy than the seemingly unrelated initiatives which have come out of DECC thus far. The FiT seems to have just been copied from Germany (just as the Germans are beginning to count the cost); the RHI looks to be modelled on the FiT because it's sort of a similar idea. In contrast, the HEMS initiative seems to have been based on a suggestion from the Green Building Council - Pay as You Save - possibly because they didn't realise that there was far more money available if only they'd asked. But in essence the RHI and the HEMS initiative are two sides of the same coin and it makes no sense to have one as a grant and the other as a loan, when what is required is an integrated approach, treating each building independently. If a heat pump improves the energy performance of a building at reasonable cost, all well and good. Subsidise it. But don't assume that heat pumps are appropriate for all situations, because they are not. This is the trap that the RHI falls into.

By the way, I have learned from well informed sources that David MacKay is not responsible for any of these recent incentives. They were all works in progress long before he was hired as Chief Scientific Officer. So the negative mutterings I have been picking up on would seem to be misplaced. I think he deserves a little longer in his role before we start passing judgments - six months is nothing. Not even Man City turn on their managers that quickly.


  1. Easy to design a complementary set of fiscal incentives and penalties to encourage change.

    Remind me how many people die of fuel poverty again?

    I don't support any scheme that will see significant rises in heating bills to try and "punish" them into upgrading there house.

    Let's not move back to the middle ages please.

  2. It seems to me that, heatwise, we have yet to emerge from the middle ages, and we need to make a leap forward into the 21st C. The age of burning cheap gas, coal or oil is nigh on gone, and we have to get real about how we are going to deal with it. The fact that many people are struggling to pay fuel bills is a symptom of the problems that already face us, and which will only get worse. It's not a reason to do nothing about it.

    Having said that, I can see the problem. The most elegant solution is to introduce some form of personal carbon rationing. But it's not on the political agenda, at least in 2010.

  3. You could also make the offering more closed loop by, for example, 'punishing' carbon a little more but using the increase revenue to subsidise those in fuel poverty. That way you'd have the incentive but little else would ahve changed.

  4. Excellent points, I think greening our society should be a higher priority.

  5. The problem we are faced with is huge and the solutions will not be easy to implement.

    I can see why paying the better off to burn wood or fit PV is a simpler and altogether more attractive option and not just for politicians.

    Finally got round to reading Bad Science by Ben Goldacre (excellent) and can't help but see parallels to his parody of Daily Mail headline 'wonder pill solves complex social problems'.

  6. "The age of burning cheap gas, coal or oil is nigh on gone"

    Only because of all the carbon taxes wacked on top. Plenty of new technices are coming into play that will keep us in fuel for hundreds of years.

    Don't get me wrong however, i do think we want to move towards more efficent housing.

    But we shouldnt be subsidising the better of homeowners at the cost of the poorer ones who can only just about afford to keep going with what they have, let alone paying for any upgrades.

    We need a sensible long term (20 years?)plan that will see housing upgraded, without creating a cost burden to those least able to afford it.