If ever an idea was half-baked, it's the Renewable Heat Incentive. On Feb 26, I was at a briefing in London, given by the civil servants who have designed the scheme, and the more I heard, the more worried I became. "It's a world first in policy terms" we were told, "we are truly in uncharted territory and we need your help." Hmmm. The nice gent from the Country Landowners Association was beside himself with thanks to the men from the ministry. Need I say more?
The most revealing conversation that I had took place during the lunchbreak when the man from British Gas talked to me about the funding of this scheme. It's big. By 2020, if it goes ahead as designed, it will add something like 35% to everyone's gas bills, as it seems that's where the levy to pay for it all will be drawn from. It's designed to pay for as many as 1.7 million subsidised renewable heat installations by then, at which point it's going to be paying out over £2 billion a year.
Make no bones about it, this is a carbon tax, but one being introduced by stealth, as it will creep into our fuel bills without it ever appearing as an additional item. I don't have any objections to a carbon tax — quite the opposite — but I would like the money raised to be used wisely, and the RHI really doesn't tick that particular box.
Put very simply, it's subsidising the wrong people to put in the wrong kit.
As it stands there are a number of iniquities in the RHI, which I think will prove to be irreconcilable with logic or fairness.
• Arbitrary barriers between competing technologies. The technologies supported are biomass, heat pumps and solar thermal. Anything to do with fossil fuel is unacceptable. This however hides a very inconvenient fact that electricity is itself mostly derived from fossil fuels, and that unless your heat pump is set up really well, there is every chance that you will end up burning more fossil fuel (indirectly) if you switch from oil or gas to an electric heat pump. And the biomass offering is inconsistent. It seems some forms of biomass burning will receive a subsidy whilst others will not. Most clearly shown over the distinction between wood stoves, wood stove-boilers and pellet boilers. And whether or not they can (or should) have back-up boiler systems in place. As it stands, it looks like pellet boilers are IN but wood stove-boilers are OUT. It's not as if pellet boilers are fundamentally better than wood stoves with backboilers: many people can incorporate wood stoves in the homes, but have nowhere to put a pellet boiler (which needs utility space, and lots of it - QED you have to be wealthy to have a pellet boiler - it's not just a question of cost, it's also having the space).
• Deeming. Unlike the equipment being installed under the Feed-in-Tariffs (the output of which can all be metered), you can't meter the output from home heating appliances. So you calculate what it might be (using SAP, a home energy estimator). But deeming is really nothing different to a capital grant spread out over a number of payments. The crucial link between performance and reward, which is a key feature of Feed-in-Tariffs is broken. Therefore mediocrity is rewarded the same as excellence.
• The supported technologies are rewarded on a financial basis. The more expensive an installation, the more money gets thrown at it. Whether or not it actually saves any carbon, or even saves any money to the end user, is not part of the calculation. So if it's IN, its paid for at full market rate plus a calculated return of 12% (though only 6% for solar panels - a distinction I remain puzzled by). If it's OUT, then no money is available.
• Thus it stops dead any innovation in technologies that lie outside the grant-aided scheme. It also stops innovation involving a more complex interaction of techniques - cf heat recovery ventilation that incorporates an air source heat pump.
• It's not at all clear why biomass should receive a subsidy. Is it truly a renewable fuel? It pumps just as much CO2 into the atmosphere as gas. It's only renewable in the sense that we can grow more of it, which we can't with gas. If biomass is to receive a subsidy, it should be for delaying the point in the cycle where it gets burned, not for burning it. Plus biomass boilers are only ever going to be available to a very small minority of people (who just happen to have large houses!).
• Switching from fossil fuel to electricity for home heating. Again, it's none too clear that this is a wise move. Until the grid becomes much greener, the net result of the RHI may well be to push up carbon emissions. With large question marks hanging over the future of electricity production in this country, and whether we will have an infrastructure that can cope with the current demand in a few years time, why are we loading yet further demand onto the system?
• Which leaves solar thermal. The one technology here which is truly renewable. But it only gets a subsidy worth half as much as heat pumps and biomass, despite it being much cheaper to install, and despite it being open to a far wider section of the population. A strange decision if ever!
• It all points to a failure on the part of central government to introduce a clear and structured carbon tax on fossil fuel consumption, which is the logical way to approach this problem. OK, I know the reason for this: it is said to be politically impossible, and no other country has tried to do it either, and now the electorate don't believe in global warming in any event. All good points. But if you don't address it, then you end up with half-baked incentives like this, which are dressed up to look progressive but end up being very expensive to administer and yet they don't begin to tackle the problem facing us.