They think it’s all over, but it isn’t!

It’s all getting a bit complicated. Energy policy which needs, one way or another, long-term vision and a reasonable level of security seems to be going short-term and getting bumpy. Not so much as a result of the opposition’s intervention on energy prices but because of increasing “differentiations” between coalition partners.

Left to their own devices, Lib Dems would probably have placed a 2030 carbon reduction target into the Energy Bill, the inclusion of which would have been an important stabilizer in energy policy for the next ten years. But instead, in the Bill’s latter stages in the House of Lords, the Lib Dems bent to the Conservatives’ and George Osborne’s view: that the Bill should only include the possibility of the Secretary of State setting a target and, in any case, not before 2016. 1 – 0 to the Conservative end of the Coalition.

The Lib Dem end has, however, been a little more robust on “green levies”. The term “green levies” refers to the package of measures supporting renewable deployment, climate change, energy efficiency programmes and anti-fuel poverty action. Rattled by the opposition’s high profile assault on the price of energy bills and their proposal to freeze prices for 20 months after 2015 (assuming they win the election), the Prime Minister suddenly announced a review of green levies at Prime Minister’s Questions two weeks ago. Cue complete chaos within the government as to what would be in or out of the newly-minted review.

Lib Dem ministers made it known that the “green” part of the so-called green levies (the Renewables Obligation, Contracts for Difference and Feed in Tariffs for small-scale renewables) would not be up for review.  Among other reasons, this was probably because most obligations of this kind are already almost fully subscribed and any retrospective “reviewing” could result in serious legal difficulties. Conservative ministers, and indeed the Prime Minister in a subsequent PMQs, then stated that all green and associated levies, such as Energy Companies Obligation (ECO), carbon floor price (CFP) and Warm Home Discount, will be included in any review.

Well finally, last week, we had a definitive picture: green levies will not be in the green levy review. 1- 1 you might say.

However this leaves some serious deep defending still to be undertaken. If, for example, the Chancellor’s own policy of just a year ago, the CFP, is still “in”, what happens if it’s reviewed? With a reviving European emissions trading system and the fact that the CFP doesn’t actually save any carbon, this policy might look like a candidate for the chop, thereby delivering a reduction in customers’ bills. But CFP creates about a billion pounds per annum for the Treasury and will raise far more over the next few years, as the already-embodied plans for price increases come into force.

And then there is ECO (also launched by the government) which requires a £4.3 billion commitment per year until 2015. This scheme will be responsible for the retrofitting and insulating of thousands of homes and therefore a long term reduction in bills. However, in the short term, the scheme is adding about £60 to an average dual-fuel bill.

The big energy companies have dangled two enticing possibilities in front of the review’s decision makers. One of these possibilities is to place ECO into general taxation, rather than it being an obligation on energy companies and – honest – they’ll knock the same amount off bills almost immediately and the government will have a result. But of course, if ECO is to be preserved, this plan would be at the cost of another billion pounds plus on the Treasury balance sheet. This would be roughly equivalent to the billion pounds of income that would be lost if the CFP was to be given the chop.  The other tempting carrot is simply to delay the implementation of ECO for eighteen months. This would result in a similar bill reduction and the transferal of the funding headache neatly and squarely to whoever is in government after 2015.

So it looks like it’s going to be ECO that’s “reviewed” but it’s unclear as to whether it will be chopped, incorporated or delayed. Whatever option is taken, that old uncertainty that has beset the Energy Bill and was evident in the hovering on carbon targets, looks set to creep in, to the obvious discomfiture of those who had thought ECO would be getting under way and were planning for its advent.

Who then will be the 2 – 1 winner? My money is on a partial incorporation and downgrading of ECO to produce some sort of short term reduction of bills. This will, of course, successfully trash both long-term certainty and the chance to save money structurally and in the longer term through the improvement of our energy-incompetent housing and building stock.

But then in football they say you sometimes have to substitute an attacker for a defender to retrieve a losing game. But you might just concede another goal if you do.

This post first appeared on e2bpulse.com.

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One thought on “They think it’s all over, but it isn’t!

  1. If the Prime Minister’s main objective is to cut fuel bills, it seems utterly perverse to be focusing on cutting the one public programme designed to helps cut fuel bills. To pick up the football analogy in your final paragraphs, surely a classic own goal?

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