ECO – now Every Community’s Obligation?

Well the Autumn Statement has now confirmed what we already knew, namely that the immediate result of the so-called ‘review’ of green levies has been the evisceration (ECO).

ECO, whilst far from sufficient for its supposed original purpose, did at least offer the prospect of some real progress being made in tackling the chronic energy inefficiency of the nation’s homes. Particularly for the intractable seven million or so ‘hard to treat’ homes, mostly with solid walls, whose occupants could have expected their energy bills to halve under the scheme.

Strange then to review levies with the purpose of reducing bills by a little, when the actual result is to keep bills sky high for the unfortunates who will not now see their homes improved. And let’s be clear about this; even the remaining Carbon Emissions Reduction Obligation (CERO) element of ECO will probably not go towards such treatments, since cheaper cavity and loft insulation has also been included into ECO targets. It is very unlikely now that obliged companies will seek to discharge their obligations through ‘hard to treat’ homes when they can achieve the watered down and time-extended targets by other, cheaper means.

There, rant over. RIP original ECO. That’s the result of what has to be seen as a pretty crude, knee-jerk response to political problems by the Treasury.

The response of DECC to the turmoil, however, has been altogether more subtle and almost entirely off the radar. For at the same time as the programme as a whole has been slashed, few eyes have been focused on what has happened to the remains. And DECC has been at work to significantly change the direction both of the almost comatose Green Deal and of the other elements of ECO such as the Carbon Saving Communities Obligation (CSCO) and Affordable Warmth. That both remain at the same level of obligation and that they stretch now over four years instead of two means, in effect, an enormous switch of resource to those two schemes over and above the cut to CERO.

Furthermore, other smaller switches and changes start to paint quite a different picture of the focus and direction of both Green Deal and ECO for the future. DECCs ‘Green Deal Community Competition’ for example has seen its funding quadrupled, directly from cannibalising the almost completely unspent ‘Green Deal Cashback’ scheme for individual Green Deal applicants. Only £2m out of the £125m cashback money originally allocated has actually shifted out of the door, mostly on replacement boilers. And of course, elements of what would have been in Green Deal have now been incorporated into eligible ECO activities, alongside, significantly, district heating schemes. CSCO eligible areas have been substantially extended.

All of which says to me that the original individual focus of measures in both Green Deal and ECO is being stealthily switched towards a ‘street by street’ approach, with local authorities, social landlords and public sector consortia at the heart of the process. I say ‘stealthily’ because it is (understandably) acknowledged nowhere that the original vision of a nation of individual homeowners sensing a ‘win-win’ energy efficiency bargain and signing up for Green Deal and ECO is now effectively dead – any gains that will emerge from the wreckage will be through public sector activism and collective provision.

All of this, is probably a little galling to all those who had to stand by and watch collective provision schemes such as CESP and Warm Front swept away in favour of the new world of individual activism. Those who have tried, often in the face of great difficulty, to bend and shape some of the new programmes back towards this, almost self-evidently fruitful way of improving residents’ energy efficiency in their homes. Respect to those local authorities and local consortia, such as Birmingham, Newcastle and the Solent area who have tried to get some movement out of unpromising positions. Now perhaps they can make some more progress, albeit on the back of the disappearance of many of the resources which, if properly applied in the first place, could have been making quite a difference.

So two boos for Treasury for taking apart its own Government’s much trumpeted programme; one small cheer for the quiet redirection of what is left by DECC. And certainly at least two cheers for the cash-starved local authorities who are gearing themselves up to make something actually happen.

It would be nice for DCLG to actually acknowledge the direction of local energy efficiency is heading in and secure resources for its local charges to maximise the opportunities they are struggling to make happen. But I suppose in present circumstances that might be an ask too far.

This article was first published in Business Green. 

Latest News: green levies not to be in green levy review!

More I-made-it-up-on-the-way-in energy policy from David Cameron: this time, the commitment in last week’s PMQs to review green levies. This policy seems to have been made following a pincer movement from Tory backbenchers, who blame green levies for all those annoying windmills in their constituencies; the opposition, who are demanding action on energy prices; and some of the energy companies themselves, who claim that an exaggerated share of price rises are due to Renewable Obligation (RO), Contracts for Difference (CfDs) and all the other schemes that can be put under the green levies banner.

Of course what comes under that green-levies heading – the contents of the £112 on bills specified by the PM – is an assortment of different levies with differing effects. CfDs, RO and Feed in Tariffs (FiTs) are true green levies; they levy a payment obligation on energy companies to underwrite support for low carbon technologies. The Energy Company Obligation, meanwhile, covers several schemes supporting greater energy efficiency in homes: retrofitting of insulation in hard-to-treat properties and the reduction of bills for those in fuel poverty through insulation and efficiency measures. Warm Home discount knocks some money off fuel bills for elderly people. And the smart meter levy is slowly starting to put the roll out costs of smart meters onto customers’ bills. The Carbon Floor Price looks like a green levy but doesn’t actually save any carbon in its own right and all the revenue from it goes straight to the Treasury anyway. The EU-ETS does save carbon but is a variable amount based on trading allowances across Europe.

So the above melange is what makes up the £112 and logically therefore, now that a review has been declared, it’s what will be reviewed. And it’s fair to say that there’s not much point in having a review, unless there is a result. To swear solemnly to review all this and then declare that there is nothing to see after all so please move along now, won’t wash.  So something will presumably be reviewed out.

But what, exactly?  The process of running up a short list started, as far as I can see, almost as soon as the PM had left the chamber.  Lib Dems started rumbling about saving green levies (presumably the actual green levies) and Nick Clegg weighed in with a push in the direction these levies should be placed into general taxation (a policy suggested by some of the Big 6).

So within a week, the review has begun to look a little different.  I think DECC, recovering its composure after the surprise announcement, put out some ‘press guidance’ (not a press release, mind) to the effect that Renewable Obligation, CfDs and Feed in Tariffs would not be in the review.  I say I think, because Energy Ministers in the Commons and the Lords said opposite things on the same day, and Ed Davey refused to confirm whether the green levies would be in the review when I directly challenged him about it during the Annual Energy Statement on Thursday.

But I suppose they would be out, not least because it is difficult to see how they can easily be reviewed. Renewable Obligation and FITs are pretty much fully allocated and there might be a number of protracted legal actions if this support was suddenly taken away. In any event, RO will end in 2017 anyway and FiTs are due to be reviewed further and have already just been reviewed.  CfDs don’t exist yet, but some are in the process of being allocated for the future, most notably to that energy company building our new nuclear power station.  That might be difficult to untangle.

So that leaves non-green levies in the green levy review.  The big one, of course is the Carbon Floor Price. Not really a levy, it’s actually more a tax and as such one that goes straight from the power plants to the Treasury. Treasury in fact gets about half a billion pounds a year from it, with the trajectory of the income rising rapidly as the floor price increases. Oh and don’t forget that the Treasury has set out and planned to receive this revenue in the ‘Red Book’.  So I doubt that George would be desperately happy about the loss of several billion pounds of actual and imminent Treasury revenue if the Carbon Floor Price was reviewed out. I also doubt that he’d impressed by the prospect of the further loss of spending power that would occur if green levies were transferred into general taxation.  Of course there is also the marginal issue that EDF (yes the same company that has graciously agreed to scoop up the subsidies to build a new power station) is getting almost a billion pounds a year by selling the output from the existing, ageing nuclear fleet (which is CFP exempt) at the same price as (non CFP exempt) gas. And the loss of this money could further tip the still delicate nuclear ‘deal’ over the edge.

And then there’s the business of underwriting the smart meter roll out, which will, in the fullness of time, be levied through energy companies and charged to the bill payer. This will be about £12 billion. I’m not sure the Chancellor would willingly transfer that liability into general taxation either.

So we’re left with poor, old, non-performing, benighted ECO. It was the scheme that was going to replace warm front and other energy efficiency measures at no cost to the taxpayer and is still, we hope, going to insulate and retrofit all those energy inefficient and draughty homes across the country. And this urgently needs doing if we are to get to any sort of grips with energy efficiency and produce lower carbon emission homes in the future.

That’ll be the one then. Review sorted.  Look out for the demise or downgrading of ECO shortly, as the only prisoner that it’s actually possible to round up and make walk the plank.  And meanwhile the individual responsible for this utter shambles lives to make up another policy on the hoof as soon as he’s cornered again.

Be afraid, be very…

Some time ago I posed the question as to whether ECO would come in under the dreaded  Treasury ‘Levy Cap’ arrangement, and might find itself, according to the rules, having to scrape out a presence within the £ 11.8 billion allocated to items within the cap up to the end of the current spending round in 2015.  Chris Huhne responded to my questioning about this with gnomic non-answers, and then announced the sums involved (£1.3 billion per year) with no further comment on levy caps. It will be a levy on energy companies but it hasn’t been capped.

So I was wrong then. Or so it seemed. Just as I was about to flagellate myself for my misguidedness, my eye fell upon page 137 of the Green Deal and ECO impact assessment (yes, I did read that far).

Here’s what it says.

‘The current energy company obligations (CERT and CESP) are classified as business regulations for statistical purposes.  We understand the Office of National Statistics (ONS) – who are responsible for issues of classification – are now considering whether there is a case for reclassifying CERT as a levy and thus an imputed tax. If the ONS were to decide to reclassify CERT, this would be very likely to set a precedent for the eventual classification of ECO…’

Aaargh! It was out there all the time, waiting to grab us just as we entered the  ‘business regulation’ waters again.  The only positive thing one can say about this (other than I was not entirely wrong in my suppositions) is that it may well take ONS such a long time to decide how to classify CERT  (three years ten months so far) that it (CERT that is, ONS is safe for the time being) may have been abolished by the time they actually get to sit down with their calculators, in which case it won’t actually be classified,  and therefore a precedent won’t be set. Yeah, right…