The government could be about to water down a flagship policy aimed at reducing energy consumption and helping poorer people insulate their homes. It’s hard to find fans of the measure – but what will it mean for the government’s plans to reduce greenhouse gas emissions and tackle fuel poverty if it goes down the drain?
The Energy Company Obligation ( ECO) requires energy providers to seek out low-income households and consumers on benefits, and subsidise home insulation. The policy forms a part of the government’s plan to tackle fuel poverty. But energy companies are lobbying for it to be reformed or delayed – and could be about to get their way.
What is ECO?
Although government has introduced programmes to tackle fuel poverty and subsidise energy efficiency in the past, ECO represents a new approach. It’s meant to complement the government’s Green Deal programme by requiring energy companies to reach out to the households that are in the most need or need more complicated measures installed.
The scheme has three elements. First, the Affordable Warmth Obligation is targeted on tackling fuel poverty – where households are spending a significant amount of their total income on energy. It requires suppliers to fund heating and insulation improvements in low-income homes.
The second two parts of the scheme target carbon dioxide (CO2) emissions.
The Carbon Saving Obligation sets a target for the amount of carbon suppliers save by installing the most expensive energy efficiency measures like solid wall insulation in older houses, which would be hard for most people to fund without help. The Carbon Saving Community Obligation requires energy companies to provide free insulation to households in deprived areas, at least 15 percent of which must be rural – and also sets a target for the amount of CO2 saved.
It may all sound laudable. But the energy industry has criticised the scheme as inefficient and expensive. Social campaign groups aren’t impressed either, arguing it won’t do enough to tackle fuel poverty. We’ve taken a look at the main objections.
Criticism 1: It’s too expensive
Energy companies pay the costs of implementing ECO, but are allowed to add those costs to consumer energy bills.
The government calculated the total cost at Â£1.3 billion a year – exactly the same as the measures it replaced. But industry group Energy-UK published researchlast year suggesting it would be much higher – Â£ 2.35 billion a year – adding Â£94 to the average energy bill.
The industry continues to argue that ECO is working out more expensive than the government predicted, and is therefore driving up energy bills. Energy companies claim the government has underestimated the amount of money they have to spend searching out the recipients of the programmes.
The Department for Energy and Climate Change says its data doesn’t back this up, however. And it’s not the first time companies have made this kind of claim. Reg Platt, lead author of left-leaning thinktank IPPR‘s report on the scheme tells Carbon Brief that in the past “suppliers have made an awful lot of noise sayings costs are spiralling out of control” on energy efficiency measures – but the data showed that many companies were in fact delivering the programmes under cost.
Platt points out that while some energy companies have struggled to locate recipients for energy efficiency programmes, others have managed to do so much more effectively – indicating that high costs may not have been all the government’s fault.
If you’re not the government or an energy company, information about who’s paying what for what in the energy market is notoriously hard to find – so it’s hard to know who’s right. But it would seem reasonable to assume that energy companies have an interest in talking up the costs of a scheme they are opposed to. Platt suggests claims company claims that energy efficiency schemes will have a significant impact on bills need to be taken with a pinch of salt.
Criticism 2: It’s not helping the people it’s aimed at
Whatever its cost, ECO needs to lift a significant number of low-income households out of fuel poverty to be successful. There are doubts over whether this is going to happen, however.
The government estimated that ECO would lift 125,000 to 250,000 households out of fuel poverty by 2023. At the maximum, that’s only about a tenth of the 2.7 million fuel poor households in the UK. So ECO isn’t going to make much of a dent in the government’s target to nearly eliminate fuel poverty by 2016.
The National Energy Association, an anti-fuel poverty campaign group, has labelled ECO is “regressive” because it drives up consumer bills, perversely making it harder for consumers on low incomes to pay their bills. A spokesperson tells Carbon Brief:
“Costs will be passed on to all consumers but will disproportionately affect those who are on low incomes who will also be least likely to benefit from policy interventions. It also indicates a significant reduction in funding for fuel poverty programmes in England compared with previous practice (around 50 percent less).”
Criticism 3: It’s not an efficient way to reduce emissions
The UK’s housing stock is amongst the least energy efficient in Europe. It’s widely acknowledged that fixing our leaky houses has to be a central part of plans to reduce the UK’s greenhouse gas emissions. IPPR and the Committee on Climate Change have raised concerns, however, about whether ECO’s approach is the best way to do that.
IPPR said ECO would only deliver 26 percent of the cuts achieved by previous measures and 40 percent of what could be achieved if cavity wall insulation and loft insulation were used instead. Although the scheme has been broadened since then to include hard to treat cavity walls, ECO probably still isn’t the most efficient approach to reducing emissions.
The government’s logic is that the ECO’s sister scheme, the Green Deal, will prompt consumers into installing easier measures like cavity wall insulation themselves. Meanwhile, ECO will mop up the rest, kick-starting more difficult and expensive energy efficiency improvements. Unfortunately, takeup of the Green Deal has been unenthusiastic so far – meaning the easier measures aren’t happening either.
Improving, reforming or delaying ECO
There have been a number of suggestions for how ECO could be improved.
A variety of commentators – including the Local Government Association – have proposed that local councils need to be centrally involved in measures to tackle fuel poverty. IPPR also suggests that ECO might work better if it is focused on specific geographical areas, because economies of scale would make the measures cheaper.
Guy Newey from right-leaning thinktank Policy Exchange told us the scheme could be relaxed to allow cavity wall insulation or loft insulation instead of more difficult measures. That would probably be an easier way to achieve cost-effective decarbonisation – but it would involve the government admitting that the Green Deal isn’t doing the job. Alternatively, the government could make the scheme easier (and presumably cheaper for energy companies) by relaxing the criteria for who’s eligible.
Or – the fuel poverty and carbon saving targets under the scheme could be postponed. Energy companies are pushing for a delay, according to the Sunday Telegraph – and it’s probably the result that would please the powerful energy industry lobby the most. While the ECO scheme is far from perfect, however, putting a hold on a central plank of the government’s green policies probably wouldn’t improve the country’s chances of tackling fuel poverty and bringing down greenhouse gas emissions.