On October 18th the UK’s Energy Act 2011 officially came into law, thus kicking-off the countdown to implementation of the coalition government’s flagship initiative, the Green Deal. The Green deal will allow households to borrow funds for energy-saving retrofitts. The scheme is designed to avoid upfront costs since repayments will be collected through gas and electricity bills. One of the novel features is also that if you move house, the new occupier takes over the debt.
The level of ambition is high. The UK government wants to refurbish millions of homes and hopes it will play a huge role in meeting national carbon targets, in a sector that uses about a quarter of the UK’s total energy consumption, according to the Housing Energy Fact File 2011 for Great Britain. The Green Deal also tackles fuel poverty by providing additional funds for refurbishments to poor households via a savings obligation on energy companies.
As Adam Corner wrote in The Guardian, the idea of the Green Deal was to ‘nudge’ people into adopting energy saving measures, rather than trying to persuade them to do so. The approach is original and thought-provoking, although Adam Corner and Sam Arie, another Guardian contributor, did raise some concerns regarding this behavioural approach. One of these concerns is the so-called ‘rebound effect’, when energy bills get lower consumers are tempted to use more energy.
It’s hard to deny that governments, on top of incentives towards refurbishments, must tackle a culture of waste amongst consumers if they are to achieve meaningful energy savings across the board. But these are problems that can be dealt with later, and with other tools. The priority is indeed to improve the performance of existing buildings, by a significant margin and as fast as possible. It means that what has to be looked out for in the upcoming secondary legislation is how the UK government plans to avoid another adverse effect, the ‘lock-in effect’. The renovation cycle of a house being about 30 years, one major risk is that the Green Deal encourages shallow refurbishments producing sub-optimal energy savings, thereby locking in future necessary investments.
There remain many grey areas in the UK’s Green Deal, but it is important to note the creation of the so-called ‘Green Deal Finance Company”, a conundrum of private sector companies including retailers, financial institutions, which aims at financing and delivering green deals. What’s interesting in this experiment is that it attempts to create a market, and stimulate private investment towards a very positive end-goal, stopping fuel poverty and reducing carbon emissions in the building sector. And if the UK example manages to ‘nudge’ financial institutions into getting on board, then that will already be a major step.
Of course, the coming months will be crucial to get the Green Deal right, as secondary legislation must be introduced to allow implementation at the end of 2012. Expectations are high and many observers still point at difficulties related to the interest rates that will be applied to Green Deal loans, or to the fact that the government will only have a small role to steer the entire Green deal scheme.