The Green Deal: “We won’t get another chance”

Sensemaking / The Green Deal: “We won’t get another chance”

David Adams, a Director at Willmott Dixon, calls for a strong nudge from the UK Government towards greener homes.

17 Dec 2011

David Adams, a Director at Willmott Dixon, calls for a strong nudge from the UK Government towards greener homes.

If the UK is going to cut carbon emissions by 80% by 2050, we will have to carry out a domestic energy retrofit every minute until that date. And that’s if you pretend we’ll be at it 24 hours a day.

Thank heavens, then, for the Government’s Green Deal, currently going through Parliament. Under the scheme, third party providers will fit a variety of insulation and energy generation measures to homes at no upfront cost to the homeowner. They will then pay back the provider with interest over a period of 25 years through a charge on the home’s utility bills. These repayments will be less than the anticipated energy savings, so the homeowner will be better off overall. And because the charge is attached to the bills, it doesn’t matter if the person moves house: the benefit of the low-energy work and the charge are passed on to the next householder.

Will all homeowners rush to carry out these works as soon as the Green Deal shop flips its sign to open? No, they won’t. How can we be so sure? Using research grant money we offered to carry out just such measures for free to owners of a group of 90 homes. Just 13 took up the offer. So why was there such a low response? Various explanations have been suggested, including a lack of trust about what was being offered or fear of disruption to home life. But, more likely, most people simply had other things to worry about. They just weren’t that bothered.

That’s surprising, given the fact that energy bills have more or less doubled since 2005 and look set to do so again over the next decade. But like the anecdotal frog which meets its end in a pot of slowly warming water on a gas ring, consumers appear to have taken on board gradual price increases without getting hopping mad. People aren’t even very excited by switching suppliers for a better rate. So, we shouldn’t get too optimistic about take-up for the Green Deal, given the relatively low savings that people will make after efficiency measures are carried out, likely to be just £100-150 per year.

Of course, this pessimistic tone overlooks the fact that we have already been successful in carrying out a range of ‘easy’ energy measures, such as loft and cavity wall insulation, and condensing boilers in their millions. In fact, these successes have meant that emissions from homes have stayed flat, even as the underlying trend has risen. At a certain point, though, we will have to carry out the more disruptive and expensive retrofit measures, such as insulating floors and homes with solid walls. We’ve also got to work on reducing draughts: houses lose a surprising amount of heat through small holes in the wall.

It’s fair to say that, although the Green Deal should be welcomed, even the cleverest marketers in the business are unlikely to drive take-up, except among enthusiastic early adopters. So how do we bring about a mass adoption of deep green retrofits?

There are three options, as I see it. You can make people do it through legislation. You can offer people grants to do it. Or you can nudge people in the right direction in a way that government feels it can afford.

This Government isn’t keen on legislating except as a last resort, so we can take this option off the table for owner-occupiers. It also has a target of cutting departmental spending by £37 billion by 2013-14, so we can forget about option two. That leaves the nudge. Nudges tend to work best when people are making a decision anyway. Let’s put it down to consumer inertia. So, while people will tolerate creeping price rises, they absolutely hate paying tax. It just feels like ‘one more thing’. This means that a relatively small change in tax has a disproportionate effect on choices: significant bang for the buck.

An ideal candidate for an effective retrofit nudge would be stamp duty: the 1-5% tax paid on property purchases. The Government could offer a slight reduction on homes that are more energy efficient, and raise duty on inefficient ones. This would keep the Treasury happy, because the tax lost from better-performing homes could be made up through higher contributions from the power-hungry dwellings.

No one’s going to complain about paying less tax. But what about those who have to pay more? Well, that’s where the Green Deal comes in: by enabling householders to afford energy efficiency investments, it will help them to mitigate the additional stamp duty with lower energy bills. And for those that don’t want to? Well, if they are happy paying higher than necessary energy bills they must also be happy paying higher than necessary stamp duty. That’s how the argument can run.

There are other benefits in using stamp duty to promote greener housing. The upfront costs would be very low, as each stamp duty calculation is already unique, and energy performance is already centrally logged, on a scale of A-G, thanks to obligatory Energy Performance Certificates. All you need to do is combine the two. It’s also a flexible mechanism. It could be introduced at a level that would only affect homeowners by a few hundred pounds either way, but be set to increase as time goes on, so that people see the benefit of acting quickly. And poorer people needn’t be affected at all, as only homes that sell for more than £125,000 qualify. In changing the property sale tax, the Government will be able to say: ‘It is your duty as a citizen to consume less energy. Fixing your leaky home is a great way of doing this, and now you have upfront cost-free tools and incentives to encourage you to do so.’

The Green Deal has to work, because we won’t get another chance to attempt something of this scale. Let’s use the taxation and metrics we already have in place to make sure it does.

David Adams is a Director at Willmott Dixon, where he is in charge of retrofit.

Photo: © IRTsurveys ltd

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