How, and to what extent, can UK energy and fuel poverty policy contribute to a socially just transition to a low carbon society?

Transcription

1 A SOCIALLY JUST TRANSITION TO A LOW CARBON ECONOMY AND SOCIETY How, and to what extent, can UK energy and fuel poverty policy contribute to a socially just transition to a low carbon society? A think-piece prepared for the Joseph Rowntree Foundation by NEA October 2011

2 Executive Summary The compelling need to address climate change has emerged as a key priority for international governments. In the UK, ambitious and legally binding greenhouse gas emissions reduction targets of 34% by 2020 and 80% by 2050 were set by the Climate Change Act To achieve these targets and enable the transformation of the UK into a low carbon society and economy, a range of energy policies have been developed or are proposed. The need to address climate change through reduced residential energy consumption is fully acknowledged; however this think-piece emphasises and discusses the potential detriment that could occur where social and environmental objectives are unevenly balanced. Relentless and unprecedented energy price rises post-2003 have increased the incidence of fuel poverty which currently affects more than 6 million UK households, and the upward trend in energy prices will almost certainly be sustained. Consequently, actual levels of fuel poverty in 2020 will significantly exceed previous estimates. Government policies to improve heating and insulation standards across the housing stock are encouraging; however, resulting programmes will be funded through additional levies on domestic energy bills to the detriment of low-income and fuel-poor households. Levies to promote low-carbon initiatives currently add some 80 to domestic annual energy fuel bills and are predicted to reach 160 by Whilst low-income households disproportionately share the financial burden of these programmes there is concern that they may not have equitable access to the benefits of reduced energy costs and warmer homes. The main question, therefore, is what can be done to mitigate any negative impacts on financially disadvantaged households while ensuring equitable access to positive benefits and that the transition to a low carbon economy and society is underpinned by social justice. The pursuit of environmental objectives may, at times, conflict with pursuit of social justice and this paper considers several policy areas where tensions exist, including: Feed-in Tariffs (FiTs): A policy introduced to stimulate the market in renewable electricity generation which rewards small-scale generation of renewable electricity, including that generated in the domestic sector. The Green Deal: Government s flagship scheme for the delivery of energy efficiency and domestic carbon saving objectives and a fundamental element of the future Energy Act. 1 The Energy Company Obligation (ECO): In recognition that the Green Deal is not an appropriate mechanism for assisting low-income households, this obligation on energy suppliers will place greater emphasis on addressing fuel poverty through the delivery of energy efficiency measures to vulnerable households. The main concern in relation to FiTs is that participation requires capital investment that is clearly not feasible for financially disadvantaged households. Consequently, low-income households find themselves sponsors of a scheme that benefits more affluent households to their own financial detriment. 1 The Energy Bill is expected to be enacted in autumn 2011.

3 The Government recognises that the Green Deal pay-as-you-save model will not be appropriate for low-income households. Consequently, energy supplier-funded programmes will continue with a new obligation on energy suppliers placing greater emphasis on addressing fuel poverty. However, as with previous supplier-led programmes, the source of funding will be through a levy on domestic energy bills. Concern over the regressive nature of this funding mechanism is exacerbated by withdrawal of Exchequer funding for Government programmes such as Warm Front which will terminate in Since the introduction of the Homes Insulation Act in 1978 through to the current Home Energy Efficiency Scheme there has always been some form of domestic energy efficiency programme funded through HM Treasury and, by implication, through direct taxation. Clearly this represents a more progressive means of funding social policy objectives than a flat rate imposition on energy consumers bills. In contrast, it appears that Scotland, Wales and Northern Ireland will continue to finance domestic energy efficiency programmes to address fuel poverty through their own devolved Government resources. Energy suppliers energy efficiency programmes began in 1994 with the Energy Efficiency Standards of Performance since when they have developed to become the main policy instrument to improve the energy efficiency of the housing stock and meet objectives under the Government s climate change programme. Having originally begun as energy-saving programmes, supplier obligations have evolved to incorporate dual environmental and social objectives in the form of the current Carbon Emissions Reduction Target, which also comprises a social welfare remit in the form of Priority Group and Super Priority Group assistance. The potential of existing and proposed policies to achieve a socially just energy policy requires scrutiny of a number of issues: The new ECO will be the only measures-based energy-saving programme specifically targeted on fuel-poor households in England, but it is not yet known what proportion of expenditure will be devoted to disadvantaged energy consumers. The issue is further complicated by the Government s apparent intention that some ECO funding be diverted to assist able-topay households requiring more expensive carbon reduction measures that can not comply with the Golden Rule principle of the Green Deal. This gives rise to serious concern that finite resources may be depleted in providing financial assistance to comparatively affluent households. Current estimates are that the impact of energy supplier programmes will increase domestic annual fuel bills by 61 by However, if the ECO is to have resources equivalent to current domestic energy efficiency expenditure, annual funding of around 1.7 billion will be required equating to a levy on the average dual fuel energy bill of Taking account of other climate change-related policies that result in increased domestic energy bills, associated charges will increase from 88 to more than 120 by Government Impact Assessments appear to be based on the assumption that households will have benefited from energy efficiency interventions and, consequently, are able to consume less energy and enjoy lower fuel bills. However, access to programmes and subsequent benefits are not always 2 ACE (May 2011) A Future Obligation on Energy Companies. Second paper in a series identifying options for the future of fuel poverty and energy efficiency policy.

4 equitable and, as such, there must be reservations about the true level of savings achieved, particularly on behalf of low-income households. For fuel-poor households who have been unable to access energy efficiency improvements, and who remain in poorly heated and insulated accommodation, the proportion of income required to meet their high energy bills will be significantly greater than among more affluent households. The distribution of the financial burden related to energy and climate change policies requires much more careful consideration with emphasis on how this burden can be lessened for financially disadvantaged households. Otherwise, government risks creating a situation whereby the financially disadvantaged are subsidising a greener and economically beneficial future for fuel-rich households. Achieving a socially just transition to a low carbon society and economy The paper identifies two potential barriers to achieving a socially just transition to a low-carbon society: 1. Framing energy as an ecological resource: Policies that have carbon reduction as their main objective are inappropriate to low-income and disadvantaged households who will bear equally the cost of policies yet may be denied access to the benefits e.g. FiTs and the Green Deal. 2. Framing energy as a commodity: The shift of responsibility for delivering energy efficiency and fuel poverty programmes to energy supply companies results in increased energy bills as the cost of programmes is passed through to all domestic consumers. Both of these issues could be resolved or averted by ensuring that the financial burden is more equitably distributed (cost of policies) and that access to schemes that can deliver meaningful benefits is open to low-income households (the capacity to reduce energy bills). Key to unlocking this potential is the current Energy Bill which will see the introduction of the Green Deal and a new Energy Company Obligation (ECO) and which represents a unique opportunity to construct a coherent and co-ordinated framework that can meet both social and environmental imperatives. To protect fuel-poor and disadvantaged households it is essential that we resolve the dilemma of how to pay for emerging and new energy policies during a period of constrained public finances. One method of restricting the extent to which the cost of policies is passed through to low-income consumers might be to apply the levy only to the bills of high consumers through use of a consumption threshold. However, this approach is itself hazardous given that some fuel-poor households are required to consume high amounts of energy as a result of occupying poorly insulated and inefficiently heated properties. One option might include the introduction of a socially just form of the polluter pays principle; one that could legitimately succeed a programme of intervention that had prioritised energy reduction among disadvantaged households occupying the worst performing properties.

5 Conclusions and recommendations It should be universally recognised that action to deliver affordable warmth through major investment in heating and insulation programmes meets both social and environmental objectives. Financial burdens associated with the transition to low carbon will be more widely accepted if the social implications are fully understood and it is clear that effective remedial action is being taken. Where tensions between social and environmental objectives are allowed to develop there is an understandable risk that people will prioritise their immediate living environment over what may appear to be a remote and hypothetical global issue. The end of Exchequer-funded, grant-aided energy efficiency programmes implies a reduced commitment by Government to the eradication of fuel poverty. Funding energy efficiency programmes through flat-rate levies on energy bills is regressive and unfairly penalises financially disadvantaged households. The most progressive and equitable means of funding social policy objectives, including the Fuel Poverty Strategy, is through general taxation. Where responsibility for domestic energy efficiency interventions is delegated to energy suppliers, the Government must adopt a highly prescriptive approach to ensure that resulting programmes maximise the benefits to fuel-poor households. All aspects of energy-related policy development should contain an assessment of the implications for fuel-poor households and proposals on how any potentially harmful consequences are to be addressed and resolved. The forthcoming Energy Company Obligation, as provided for in the Energy Bill, should be exclusively focused on vulnerable fuel-poor households. The current intention appears to be that it will fund both fuel poverty programmes and improvement to hard-to-treat dwellings. However, the most equitable use of resources allocated through ECO would be to target hard-to-treat properties occupied by the most financially disadvantaged whilst meeting both social and environmental objectives. Future energy policy can only be seen to be contributing to a socially just transition to a low carbon society if adequate resources are made available to provide fuel-poor households with no-cost interventions that reduce their energy demand, while ensuring that they can heat their home to a satisfactory standard at an affordable cost. By ensuring that lowincome and vulnerable households risk of fuel poverty is minimised, and their access to energy efficiency interventions is maximised, it then becomes possible to contemplate the introduction of a form of the polluter pays principle in the form of a consumption-based levy. This is arguably just where such a policy succeeds a programme of interventions that have first achieved energy savings among disadvantaged households.