The six Green Deal questions that still need answering

The Green Deal has the potential to transform the UK’s building stock, but with three months to go important questions remain unanswered

03 Jul 2012, 13:25

First, a disclaimer. There is absolutely no satisfaction to be taken in criticising the Green Deal.

The government has responded to much of the criticism of the Green Deal by accusing its attackers of scare-mongering and talking down the scheme. But while this might well be true of some of the more extreme warnings about the scheme's flaws (and there is no doubt the opposition is seeking to make political capital out of the policy) the vast majority of businesses and commentators who have raised questions about the Green Deal would love to see it prove a rip-roaring success for the coalition. After all, it is a hugely ambitious and pioneering scheme that promises to provide huge impetus to the UK's emerging low carbon economy.

There is also an acceptance that when introducing such a wide-ranging and multi-faceted scheme it is inevitable there will be teething problems and questions that will remain unanswered until Green Deal services are rolled out at scale.

But, that said, with the final round of secondary legislation having been voted through the Commons yesterday and just three months to go until the official launch of the scheme it is not scare-mongering to point out that there are still plenty of important questions that urgently require answers.

Businesses considering developing Green Deal services, households and offices considering taking out Green Deal offers, and environmentalists keen to see the UK meet its carbon targets, all need at least six questions answered if they are to have any confidence that the Green Deal will emerge as the game-changing environmental policy ministers predict. Some of these questions cannot be fully answered until the scheme is up and running and we start to see how people react to Green Deal offers, but others could be answered in the coming days and the onus is now on the government to provide further clarification.

1. What will the interest rate actually be?

The government indicated yesterday the interest rate on Green Deal packages will be between six and eight per cent, with ministers proffering 7.5 per cent as the most likely rate. But which is it? Six per cent, eight per cent, or 7.5 per cent? Or could it be lower still if the Green Deal Finance Company proves effective at brokering rates or the government listens to those calling for the Green Investment Bank to subsidise lower interest rates? The difference between a six and eight per cent rate of interest might not sound like much, but it will have a huge impact on which technologies will be able to qualify under the "golden rule" requiring participants in the Green Deal to realise net financial savings. Which brings us to...

2. Will high interest rates deter people from taking part in the Green Deal?

The government insists interest rates will not be an issue, but if the rates really are as high as 7.5 per cent will people take out a financing package that would require you to pay back around £22,000 on a £10,000 loan? DECC officials have said that such projections do not take account of the Energy Company Obligation subsidy element of the scheme, nor the fact most Green Deal packages will not amount to the full £10,000. But if people are undertaking less than £10,000 of work on their home will they realise the full carbon and energy saving benefits from the Green Deal? Moreover, interest rates of 7.5 per cent may be highly competitive for unsecured loans, but they would mean that energy bill savings after repayments are likely to be relatively modest, limiting the main financial incentive for taking part in the scheme. Is there a danger the biggest beneficiary from the scheme will once again be the financial sector?

3. What is going to happen to the £200m Green Deal early adoption fund?

Questions over whether the Green Deal will prove attractive enough inevitably lead to how the government plans to incentivise take up of the scheme. The Treasury has confirmed £200m will be available on a one-off basis to support initial participation in the scheme, but while officials have hinted at cashback offers, details are still yet to be confirmed. With just three months to go to the scheme's launch, prospective Green Deal providers will be forgiven for wanting to know what government-backed sweeteners they can offer customers.

4. How secure is the "golden rule"?

The Green Deal lives and dies by its ability to adhere to the golden rule promising people energy bill savings that are greater than resulting energy bill levies – ie net financial benefits. The government is confident the golden rule will hold, stressing the calculations used to work out if an energy efficiency measure complies with the rule are extremely conservative. In addition, rising energy prices should make it easier still to comply with the golden rule. But the government cannot actually guarantee that measures will deliver net savings, particularly if people respond to building improvements by using significantly more energy. The Daily Mail needs just a handful of examples of households that saw their energy bills rise or were dissatisfied with the work undertaken through the Green Deal to torpedo confidence in the entire scheme.

5. How attractive will the Green Deal prove to businesses?

The government has sought to position the Green Deal as an almost exclusively domestic scheme, but it is open to businesses to participate in and it is corporate properties that offer the quickest means of delivering deep cuts in greenhouse gas emissions. Initially the government let it be known that Green Deal services for businesses were unlikely to be available from the autumn, but recent briefings have suggested some providers could launch business-focused Green Deal services in the coming months. Significantly, there are also suggestions the scheme could appeal to not just small businesses, but relatively large office and retail-based firms. Calculating the golden rule for commercial properties will be significantly more difficult than it is for households, but could we finally have a means for businesses to tackle the perennial problem of energy inefficiency?

6. Is the Green Deal really a game-changer?

It is the $64bn question. Will the Green Deal really correct the market failure that stops people investing in energy efficiency and enable a property improvement revolution across the UK, or will the intricacies of the financing mechanisms put people off? We are entering a crucial phase for the UK's carbon targets and if the Green Deal works as the government envisages then meeting the next few carbon budgets should be entirely feasible. But if high interest rates and the golden rule preclude more ambitious energy efficiency improvements then there is a serious risk the Green Deal will only result in relatively modest energy efficiency savings, meaning that in 10 to 15 years' time we will have to go back and do it all over again, only better. This is a once in a generation opportunity to transform the UK's draughty, cold, and inefficient housing stock. Let's hope government, businesses and households are willing to work together to take it.

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Previously known as the BusinessGreen Blog, James' Blog features musings, observations and occasional rants from BusinessGreen editor James Murray

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