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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: Mr. Peter Atkinson
Buck, Ms Karen (Regent's Park and Kensington, North) (Lab)
Caborn, Mr. Richard (Sheffield, Central) (Lab)
Cooper, Rosie (West Lancashire) (Lab)
Hendry, Charles (Wealden) (Con)
Holloway, Mr. Adam (Gravesham) (Con)
Horwood, Martin (Cheltenham) (LD)
Hughes, Simon (North Southwark and Bermondsey) (LD)
Ladyman, Dr. Stephen (South Thanet) (Lab)
Mullin, Mr. Chris (Sunderland, South) (Lab)
Ruddock, Joan (Minister of State, Department of Energy and Climate Change)
Soames, Mr. Nicholas (Mid-Sussex) (Con)
Thornberry, Emily (Islington, South and Finsbury) (Lab)
Twigg, Derek (Halton) (Lab)
Watts, Mr. Dave (Lord Commissioner of Her Majesty's Treasury)
Whittingdale, Mr. John (Maldon and East Chelmsford) (Con)
Wiggin, Bill (Leominster) (Con)
Eliot Wilson, Committee Clerk
† attended the Committee
The following also attended (Standing Order No. 118(2)):
Moon, Mrs. Madeleine (Bridgend) (Lab)

Third Delegated Legislation Committee

Monday 13 July 2009

[Mr. Peter Atkinson in the Chair]

Draft Electricity and Gas (Carbon Emissions Reduction) (Amendment) Order 2009

4.30 pm
The Minister of State, Department of Energy and Climate Change (Joan Ruddock): I beg to move,
That the Committee has considered the draft Electricity and Gas (Carbon Emissions Reduction) (Amendment) Order 2009.
The Chairman: With this it will be convenient to discuss the draft Electricity and Gas (Community Energy Saving Programme) Order 2009.
Joan Ruddock: It is a great pleasure to serve under your chairmanship this afternoon, Mr. Atkinson, and I am delighted that we are debating the two orders together. For convenience, I shall refer to the draft Electricity and Gas (Carbon Emissions Reduction) (Amendment) Order 2009 as the carbon emissions reduction target or CERT order, and to the draft Electricity and Gas (Community Energy Saving Programme) Order 2009 as the CESP order.
The orders implement an important part of the home energy saving programme announced by the Prime Minister in September last year. They are aimed at helping households permanently to cut their energy bills and to contribute to permanent CO2 reductions. Both orders have been developed closely with stakeholders and were warmly received and supported in formal public consultation.
The CERT order is an obligation on energy suppliers to achieve mandatory carbon reductions through domestic energy programmes. At least 40 per cent. of those savings have to be met in a priority group of vulnerable households. The CERT programme, alongside its predecessor, the energy efficiency commitment, has already demonstrated its effectiveness. More than 6 million households have been helped with energy saving measuressuch as insulation since 2002, and about 1 million households were assisted in the past year alone. However, we need to keep increasing our efforts if we are to help the most vulnerable in society and meet our security of supply and climate change goals.
As part of that, we consulted earlier this year on a proposal to increase the CERT obligation on energy suppliers. The obligation received substantial support for an increase, and the order gives effect to it by increasing the suppliers’ target by 20 per cent., from 154 million tonnes lifetime savings to 185 million tonnes, giving annual savings of more than 5.6 million tonnes of CO2 by 2011. The likely effect is that energy suppliers will invest an extra £600 million to help households to install energy efficiency measures, bringing total support under the programme between 2008 and 2011 to an estimated £3.2 billion. Of that, we estimate that about £1.9 billion will be directed at vulnerable households in the priority group of customers—those who are aged 70 years and over and those on qualifying benefits.
Alongside the increased target, we consulted on a number of specific changes to the design of the scheme. Let me begin with market transformation. We proposed, and the majority of stakeholders agreed to, an increase in the market transformation ring fence from 6 per cent. to 10 per cent. That will help further to encourage energy suppliers to support innovative energy saving measuressuch as solid wall insulation, microgeneration, high-efficiency appliances and real-time displays, so that the low-cost energy-saving options of tomorrow are trialled and brought to market today.
We also consulted on the principle of including behavioural measures—home energy advice and real-time displays—as eligible measures within the scheme. Those things will help people better to understand their energy use and empower consumers to take informed decisions on reducing their energy use. We received many responses on that point, and people held widely conflicting views. On balance, the Government have decided to include such measures within CERT. We are confident that they can stimulate action to deliver energy saving and that they fit well within the scheme. Notably, because they are applicable to all properties and not restricted by the building’s structure, they can help to increase the distributional equity of the scheme.
We recognise the risks identified by some stakeholders: because real-time displays are novel, long-term studies of their effect on carbon saving are not yet available. Stakeholders also raised concerns that behavioural measures could, if promoted in significant numbers, displace traditional energy saving measures such as insulation. We believe that behavioural measures should reinforce the take-up of traditional measures, but given that they are new measures in CERT, suppliers will be able to promote behavioural measures only up to 2 per cent. of their carbon saving target. That caps any potential risk to delivery of other measures, while allowing us the opportunity to learn from any roll-out—specifically, which technologies and which advice have the most energy saving impact. We shall reflect on those findings as part of our longer-term behavioural change strategies.
Much concern was expressed in the media over the weekend about compact fluorescent lights. In the consultation, we proposed to curtail the number of CFLs directly mailed to households. That was in recognition of the high number of high-efficiency lights distributed early in CERT, some of which risk not being installed. About 150 million such lights—or lamps, as they are called—have been distributed since last April. Only one third of respondents addressed that issue, but among those who did, there was broad support for our proposal. We have therefore decided that from 1 January next year, only those schemes that result in a direct purchase of a CFL through a retail outlet will be eligible under CERT, thus excluding direct mail and other give-away schemes. That will allow CERT to be consistent with the voluntary and mandatory phase-out from sale of incandescent bulbs. We are also working with Ofgem—the Office of Gas and Electricity Markets—to ensure that suppliers promote a broader range of bulbs.
Some measures proposed in the consultation are not being proceeded with. More than 80 per cent. of stakeholders strongly rejected the consultation proposal to uplift the carbon score for do-it-yourself loft insulation sold by suppliers through retail partners. DIY insulation is already one of the most cost-effective carbon saving measures in CERT, so there is a risk to the credibility of CERT carbon savings in increasing the score. We have therefore decided not to introduce that uplift, but to retain DIY insulation as an eligible measure with additional safeguards on sales governed by Ofgem.
Similarly, we are not proceeding with the proposed amendments to uplift the carbon score for top-up levels of loft insulation. Energy suppliers stated in their consultation responses that the uplifts were insufficient to change their marketing plans, and we believe that the 20 per cent. increase in CERT should do more than the uplifts to drive additional numbers. Helping all households that want to improve their insulation levels remains a high priority, and we shall closely monitor numbers of installations, taking additional action as necessary as part of wider and future policy incentives.
The CESP order places a new carbon reduction obligation on energy suppliers and, for the first time, on energy generators, to deliver an estimated £350 million-worth of energy efficiency measures to homes. Those measures will reduce CO2 emissions and permanently reduce fuel bills. CESP places a carbon reduction target on obligated energy companies that they discharge by delivering carbon abatement measures in homes. They will achieve that by offering a range of energy efficiency measures, similar to CERT, that count towards their targets.
An important distinction between CERT and CESP is that CESP will aim, wherever possible, to provide a package of several different energy efficiency measures to each home that it targets, with a particular focus on some of the more expensive measures, such as solid wall insulation, geared towards hard-to-treat homes. CESP should therefore make a significant difference to the carbon savings and the fuel bills of the homes that it targets.
On the whole, the views from the consultation were positive and supportive of CESP. None the less, we have made changes where there was a compelling case to do so. For example, we have expanded the list of eligible measures to include draught-proofing and high-energy-efficiency glazing to strengthen CESP’s whole-house approach.
CESP is an ambitious and innovative programme, and I expect it to have a big impact in the areas that it supports. We believe that CESP will deliver up to 100 schemes and benefit 90,000 households across Great Britain. By December 2012, it will have delivered measures saving nearly 2.9 million tonnes of CO2. We estimate that CESP will deliver lifetime fuel bill savings in excess of £600 million.
However, CESP will also be important in reforming the longer-term strategy on energy efficiency. It will provide evidence of the benefits of using a community approach to deliver energy efficiency measures, particularly in hard-to-treat homes. That community approach is one of the key measures of CESP. Energy suppliers and generators will benefit from working in partnership with local authorities and community organisations to help promote and deliver measures. That approach is important in enabling CESP to be implemented in a way that is best suited to individual communities, bringing people and groups together to deliver shared objectives and to seek synergies with other national and local energy efficiency initiatives. That community-based, flexible approach was strongly supported by those who responded to the consultation.
Wherever possible, CESP is specifically designed to deliver whole-house packages of measures in individual homes, with the aim of improving energy efficiency and lowering energy consumption for each household. That will enable householders to make a single decision about which measures are installed. It is important to note that we expect such measures generally to be free to householders. That, coupled with the fact that CESP will specifically incentivise high-cost measures, such as solid wall insulation, will therefore have a major impact not only on a household’s carbon emissions, but on future fuel bills and heating comfort.
One issue on which there were many conflicting views in the consultation was how the programme should be targeted. We consulted on the basis that CESP would use the lowest income domain of the indices of multiple deprivation to target activity. Areas in the lowest 10 per cent. in England and in the lowest 15 per cent. in Scotland and Wales in terms of income will be the target areas under CESP. That covers more than 2.5 million households in about 4,500 defined areas. The majority of consultation responses agreed that the IMD represented a transparent, objective and simple approach, but there were concerns that it would limit the number of rural areas eligible for CESP. However, no alternative methodology was proposed that was not excessively complicated.
Having said that, if CESP is to achieve its maximum value, it is important that it should foster a reasonable spread of different projects in different types of location. The Government therefore expect obligated companies seriously to consider targeting a variety of areas around the country, including rural areas. My Department will facilitate contacts where that would help companies, and we will monitor and evaluate all schemes to ensure that any lessons relevant to rural delivery are considered in future policy development.
Finally, some respondents to the consultation raised concerns that independent electricity generators would bear disproportionate costs compared with energy suppliers, particularly where they had no experience of operating CERT. There were concerns that the cost for such companies might be particularly uncertain.
Many consultees believed that it would help to address those concerns if obligated parties could trade up to 100 per cent. of their obligation and not just the 75 per cent. proposed in the consultation. They argued that that would assist independent electricity generators and other new parties under CESP by enabling them to trade their obligation to companies that they believed could achieve the same carbon saving more easily and more cost-effectively. They also believed that it would give such companies up-front certainty as to their total financial commitment.
Based on those views, we decided that all parties with obligations under CESP should be able to trade up to 100 per cent. of those obligations. Consultation has demonstrated considerable support for the amendments to CERT and, encouragingly, for the new CESP scheme. We listened to the views expressed in the consultations, and responded accordingly when appropriate. There are clear and important benefits to householders from CERT and CESP in the form of reduced energy bills. Most important, however, they contribute to tackling dangerous climate change. For those reasons, I commend the orders to the Committee.
4.45 pm
Charles Hendry (Wealden) (Con): Anyone popping into the room to listen to our debate will have been overwhelmed by a sense of confusion. The methods and the projects mentioned today are incredibly complicated. Although I give credit to the Minister for trying to steer a path through them and to be a beacon of clarity, it remains at heart a confusing system.
If we want tens of millions of people to change their behaviour, the starting point should be simplicity and clarity. If we asked people whether they understood what was meant by CERT or CESP, I believe that they would say CERT was something to do with grading movies to show whether they were suitable for children, and I assume that they would think CESP was a system of waste disposal. They would not understand. We would be lucky indeed to find 1 per cent. of the population who knew what they meant and could describe how they worked. The policy should have clarity.
Before the last election, one of my party’s policies was the health passport. We thought that it would be a good way to help people sort out their health problems. Polling showed that only 2 per cent. of the population had heard of the health passport, and that half of them believed they would have to go abroad for treatment. The patient passport was consigned to the bin, and we moved on to develop policies that people could understand and to which they could relate. That is the problem with the order.
The provisions of the order are not bad in themselves. They will probably improve the schemes, but the schemes themselves are fundamentally flawed. Members of the public should have easy access to some basic facts about the schemes. They need to know whether the schemes apply to them, what they have to do to qualify, what they are entitled to and how much the cost will be. Those answers should be easily available. However, the scheme does not answer those questions.
We were not helped by the fact that the Prime Minister announced at a press conference in September:
“All lower income and all pensioner households will be eligible for free loft and cavity wall insulation and other energy saving measures that could save them up to £300 a year in their energy bills.”
That sounds incredibly clear and straightforward until we look at the small print; in fact, only those on low incomes, those with disabilities and those over 70 would benefit. The scheme was immediately cut from everybody in those categories to a much smaller proportion. I hope that in response to this brief debate the Minister will say exactly how that point will be communicated to the public.
I have some questions about the detail of the proposals. It is unclear what contribution will be made by real-time displays—the electricity display devices. The evidence seems to be that when people first have one of those gadgets they go around the house to see what it reads when they switch on the television or the washing machine but that when the batteries run out they pop it in a cupboard and never use it again. We need a much more comprehensive approach, which is why smart meters are such an important part of the process. The Minister needs to be certain that the RTDs will not be a distraction, but will be used to change behaviour. What empirical evidence can she draw upon to show that they have helped to do that? If they cannot change behaviour, they will become a gimmick to be popped in a drawer and not used again.
We need greater information on how advice provided under the CERT scheme will be monitored. Who will be responsible for ensuring its quality, and how will it be delivered? How will we ensure that people get appropriate advice? People are keen to do more; they read every day in the newspapers that they should do more, but are confused about exactly what they ought to do. The role of advisers is therefore fundamental. They are the gatekeepers and honest brokers who will help people to choose the right way forward. We need to be certain, therefore, that there are no vested interests and that advice is independent, and provided in a way that helps to address the issues involved. I repeat that we need a comprehensive approach. While preparing for this debate, we heard compelling evidence from the Energy Saving Trust that the RTDs and the advice should not be separated and that we should opt for a whole-house approach to enable people to do as much as possible. We do not need little gimmicks here and there that ultimately do not address the whole problem.
I am keen to explore further with the Minister the issue of low-energy light bulbs, which we understand are to be curtailed. Does that mean the Government think that they made a mistake in handing out 7 million such light bulbs through the Warm Front scheme? If they now think that it is inappropriate simply to hand them out, do they think that they should not have gone down that route in the past? We are at a very important technological stage: low-energy light bulbs are increasingly available, but at the same time light-emitting diode technology offers an entirely new low-energy technology that will totally transform the sector. What are the Government doing to ensure that that happens? I should be very concerned if anything happening now were to factor out some of those important technological developments.
What is the Government’s view about the overall energy usage? Some newspapers have claimed that because so many more of those light bulbs are needed—because they are so slow to light up—more energy is used overall, and that some people leave them on for much longer because they take so long to brighten. What evidence does the Minister have on that point? It could help the Committee to understand the potential contribution of such technology.
The Energy Saving Trust has also been helpful with regard to CESP, and I would be grateful if the Minister could respond to some of its concerns. The trust is particularly keen that CESP focus on solid wall insulation. It is very concerned that the way in which the programme is being spread could result in less solid wall insulation work and a greater focus on cheaper work, such as cavity wall insulation. We accept and understand the importance of the latter, but it would be worrying if it were to squeeze out work being done in some of the harder-to-insulate properties, where we find some of the worst cases of fuel poverty. The trust is keen that the role of advice visits be reconsidered, because they might divert attention from solid wall insulation work. I would be grateful if the Minister could respond to that point in particular and ensure that we have an understanding of how the Government intend to work on some of the most difficult-to-insulate homes and properties.
The cause of my frustration is that the solution will not be the right one, in the long term, for the challenge that the country faces. We need to go through the housing stock much more comprehensively to ensure that things are brought up to speed. There is confusion at the heart of Government about whether the policies are about energy efficiency or fuel poverty. Their role seems to be merged and blended so that it is hard to understand the driving objective.
We should be considering a policy approach of going through the housing stock house by house. There should be an obligation on energy providers to carry that out, and an understanding that a certain sum—we think it is about £6,500 and the Liberal Democrats and others broadly agree—will enable the work to be done to bring houses up to a reasonable standard of energy efficiency. The policy should be carried out and supported by loan guarantees from the Government, to ensure that the energy companies can do it. That is how the task is done elsewhere. That is how National Grid does it in the United States, where there has been a legal requirement to work with customers to improve the insulation of homes, and reduce energy consumption.
This is a week in which we have high hopes that the Government have been listening. On Wednesday they will publish a White Paper that we believe will be very important. We hope that there is a greater sense of urgency about the issues in question. We shall not oppose the measures before the Committee, because they are certainly improvements, but they are not fit for purpose given the magnitude of the challenge of ensuring the energy efficiency of our homes.
4.56 pm
Martin Horwood (Cheltenham) (LD): We are debating an important area, and there are clear problems in the field of energy efficiency and domestic carbon emissions. There are 22.5 million homes in this country and 80 per cent. of those that are expected to be standing in 2050 have already been built. They are responsible for 27 per cent. of UK greenhouse gas emissions. We can set all the targets we like for building new homes in the future to zero carbon standards—we may have differences over the time scale, but we agree on the ambition—but clearly they will be insufficient. We need energy efficiency measures for existing buildings and homes. There are 4.5 million people living in fuel poverty, and millions more are having to look carefully at their fuel bills in these uncertain economic times, so energy efficiency offers something of a fast track towards greenhouse gas reductions.
I do not intend to follow the hon. Member for Wealden into detailed discussions about one light bulb rather than another, although I happily commend to the Minister a company in my constituency—Think Lighting—which will explain the enormous potential of ambitious LED lighting as a possible long-term substitute for the current low-energy light bulbs. I leave that to the Minister and her Department, however.
CERT and its proposed new stablemate, CESP, can be part of the solution, and are certainly better than nothing, but they have quite a few weaknesses. One of those, as the hon. Member for Wealden pointed out, is that the schemes present us with mind-boggling complexity and, at some levels, sheer unintelligibility. Although they are aimed at the energy companies—they are the target market and it is for those companies, of one kind or another, to translate the schemes into attractive consumer offers and engage consumers in taking them up—it seems, nevertheless, a weakness in any important part of a low-energy strategy that it should be virtually unintelligible to the general public and, indeed, to some hon. Members, without a bit of homework and a wet towel wrapped around our heads.
Another, and more fundamental, weakness in both schemes is that the complex scores, targets and bonus points are essentially guesswork. The guesswork is well informed and has been intelligently worked out; it is Rolls-Royce guesswork, and I am sure that many hours of civil service time have been spent on it, but it remains guesswork. It includes calculations and assumptions about the product lifetimes over which the presumed carbon savings will happen, but such things are uncertain, especially when new, innovative products are coming out all the time.
Under the system in question there will remain a link between increased energy use by a householder and increased profit to the energy retailer. Until the link between resource use and profit is broken—until we change the whole pricing mechanism, and perhaps Ofgem’s remit in the process—we will always have a challenge on our hands, because such things will remain side issues and targets to be met for the energy companies. Providing day-to-day incentives to save energy will not be part of their core business model, when that is what we need to achieve.
Given that that is the case and that we do not know exactly what the presumed energy savings are actually delivering on the basis of the first three programmes, or instalments, in the energy supplier obligation, what is the Government’s assessment of the actual savings—not calculated or supposed savings—that have been achieved by the programmes to date? How have the targets and assumptions behind the first three programmes translated into real carbon savings?
Without such knowledge, it is difficult for Opposition Members as well as Ministers to know whether the programme is a worthwhile one that we should keep supporting and ploughing effort into. Intuitively it seems that it must be, because we are promoting low-energy technologies all over the place, but we have no hard evidence. In the absence of that hard evidence, it is difficult to know whether we should support the order, abstain or vote against it, so it would be useful to have the information before we come to a vote.
The other small flaw that I should point out is in the targeting of the CESP programme. The Minister referred to areas that had high scores on indices of multiple deprivation. That is a reliable methodology, and targeting such areas is worthy. It includes not only the households most vulnerable to fuel poverty but many of the households that are currently the least energy-efficient, so it is an important strategy.
However, at what level is the targeting taking place? My constituency consists of a relatively affluent town with significant pockets of deprivation, where IMD scores can be high and some are among the worst in south-west England. Would those small pockets of deprivation earn a place in a CESP programme? They suffer energy poverty just as much as areas that are less well off as a whole. At what level are the targeted areas being calculated? For instance, is it down to super output areas, which are the lowest basic unit? That would draw in most of the poorest areas in my constituency. I am interested in the answer to that question.
There is also the context. The hon. Member for Wealden rightly pointed out that the programme barely begins to scratch the surface of the overall ambition needed in this country in terms of tackling global warming. Although the entire target for the CERT programme has risen from 154 million tonnes of CO2—I guess that is CO2 equivalent; I am looking for a nod from somebody in the room—to 185 million tonnes, and a 20 per cent. uplift sounds huge, the programme, whose effects could last for more than 20 years, which is the lifetime of insulation products, is achieving savings of only some 6 per cent. in the first four-year carbon budget for the United Kingdom. The carbon budget for 2008-12 is 3,000 million tonnes of CO2 equivalent, so the programme represents only a tiny fraction of what we need to achieve.
Even the number of houses being targeted is not great. The Minister said that the CESP programme targeted 90,000 households. As I said in my opening comments, we have 22.5 million households in this country, which means that the entire CESP programme is targeting only 0.5 per cent. of all British households. That is a vanishingly small amount. It is a gnat bite on the skin of what we must achieve.
The Government’s ambition must be much greater, and other policies are and will remain much more important; for example, the stimulus package for responding to the recession, which we have been arguing about for the past six months to a year. Instead of wasting £12.5 billion on a VAT cut that hardly any retailers or consumers noticed, we could have spent billions on energy efficiency. The Liberal Democrat proposals included spending that money on providing energy efficiency measures for 1 million homes, 10 times as many as the entire CESP target, and subsidising energy efficiency for 1 million more. That would have been a transformational attack on energy usage in this country.
There are other ideas, such as green loans and green mortgages, which the hon. Member for Wealden rightly spoke about, as well as programmes such as de-linking energy companies’ resource use from profit, which would stimulate a major behavioural change from them; and the whole area of renewable energy and decarbonising energy generation as a whole. We are all anticipating what Wednesday’s White Paper will say about whether there will be feed-in tariffs for energy as well as heat at the very beginning or whether there will be further delays. In the end, all those things will probably matter more than the programmes in the orders.
Likewise, the social tariffs that the White Paper should be considering and the Government’s overall approach to social tariffs will probably matter more than the savings made for a few tens of thousands of households by the programmes. Other measures would actually make a greater contribution on fuel poverty—the abolition of the council tax is my favourite. We could look at much bigger stimulus packages to try to tackle the least well-off households on a really major scale.
Overall, the two orders have multiple objectives, which should not fight each other. The media have been much exercised about rising energy prices and they may be right, but we hope that unit energy prices will rise and that we will still be able to achieve a reduction in energy bills for householders and consumers. Because the orders include energy generators as well as retailers and because they target low-income householders, they are a step in the right direction, so unless the evidence for which I asked tells a different story, we shall not be voting against them. However, they represent only a very small step in the right direction, and much more ambition is needed from the Government.
5.7 pm
Bill Wiggin (Leominster) (Con): I have one brief point to make. One of the suggestions on page 13 of the explanatory notes is about a fuel switch to gas. That is a very good idea, but I should be grateful if the Minister would think about the added costs of moving meters, which are extremely high at present. With that, I shall bring my remarks to a close.
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