House of Commons - The Green Deal: watching brief (part 2)

The Green Deal: watching brief (part 2) - Energy and Climate Change Contents

2 Initial Assessment of the Green Deal and ECO

16. Emissions from buildings accounted for 37% of total UK greenhouse gas emissions in 2013, approximately half of which resulted from heating.[16] Increasing the energy efficiency of domestic and non-domestic buildings could therefore contribute significantly towards finding solutions to the energy "trilemma" of reducing CO₂ emissions, while guaranteeing security of energy supply and ensuring affordable delivery. In theory, the Green Deal and ECO represent tangible means to meeting these aims.

Uptake of Green Deal plans

17. In response to our previous report, DECC stated: "The Government considers that saving carbon is the principal objective of the programme".[17] In March 2013, the Rt Hon Gregory Barker MP, then Minister of State for Climate Change, anticipated that at least "10,000" people would have signed up to the Green Deal by the end of the year.[18] At the time of publication of this report, 300,259 Green Deal assessments had been carried out, but only approximately 4000 Green Deal plans had been or were in the process of being set up.[19] This "deeply disappointing"[20] level of uptake has meant that the programme has not made "any real impact up to now"[21] and "falls a long way short of the 10,000 by the end of 2013 that […] the Minister was anticipating".[22] This feeling of disappointment was shared across the range of contributors to this inquiry.[23] Dr Nick Eyre, from the University of Oxford, stressed that:

The Green Deal and ECO are far from achieving the level of activity seen under their predecessor schemes CERT and CESP.[25]

18. In its latest report to Parliament, the Committee on Climate Change estimated that at the end of 2013, 4.5 million cavity walls and 7 million solid walls remained uninsulated, with a carbon saving potential of 2 MtCO₂ and 5 MtCO₂, respectively. An additional 0.7 MtCO₂ could be saved as a result of addressing 9 million lofts that still required additional insulation filling.[26] The Government's latest statistics reveal that estimated lifetime carbon savings through Green Deal plans have so far been negligible, at 0.04 MtCO₂ through Green Deal plans and 0.07 MtCO₂ through Green Deal cashback.[27]

19. Mark Bayley, Chief Executive of the Green Deal Finance Company, indicated that the take-up had fallen short of initial expectations and that there were uncertainties going forward:

The Minster agreed that his Department had been "surprised by […] the relatively low take-up to date of finance plans",[29] adding that the absence of the major energy companies on the Green Deal market had contributed to this slow start:

20. With such extremely low levels of take-up eighteen months into the life of the policy, the Green Deal has so far been a failure. It is very disappointing that the Government's flagship energy efficiency policy has been so slow to attract customers. We have been and will continue to be supportive of the principle of the Green Deal but the Government needs to set out a clear strategy to revive the failing scheme. The Government must urgently address the barriers which currently prevent wider and faster take-up of the Green Deal.

Barriers to take-up

21. We have identified three types of barriers that have made the Green Deal unattractive to customers: (1) financial barriers; (2) communication and trust barriers; and (3) behavioural barriers. We set out the main characteristics of these barriers below, and offer suggestions as to how they may be overcome in Chapters 3 and 4.

FINANCIAL BARRIERS

22. The cost of the assessment and the high interest rate attached to the Green Deal loan have been repeatedly cited as reasons for the poor take-up of the scheme.[31] Representatives from energy companies told us that the assessment is unpopular amongst customers[32] and that "the customer perception is that [the interest rates] are higher than is fair, given the availability of cheaper loans in the market".[33] Despite the projected savings being the "key selling point for the scheme",[34] consumers regard it as being too costly. Action with Communities in Rural England explained that:

23. The length and amount of individual Green Deal loans is determined by the Golden Rule, which in principle safeguards consumers against financial losses. The amount loaned under the rule is derived from the energy savings estimated to arise from the specific measures, following a careful assessment of the property.[36] However, we were warned that the methodology can lead to estimates that are too conservative.[37] Jenny Holland, Head of the Parliamentary Team at the Association for the Conservation of Energy, told us:

24. Whilst designed to be protective, the Golden Rule is in practice also restrictive. In many cases, it deters potential customers from installing measures they need or desire because they require additional personal investment.[39] The UK Green Building Council told us:

Citizens Advice concluded that "in order for the Green Deal to attract significant levels of take-up there must be a clear financial incentive to do so, this is not currently the case".[41]

25. Which? also warned us that the Golden Rule calculation is based on what a "typical" household would spend on energy. This can disadvantage the fuel poor, who may use less energy and therefore run the risk of repayments exceeding financial savings.[42]

COMMUNICATION AND TRUST BARRIERS

26. There are high levels of confusion, misunderstanding and mistrust surrounding the Green Deal. A number of contributors explained that the scheme lacked clarity for both consumers and the supply chain,[43] with "conflicting, contradictory and inaccurate information […] provided in the guidance documents and training materials for Green Deal Advisors"[44] and confusing messages from DECC.[45] Nick Chase, Director of Policy and Research at Action with Communities in Rural England, stated:

27. In addition to a lack of understanding, instances of mis-selling have led to a widespread mistrust of Green Deal assessors.[47] Citizens Advice explained that "the majority of calls made to the Citizens Advice Consumer Helpline in relation to the Green Deal concern potential rogue traders and scams".[48] Installer companies themselves have sometimes found that "somebody had been into the area behind them".[49] The built-environment think-tank Edge told us that "the existing self-certifying regime by installers is insufficient" and that a more robust quality and assurance process is required to boost customer confidence.[50] A mystery shopping exercise carried out by Which? raised important questions about the quality of the Green Deal assessment[51] and several contributors noted the adverse impact of rogue traders.[52]

28. As a result, there has been negative press coverage, which has further contributed to its slow take-up.[53] Peter Broad, Policy Manager at Citizens Advice, judged that "clearer branding, tighter regulations on doorstep selling and co-ordination between DECC and Trading Standards and other organisations operating in the consumer protection landscape" were needed to tackle this issue.[54] Jonathan Harley, Head of Operations at the Green Deal Oversight and Registration Body (which manages the authorisation of the Green Deal scheme participants on behalf of DECC), assured us that issues of misconduct were promptly dealt with:

29. Consumer Futures further raised concerns that, by lacking clarity, the Government's communications on the Green Deal had been misleading:

30. Following two separate investigations into Green Deal advertisement, the Advertising Standards Authority (ASA) upheld claims of mis-selling on the part of the Green Deal Finance Company and DECC on 21 May and 27 August 2014, respectively.[57] Mark Bayley, the GDFC Chief Executive, assured us that the GDFC "accept the ASA's ruling and […] will make it clear that our loans are for long-term and we will make it clear in making comparisons".[58]

31. The Green Deal process is too complicated and has led to confusion and mistrust. The Green Deal Oversight and Registration Body plays an important role in regulating activities but better communication across the Green Deal stakeholder chain is necessary. Publication of misleading information by GDFC and DECC further undermines a programme that already suffers from poor public understanding and interest. Until consumer trust and understanding are improved, the Green Deal is unlikely to see any substantial increase in take-up. We address this further in Chapter 4.

BEHAVIOURAL BARRIERS

32. As a market-based mechanism, the Green Deal relies on the commitment, engagement and action of individual customers. However, the attachment of the Green Deal loan to the property is an alien concept to most people and is frequently viewed as detrimental to owners should they wish to sell or rent their property.[59] This is exacerbated by a general unwillingness to take-on an additional loan and run the risk of becoming over-indebted in the face of financial and policy uncertainties.[60]

33. While consumers may be aware that insulation improvements can lead to financial savings, the perceived time, effort and disruption of energy efficiency improvements can be off-putting.[61] Several contributors told us that this 'hassle factor' was contributing to the poor take-up of the Green Deal.[62] Peter Broad, Policy Manager at Citizens Advice, suggested that incentivising the public was important in taking the Green Deal forward:

34. The Minister acknowledged that rolling-out the Green Deal to acceptable levels would require "significant behavioural change as well as innovation".[64] It has been suggested that, to help raise awareness and shift mentalities towards energy efficiency, the installation of Green Deal measures could be integrated within a wider spectrum of home improvements,[65] "rather than trying to separate energy efficiency from the rest of [what] goes on in the building stock".[66]

Identifying clear objectives

35. In our first report on the Green Deal, we recognised that it was too early to set hard targets for the scheme, as these might lead to mis-selling in order to meet goals. However, we stressed the importance of consistent and accurate monitoring of different aspects of the Green Deal. DECC publishes monthly and quarterly statistics for the Green Deal and ECO,[67] and monitors public awareness of the schemes.[68] We were pleased to see that a number of our previous recommendations regarding useful monitoring data[69] have been or are in the process of being integrated into these statistics.[70]

36. However, given such a low level of take-up eighteen months into the life of the scheme, it is important that objectives and projections be set against which progress on the roll-out of the programme can be judged in the years to come.[71]

37. During our previous scrutiny of the Green Deal, Mr David Thomas, Deputy Director, Green Deal Consumer Demand, DECC, told us that DECC expected one million Green Deals by March 2015, through "installations involving ECO, installations not involving ECO, people paying for things through Green Deal finance and people not paying through that".[72] During the present inquiry, the Minister told us that:

38. However, these commitments still fail to set a framework through which the Green Deal itself will be assessed. The UK Green Building Council judged that:

39. Mark Bayley, Chief Executive of the Green Deal Finance Company (GDFC), explained that the ambition of the GDFC was to see Green Deal plans set up in "one million homes by 2020 or more".[75] He acknowledged that this number is a long way away from the number of plans set up or in the process of being set up to date:

40. The Minister told us that:

The Minister further stated that "anything that stems from a Green Deal assessment must be counted as part of the Green Deal market".[78] While the installation of energy efficiency measures is, as many contributors have said, an important step in the achievement of the Department's goals,[79] it is surprising that the Minister was so dismissive of the Green Deal finance, when that had been presented as the selling point of the programme at its inception.

41. The Government needs to deal with the criticisms surrounding the poor take-up of the Green Deal. A lack of public commitment towards selling Green Deal plans is contributing to the increasing uncertainty surrounding the future of the Green Deal.

42. We recommend that DECC set out a robust framework through which the Green Deal can be assessed. In particular, DECC should be clearer about its ambition for the number of plans sold and CO₂saved through measures installed under Green Deal. The Government should also clarify its expectations of CO₂saved through other energy efficiency programmes. The Department and The Green Deal Finance Company should communicate a consistent message on what success will look like.

The Energy Company Obligation and the Green Deal

43. ECO originally obliged suppliers to install more costly measures such as solid wall insulation and hard-to-treat cavity wall insulation, with the market-based Green Deal facilitating the installation of low-cost measures under the Golden Rule.[80] However, the recent changes to ECO mark a return to a focus on lower-cost loft and cavity-wall insulation. While this move has been welcomed by the energy companies,[81] it has created uncertainty and stalled the market along the supply chain.[82] Dr David Kennedy, from the Committee on Climate Change, agreed that the focus of ECO on low-cost opportunities was sensible both "from a carbon-saving point of view" and "from a cost-effectiveness point of view".[83] However, others argued that the 33% cut to the carbon reduction target of ECO and the generous carry-over of points for measures installed early,[84] showed a lack of ambition.[85]

44. The changes to ECO risk undermining the Green Deal because whereas low cost measures can now be installed through ECO, the Golden Rule prevents the installation of higher cost measures using a Green Deal loan. There is a lack of clarity on how the relationship between the Green Deal and ECO will evolve, and what the Green Deal will now be used for.[86] Peter Broad, Policy Manager at Citizens Advice, warned that the changes to ECO will be detrimental to the Green Deal:

45. The question becomes: "Why would anybody do Green Deal if they can get those measures out of ECO"?[88] Mr Chris Nicholls, Head of the Green Deal and ECO analysts and economists at DECC, acknowledged that:

46. The Minister suggested that customers faced a variety of options in terms of financing higher cost measures that cannot be solely funded by a Green Deal loan:

47. The Green Deal and ECO have similar goals but are different programmes operating in distinct ways. They should be complimentary rather than competitive. Allowing loft and cavity wall insulation under CERO raises the question of what the Green Deal will now be used for. It is not clear what impact the recent changes to ECO will have on the take-up of the Green Deal.

48. We recommend that DECC clarifies what it expects the Green Deal to be used for during the lifetime of ECO and produces clear consumer guidance as to the different ways in which Green Deal finance can be used (for example in isolation or in combination with other schemes and incentives). A one-stop place for consumers to determine their options would greatly simplify the customer journey and encourage take-up where households may not be aware of the combination of options available to them.

49. The changes to the Energy Company Obligation so early in the life of the policy have created uncertainty across the Green Deal and ECO supply chain.[91] Having geared up for delivery under CERO, the solid wall insulation industry now faces a potential lack of demand for the years to come as "these measures will require significant amounts of top-up funding to be installed using Green Deal finance".[92] The use of top-up funds and other finance options are discussed in further detail in the next chapter.