Britain’s New Green Deal: Transforming Energy Efficiency

Britain’s new government is proposing radically new energy policies, with a “Green Deal” that would retrofit the country’s woefully energy-inefficient housing stock. In an interview with Yale Environment 360, UK Energy and Climate Minister Greg Barker talks about why an overhaul of the approach to energy is essential for the nation’s future.

Britain’s new ruling coalition knows it faces a formidable task if it is to fulfill its pledge of being “the greenest government ever.” But Greg Barker, the UK’s Energy and Climate Change Minister, says that even in the face of budget cuts and fiscal austerity, he is optimistic about what the coalition can do to put Britain on course to meet its goal of cutting carbon emissions by 80 percent by 2050.

Barker, 44, a former PR executive and Conservative member of Parliament, is promoting the government’s plan for a so-called new Green Deal, a program aimed at retrofitting Britain’s notoriously energy-wasteful

Greg Barker
Greg Barker

homes with efficiency improvements, with no upfront cost to homeowners. “We have one of the lowest energy-efficiency ratings in Europe,” he says, “and that’s something that’s simply not acceptable.”

In an interview with Yale Environment 360, Barker discussed how the Green Deal would work, the role of offshore wind and other renewables in Britain’s future, the need for new nuclear plants in the UK, and the government’s plan for a green investment bank to help finance low-carbon technology. “We think that there is a clear commercial advantage for the UK in being an early mover in the drive to a clean economy,” he said.

Yale Environment 360: Your government is now promoting a new Green Deal. Can you explain how that would work, and specifically when it comes to homeowners, how it will enable them to make major energy-efficiency improvements without sustaining unaffordable costs?

Greg Barker: Well, I think it’s important first to put it in context. The new coalition government elected in May of Conservatives and Liberal Democrats really comes together at its strongest on the green agenda. And the new prime minister, David Cameron, within days of taking office, committed to being the greenest government ever. What does that mean? Well, really that means going beyond the rhetoric of the Blair years and actually coming up with some really clear policies for delivering transformation to a low-carbon economy during the next decade.

One of our flagship policies is the Green Deal. And that recognizes that the UK has been lacking far too long in energy efficiency, both in the business sector and also critically in the domestic sector. We have one of the lowest energy-efficiency ratings of any country in Europe, and that’s something that’s simply not acceptable. So there’s a lot to do. And therefore, what we need is a real game-changer, a complete step-change in the scale of investment in energy efficiency. Historically, most programs for energy efficiency have been driven by annually capped grants from central government to particular programs. And while in themselves they’ve been worthwhile, relative to the scale of the challenge and the 26 million homes that we have to transform, we’ve been making very slow progress.

e360: So what is the coalition government proposing?

“We need a real game-changer, a complete step-change in the scale of investment in energy efficiency.”

Barker: What we’re going to do is go away from the stop-go, government-funded programs, and through using smart regulation, open up this market to the private sector. We believe we can create a market that will bring in billions of pounds of investment into energy efficiency for homes and businesses. We’re going to create a mechanism whereby the cost of making these [energy-efficiency] measures can all be financed through pay-as-you-save models, with the finance being repaid over a period of 20 years through the bill on each individual property. Now, that’s a big change. To date it had to be paid upfront, either by the individual homeowner or through a grant. By pinning the repayments to the bill of the property, it means it’s not a debt. It’s not even a mortgage. It doesn’t need to be credit-scored, because if the individual living in that particular home moves, dies, ownership changes, or they cease to rent, it stays on the bill of that property, just like the conventional energy bill.

But there’s one golden rule: The cost of financing the measures, which would be anything up to 6,000 pounds, must always be less than the savings anticipated from the installations [of energy-efficiency measures].

e360: Who will pay the upfront costs?

Barker: The upfront cost will be paid for by private sector finance. Now, in some cases, those companies with a big balance sheet may wish to finance it themselves on their own balance sheet. Others, and I think it will probably be the majority, will team up with banks and commercial finance houses as a partnership.

So far as the consumer is concerned, there’s no upfront cost at all. As far as the homeowner is concerned, all they have to do is have an energy audit for their home. That independent audit will say this home qualifies for the following measures, and providing that they meet the payback rule, then those measures will be installed and be financed through the property’s energy bill over 20 years. Again, the golden rule: Savings will be always bigger than the financing costs, which means that not only will people end up with new improvements to their property or the property that they rent, but actually they’ll see lower bills immediately as well.

e360: You mentioned that your new government is making a total change and a new approach to energy issues. Just recently, the larget wind farm in the world opened just off the coast of Britain, and yet the vast majority of the contracts for that project actually went to non-UK companies.

“The green investment bank is critical to our vision for a low-carbon economy.”

Barker: Absolutely. And only 20 percent of the supply chain on this largest wind farm in the world has been met from the UK. We’ve got to change all that. That’s Labor’s legacy to the coalition. We’ve got to make the UK not just a great place to deploy these new technologies, particularly offshore wind, but we’ve actually got to make it a great place to manufacture the capability that we’re going to deploy. So we, the new government, have an ambitious vision to create the necessary supply chain. And that means attracting in new participants, attracting new investment into the UK, making sure we have an optimum business condition. That’s why despite the fiscal situation we’re bringing down the corporation tax, why we’re streamlining planning measures, and why we’re looking to reform the system for support of offshore wind to make sure that it’s extremely competitive internationally.

e360: You’ve also talked about creating a green investment bank. How would that work, and would that be part of the funding projects in industries like this?

Barker: Yes. The green investment bank is critical to our vision for a low-carbon economy. We see it not as supporting or subsidizing non-commercial projects, but as being key to catalyzing and leveraging greater amounts of private-sector finance, often helping just alter the risk profile or give greater certainty to projects where there’s a strong public-sector interest.

There are three things to business, which we think are absolutely essential ingredients for long-term success of the transition to a low-carbon economy. We think business needs these three things in government policy: transparency, longevity, and certainty — TLC, if you like. And too often in the past, the short-term measures have been tinkering with policy, which has sent confused and mixed messages to the investment community. What we need to see is actually fewer interventions in the market. But when we do intervene, we need to do so in a very robust fashion that is transparent, clear, and gives real long-term certainty to business.

e360: Would this green investment bank be set up with a combination of private and public funds?

Barker: We’re currently looking at the various models. Three government departments — my own Department of Energy and Climate Change, the Department of Business Innovation and Skills, and, of course, the Treasury — are currently looking at various models, and we’ll be making further announcements soon. We are determined to come out on the ambitious end of the spectrum, but I also think that the institution that emerges won’t be fully cooked on day one. We want to create something that is sustainable, that commands the confidence of the markets, but is also capable of growing and expanding its role as it develops a track record of success.

e360: How will austerity and the budget cuts that the government is making — how is that affecting the ambition of what you’re trying to do and the scope of it?

“We are confident the private sector can come forth with viable projects for a new fleet of nuclear reactors.”

Barker: Well, of course, it’s tough. We the new government inherited a very difficult situation. The last Labor government doubled the national debt and left us the highest deficit in the G20. But we are taking prompt action to turn that around and to transform public finances. Unless the market’s going to have confidence in the public finances, unless the economy is on a sound fiscal footing, then no sector can grow over the long term. So we see returning the public finances to a sound state of affairs an absolute priority across the board. Obviously that does mean that some tough choices have to be made, but the low-carbon transition and investment is absolutely vital to our recovery, and we are determined that we will endeavor to protect the core public investment in that.

e360: I’m interested in what you see as the role of nuclear in Britain’s energy future. I know a number of plants are set to expire in the next decade. Do you favor more nuclear plants being built in Britain, and if so, how will they be funded?

Barker: Well, a diverse energy mix is absolutely vital to the UK’s future. That means a strong role for renewable. But it also means other sources of clean energy like nuclear must be part of the mix. Now, we do see new nuclear as being part of that mix, an important part of that mix. But that doesn’t mean to say that there’s going to be public subsidy for nuclear, and that’s the important differentiating point… We are confident that the private sector can come forth with viable projects for a new fleet of nuclear reactors that are safe and commercially viable.

e360: Do you see the switch to renewables as important for Britain’s overall economic recovery and future growth?

Barker: Absolutely. We think that there is a clear commercial advantage for the UK in being an early mover in the drive to a clean economy. We think that gaining competitive advantage in these growing industries such as offshore wind and other renewables will actually provide thousands of jobs in the future, will create an added value economy. And we are committed to making sure that the UK isn’t just a great place to deploy renewables, but that we actually we capture a lot of that R & D that’s going on in our universities and in the research houses of our leading companies.