The Conservatives can't avoid the big issues on climate change policy

I share Tim's objective of a "realist" policy on climate change.  But, I'm far less sanguine about Conservative policy on this issue.  Unfortunately, it looks like they're ducking the big issues.  Tim highlights one area in which their policy might help achieve important objectives like cutting energy bills and cutting emissions: energy efficiency measures at home.

What that misses is that the public are already making pretty rapid progress in improving the energy efficiency of their homes.  Nearly 95 per cent of suitable households have loft insulation, and most of those at a thickness of 4 inches or more.  85 per cent of households have double glazing, and most of those have it in 80 per cent or more of their rooms.  Nearly 95 per cent of households with a hot water tank have it insulated, and yet again most of those have thick 3 inch insulation.  The only major efficiency measure that isn't installed by the majority of suitable households is cavity wall insulation, at just over 40 per cent of suitable households, but even there steady progress is being made.  All those figures are from official domestic energy consumption (XLS) statistics.

Exciting estimates of potential savings through energy efficiency gains tend to be premised on entirely redesigning the housing stock, which isn't going to happen with the long lifetimes of houses in Britain.  The low hanging fruit has already been picked.

In light of all that, I'm a bit worried that too much focus on improving home energy efficiency is a bit like callous calls for people to "put a sweater on" when tens of thousands of elderly people are dying from the winter cold each year, an unintended case of blaming the victim for their suffering when energy prices rise.

Even if we could get significant gains from energy efficiency improvements, that might not do as much as policymakers expect to reduce emissions.  When energy efficiency measures save people money they tend to spend it.  And, what they spend it on tends to increase emissions.  IPPR focus grouping produced this example:

“If I was to build a house tomorrow, it would have anything energy saving that I could possibly ram in it to make it as energy efficient as I could – and then I could have my Audi TT.” (Female, York, with children)

Of course, there is nothing wrong with improving energy efficiency, even if there is only the room and money to make a marginal difference, and saving people some money they can then spend on things they like, from cat food to Audi TTs, is a reasonable objective.  If that was all Conservative energy and climate change policy amounted to, we could probably rest easy.  But, the truth is that the big Conservative climate change policy commitments aren't their new ideas, which just aren't terribly significant, but the existing policies they are going to maintain.

The big two energy policies, for example, are the European Union Emissions Trading Scheme and the Renewables Obligation.  The cost of those policies will keep increasing without any policy change from the Conservatives and they threaten to create an affordability crisis as poor and middle income families are pushed to the brink by artificially high energy prices.  Citigroup Investment Research have written a powerful report on this issue, which sadly doesn't appear to be available online, and they summarise their findings as follows:

"The Looming Affordability Crises — Climate change has been the key driver on EU energy policy. Governments expect utility customers to bear the cost of these policies. This has become a hidden tax, and is highly regressive for domestic consumers. Utility bills in the UK could rise by 60-100% in real terms. But this would make power and heating unaffordable for many. The risk for utilities is that governments clamp down on profits when the pressure from consumers heats up."

They go on to report that:

"This overwhelming focus on climate change has driven EU energy policy down some very radical routes – carbon trading, the 2020 renewable energy targets, and ambitious energy efficiency targets, are but the three most prominent examples. Looming on the horizon are further radical policy initiatives – carbon capture and storage, the mass roll out of electric vehicles, new nuclear programs, distributed micro generation, smart meters and smart grids."

And, that:

"All of these policies come with a large price tag."

To put a figure on that large price tag:

"If we assume that real incomes in the next decade follow the trend of the past decade and increase at about 1.0% per annum, then we could see the per cent of disposable income taken up by power and heat rising to between 16% and 21% for the average household."

The Conservatives are firmly committed, at present, to the "very radical routes" that are driving up energy prices.  That will hit the poorest hardest, as they spend far more on energy than the rich as a share of their income, and will increase poverty and benefit dependency.

If the Conservatives don't seriously amend or abolish some of these totemic but hugely expensive policies, then they will oversee a huge rise in the burden imposed by government on poor families.  Combine that with the increase in VAT to 20% that too many Conservatives seem to have accepted as inevitable or even desirable, and you would have a Conservative government pursuing a combined policy agenda that would constitute perhaps the greatest financial assault on the interests of the poor in British history.  If that happened, "compassionate conservatism" would be left as little more than a black joke.

There is a huge opportunity if the Conservatives seize the realist mantle in this area.  At the TPA, we will be releasing research shortly on how better policy can cut the cost to consumers and promote more efficient measures to curb emissions.  If the Conservatives make themselves the party of low electricity prices they can sweeten the necessary but bitter pill of fiscal tightening and give key constituencies like the elderly a big reason to choose them at the ballot box.  But, you can't cut people's bills and simultaneously expect them to pay subsidies of over £100 per MWh to offshore wind farms, to give just one example.  The Conservatives will need to face down the combined environmentalist and renewable energy lobby that currently has a stranglehold on policy.