Is the Green Deal a good deal?

It’s good to see a timescale has been finalised for the implementation of the Green Deal. From autumn 2012 householders and businesses will be able to get loans for energy efficiency improvements to existing properties.

The money is repaid from savings on energy bills so it costs the householder nothing. The Green Deal is particularly welcome as so far it is the only game in town when it comes to improving the existing stock.

But now we’ve got to this stage it’s worth pondering some of the implications. The first is the how the scheme will work in practice including how the savings are collected and what happens if the owners move before the money is paid off.

The second is what sort of improvements will the scheme fund? As the money is coming from the private sector the scheme is only going to work with ‘no brainer’ type improvements where the savings on bills quickly pay off the capital costs. Loft and cavity wall insulation will be at the top of the list but the scheme is unlikely to pay for all the improvements needed to cut carbon emissions by 80% from the existing stock.

The law of diminishing returns says the closer you get to the 80% figure the longer the payback period is for these improvements. The Green Deal is may not get us towards the 80% target but it’s a good start.

The most interesting thing to come out of yesterday’s announcement is the government’s intention to allow tenants to force landlords to make energy efficiency improvements.

This is notable as it is the first existing stock energy efficiency improvement measure to be compulsory. Clearly, it is a bid by government to break the landlord/tenant impasse where the tenant won’t pay the capital costs of improvements to someone else’s property and the landlord won’t pay out on measures that save someone else money.

Inevitably this raises the question of whether it’s fair to force landlords to improve their properties but owner occupiers can sit back and do nothing. The only way to get round this will be to introduce a mechanism to make owner occupiers make improvements too. This means we are likely to see more wide ranging compulsion to take up the Green Deal in the medium term.