The Green Deal is supposed to be the biggest domestic refurbishment programme since the Second World War. But the government’s own figures predict it will be anything but. Joey Gardiner asks if the coalition’s flagship policy could be heading for failure

The £14bn Green Deal is going to be nothing short of the “the biggest housing retrofit programme since the Second World War,” if you believe the energy minister Greg Barker. Designed to bring about a cut in emissions of over 2 million tonnes of carbon dioxide a year, it is also set to create 65,000 jobs for a beleaguered construction industry and warm the homes of some of the poorest in society. Millions of homes could see energy efficiency improvements, all at no upfront cost for owners. For the self-styled “greenest government ever”, this is its flagship eco policy and most public commitment.

However, the reality is 1,900 pages of policy - which finally came out to consultation in November last year - which makes clear the rhetoric masks a veritable viper’s nest of problems. And it’s not as if the government doesn’t understand this. Buried in its own impact assessments is the evidence to show that the move to the Green Deal will actually dramatically reduce the uptake of the most efficient domestic energy efficiency measures, leaving parts of the energy efficiency industry in despair. According to figures from the Department of Energy (DECC) and the government’s carbon reduction watchdog, the Climate Change Committee (CCC), the policy shift leaves the UK falling well short of what is needed to meet its long-term goals on reducing carbon emissions, so severe is the problem. Andrew Warren, director of the Association of the Conservation of Energy (ACE), says: “We’re putting in the public domain projections that demand is going to fall sharply. The signal it’s sending is actually really alarming.” So what’s causing the problems and what can be done?

The principle behind the Green Deal is simple enough - and widely supported. The idea is that energy efficiency measures, such as loft insulation or heat pumps, can be provided free to homeowners, with the costs paid back over 25 years through a charge on energy bills. This overcomes the main disincentive for undertaking the work - the upfront cost. Under the policy’s “golden rule”, energy efficiency measures will only be provided if the expected saving on your fuel bill from installation is greater than the charge to pay it back.

At the same time the introduction of a system, called the energy company obligation (ECO), will see the utility companies put aside £1.3bn a year to subsidise further energy efficiency works beyond those available under the Green Deal, with a proportion of this specifically targeted at low income “fuel poor” homes. The government’s best guess of the impact of these policies, compared against simply leaving the market to its own devices, is to reduce emissions by 2.1 million tonnes of carbon dioxide per year, saving the country £8.7bn.

However, this assessment ignores the impact of the government’s existing policies in this area, called the CERT, CESP and Warm Front, which work in a similar way to ECO, by getting utility firms to offer their customers subsidised energy efficiency measures. Ultimately, under these schemes, around 650,000 lofts have been insulated and 53,000 cavity walls insulated each year between 2008-2010. But all of these schemes will finish by the end of 2012, leaving the Green Deal and ECO as the only game in town for renewing and improving existing homes. And in comparison to them, the Green Deal and ECO’s output looks woeful. Figures obtained from the DECC, not previously published, show that the annual number of installations of Cavity Wall Insulation is expected to drop by 70%, from 510,000 to 170,000. Worse still, the number of loft insulation installations will plummet by more than 93%, from over a million to just 70,000 - in contrast the CCC says the figure need to be 2.1 million annually for the next four years. At the same time the previous government’s albeit ambitious target to get all of the UK’s remaining loft and cavity walls insulated by 2015 has been quietly moved back to 2022.

The ACE’s Warren says: “The impact assessment is ghastly. It’s absolutely plain - less work will be done in future than today. Basically it accepts it’s not going to be a success, and the UK won’t meet the aspirations it has set itself.”

One of the key reasons for this is because of the way it is proposed the ECO will be set up. Under CERT, energy companies can subsidise loft and cavity wall installations. However, under ECO these measures will not be allowed, because they are supported instead by the Green Deal. As the Green Deal doesn’t actually subsidise work, but merely finds a way to finance it, this shift makes it much less attractive and the government estimates the number of installations will plummet.

The CCC is so worried about this that its chair, Adair Turner, wrote an open letter to climate secretary Chris Huhne before Christmas pleading with him to change track. Rather than saving two million tonnes of carbon a year, he said the government needs to be aiming for four or five. However, the government is thought to be worried any change of tack risks upsetting the finance firms whose support is needed to fund the Green Deal’s upfront costs.

Turner’s letter says that the Green Deal and ECO will see just 700,000 of a possible six million lofts insulated, and 1.7 million out of an available 6.3 million cavity walls insulated. The CCC’s chief executive, David Kennedy, says: “The government looks to be moving away from a system where it’s had some success. There’s no evidence, as the government is accepting, that a market-based mechanism such as the Green Deal can deliver here.”

On a more basic level, the difficulty which the government’s disappointing estimates of uptake demonstrate, is that there is little evidence consumers will actually want to take part. This is because while it might, in theory, make economic sense for everyone to take part, in reality the hassle of getting in builders to install insulation or ground source heat pumps means most will not take up the offer. Hence the £200m for short-term incentives announced by the Treasury in November. It will be a huge struggle to make sure that consumers, with busy lives and many more pressing priorities, even get to know about it (see Affinity Sutton factfile, below).

The ACE’s Warren also chairs the government forum charged with working out how to maximise Green Deal uptake, and is under no illusions about how difficult it will be. He says changes to stamp duty and VAT on energy efficiency measures are needed to encourage uptake, and that the £200m funding boost will not be enough. It also looks likely that the communities department may introduce consequential improvements into buildings regulations, which would be a significant trigger - a revised impact assessment due in the summer taking all this into account is likely to be more positive. “The aspirations are quite fantastic, but it’s going to need a whole range of other changes to make the Green Deal actually happen,” says Warren.

However, these fears of poor uptake are not even the biggest surrounding the Green Deal. There are problems, as yet unresolved, which mean it may not be able to work at all. Under the policy, consumers who take up the Green Deal will be offered a warranty covering the works for the whole 25-year period of the contract. This is seen as crucial by the government in order to stave off the possibility of complaints and litigation from consumers who have installed products which have later failed, but which they’re still paying for. The problem is that most of the products approved under the Green Deal have warranties of just three to five years. Many may need replacing. Green building expert David Strong, who is chairing the forum looking into accreditation for the Green Deal, says he is only aware of one of the 30 agreed Green Deal measures with a warranty of 25 years. This is for cavity wall insulation through a pan-industry scheme, and while the solid wall insulation industry is developing an equivalent scheme, it’s not launched yet.

Officials at DECC are aware of the issue, and think it can be addressed by giving longer warrantees for some products than for more fragile, more complex technology. But Strong thinks this will add an impossible level of complexity to an already complex scheme. “Some measures might require replacing two or three times over the 25-year period. If you add on that cost then it’ll completely blow the golden rule. The more I look at it, the more difficult this issue becomes,” he says.

If the government presses ahead regardless of this it could end up in a legal minefield if householders decide to sue over failed Green Deal measures. An example of how bad this could get comes from Australia where the government is facing a £285m remediation bill after its botched introduction of a similar scheme. The Home Insulation Program was associated with at least four deaths by electrocution from incorrectly installed foil insulation that touched cables and became “live” (see Australia factfile, below).

Traditional buildings specialists say one trigger for the UK Green Deal to become that kind of legal minefield is around solid wall insulation. The Society for the Preservation of Ancient Buildings has said that the Green Deal runs the risk of causing serious and irreversible damage to the 20% of the UK’s buildings which were built before the First World War, through the incentive it provides to install solid wall insulation. Solid wall insulation, currently a niche market, is one area of predicted huge growth under the Green Deal programme, with the government expecting a 10-fold increase in installations from just 14,000 each year today. However, the fear is that, when fitted to older buildings, non-porous insulation designed for more modern buildings has the capacity to allow damp to build up to levels that could cause serious structural damage. It could also harm residents’ health, as a little-noticed paragraph buried in the middle of the government’s impact assessment makes clear: “… the reduction in permeability in homes could … have long-term negative health impacts - for example, lung cancer (radon), stroke or heart attacks (second hand smoke) and respiratory illness for children (mould).”

The government is now so worried about the issue that civil servants have recommended the government commission a serious study into it, and it has convened an expert panel to see how concerns can be mitigated. Neil May, founder of the Good Homes Alliance, says: “We must achieve an understanding among advisers, installers and product suppliers. If we don’t, we will all carry the responsibility for the fabric decay of traditional buildings and the sickness of their occupants.”

Amid all of the uncertainty around the Green Deal, probably the most surprising fact is how much faith the government has put in this policy working. As a concept, the Green Deal has near universal industry and political support. However, as a policy, it requires the creation of a system of the most byzantine complexity, requiring buy-in from consumers, high-finance, big retailers, local white van builders and lawyers. At each of these levels, there is a risk that the scheme won’t work, or at least not as intended. As part of a toolkit of measures, the Green Deal is a very positive step, but the concern is, in the words of one influential expert, that the government is putting “all its eggs in one basket”. With no other options on the table for improving the energy efficiency of the nation’s homes, it is vital these manifold problems are tackled.

Government response

Building asked the Department of Energy and Climate Change about the expected uptake of the Green Deal. Here is its response:

How does the estimated reduction in the installation of energy efficiency measures such as cavity wall and loft insulation fit with the government’s rhetoric?

We’re making the Green Deal energy efficiency scheme more ambitious […] than anything that’s happened before, and thereby stimulating more investment than ever before. We want all easy to insulate loft and cavity walls to be done by 2022. The Green Deal will for the first time offer help to those 8 million homes that have had no means of insulating their solid wall properties.

Will DECC consider allowing loft and cavity wall insulation to be offered under ECO?

Once the Green Deal is in place we envisage there’ll be plenty of cost-effective offers on loft and cavity wall insulation, making it easy for households to install with no need for any subsidy. We want ECO to target harder to treat homes and provide help for the fuel poor.

What other measures will the government take to drive uptake of the Green Deal?

We have announced £200m of funding to help boost early take-up of the Green Deal […] From 2016 residential landlords cannot reasonably refuse requests to improve energy efficiency under the Green Deal and ECO, and from 2018 all rented properties must achieve an EPC rating of E - or carry out the maximum package of measures.

The consultation on changes to Part L of the Building Regulations in 2013 will also look at ways … to help support demand for the Green Deal.

Green Deal case study: Lessons from Australia

The AU$2.8bn Australian Home Improvement Program was abandoned in February 2010 after serious safety concerns were raised over the installation work done on thousands of homes in the country. The programme, which commenced in 2008, had offered grants of up to AU$1,600 to home owners in Australia to upgrade the energy efficiency of their houses, as part of a wider policy package launched to stimulate the construction sector in response to the credit crunch. As the policy developed, it saw the cash paid directly to installers to enable faster uptake, with AU$1.45bn eventually distributed, 1.1 million roofs insulated and 10,000 jobs created.

However, the policy was abandoned prematurely amid huge fraud and health and safety concerns. Principally, the installation of foil insulation, one of the measures recommended under the scheme, carried with it a risk of electrocution when not installed properly. In some cases the foil touched wires, which, if it then touched metal joists or pipes could cause parts of the house to become “live”. The insulation was linked with at least four deaths, and the Australian government ended up spending $85m carrying out emergency inspections on homes where the foil had been installed to check if they were at risk. Further checks are since thought to have cost AU$340m, according to the Australian National Audit Office.

Following reviews of installations after the closure of the scheme, 29% of installations had some form of deficiency, ranging from minor quality issues to serious safety concerns. There were also major fraud risks identified with the smaller builder carrying out the works, with 1.1% of installation claim potentially fraudlulent.

A report by the ANAO found that the introductionof the policy was rushed, and that “the focus by the department on the stimulus objective overrode risk management practices that should have been expected given the inherent program risks.”

In a risk assessment at the time it ramped up the programme, the department identified “significant challenges,” the ANAO found. Risks concerning quality, fire and safety, fraud and internal capacity were all identified prior to the program roll‐out but the government pressed on with the scheme nonetheless.

It said: “Overall HIP has been a costly program for the outcomes achieved, including substantial remediation costs. There still remains a range of safety concerns and coronial inquiries are yet to be completed in relation to the four fatalities associated with installations under the program.

“The fallout from the program has caused serious inconvenience to many householders, reputational damage to the insulation industry, and financial difficulties for many Australian manufacturers and installers. It has also harmed the reputation of the Australian Public Service for effective service delivery. This experience underlines very starkly just how critical sound program design and implementation practices are to achieving policy outcomes.”

Green Deal case study: Affinity Sutton

The experience of social landlord Affinity Sutton, which ran a pioneering study in to environmental retrofit works, shows how difficult it can be to encourage residents to accept home improvements. Despite offering its tenants a chance to get Green Deal-style improvements to their homes completely for free - a far better offer that the Green Deal - just 4% responded to advertising. In addition almost a quarter of those that initially signed up later backed out because of the potential inconvenience or disruption of the works. Jeremy Kape, director of property investment at the landlord, said: “The is very little engagement of people with this agenda, despite the fact it’s supposed to be the biggest programme of home improvement since the war.

“We’ve got to turn it round so that when the offer is made people are ready to take it up, otherwise it’ll always be too hard, or too disruptive.”

Kape’s testimony also demonstrates that without major changes, the Green Deal is unlikely to work for housing associations, in part because many of the easiest improvements have already been made, many only a small proportion of the measures it trialled would work under the Green Deal. “If the government wants us to be early adopters then there’s got to be a specific offer.”