rose to move, That the Grand Committee do report to the House that it has considered the Electricity and Gas (Carbon Emissions Reduction) Order 2008.
The noble Lord said: The order places on electricity and gas suppliers an overall target for reduction of carbon emissions in the household sector in Great Britain, known as the carbon emissions reduction target, or CERT; while I do not generally use acronyms, because of the constant reference to this I will say “CERT” from now on. We held extensive informal consultations with a wide range of stakeholders on the development of the CERT, culminating in the issue of formal consultations in May 2007.
The CERT is planned to run from 1 April 2008 to 31 March 2011 and will build on the success of the previous two phases of the energy efficiency commitment, with the current phase ending in March this year. Gas and electricity suppliers will meet their targets by encouraging and assisting household consumers to take up carbon abatement measures, specifically the promotion of measures for the following purposes: achieving improvements in energy efficiency; increasing the amount of electricity generated or heat produced by microgeneration; increasing the amount of heat produced by any plant that relies wholly or mainly on wood; and reducing energy consumption. By reducing carbon emissions and using energy more efficiently, household consumers will have the opportunity to reduce their carbon footprint, lower their fuel costs or be able to enjoy greater comfort.
The main aim of the CERT is to make a significant contribution in the household sector to the United Kingdom’s targets and ambitions under the climate change programme. The CERT will have an overall target of 154 million tonnes of carbon dioxide over its lifetime. That is equivalent to annual net savings of 4.2 million tonnes by 2010, which is equivalent to the emissions from 700,000 homes each year. This will build on the 2.9 million tonnes of CO2 that we expect to be delivered by the previous phases of the energy efficiency commitment.
The CERT will also give particular help to low-income consumers and the elderly, who spend a larger proportion of their income on energy or are more vulnerable. Energy suppliers will be required to achieve at least 40 per cent of their target by directing activity at householders in receipt of income or disability benefits or tax or pension credits. In order to ensure a focus on the most vulnerable members of our communities, we have also included all those customers aged 70 or over. The CERT will also introduce a new priority group flexibility option, which will support energy suppliers that wish to focus some of their CERT activity with low-income customers on those who are especially vulnerable or at risk of fuel poverty, using measures that will make a real practical difference for those hard-to-treat households. We expect that these new approaches will allow the CERT to contribute effectively to the alleviation of fuel poverty. On 6 December, the UK Fuel Poverty Strategy fifth annual report was published. It sets out our wider approach to tackling fuel poverty in the UK.
We also want to ensure that we are ready for the carbon reduction challenges ahead. The CERT will introduce creative and significant support for innovation, offering space for energy suppliers to explore and experiment with totally new routes for carbon abatement in the household sector, including specific encouragement for microgeneration activity. The order sets an overall obligation on all relevant electricity and gas suppliers of 154 million tonnes of carbon dioxide over the lifetime. This is a challenging target at about twice the level of the current energy efficiency commitment, but we believe that it is achievable and will drive the effective promotion of carbon reductions in the household sector.
The cost of meeting the obligation will fall on energy suppliers. However, we expect that, even if suppliers pass those costs on in full to customers, that would be no more than about £105 per household for the three years of the programme, or about 70p a week. Those costs are balanced by a range of direct and indirect benefits. We expect the average ongoing financial benefit for consumers, in terms of lower energy bills or increased comfort, to be about £29 per year for the lifetime of the measures installed, which could be up to 40 years in the case of cavity wall insulation, for example. An equivalent measure would be to fit four energy-saving light bulbs, which, over their lifetime, would pay for the cost.
The regulator, Ofgem, is responsible for administration of the CERT. The order provides the framework for Ofgem to set the targets for individual electricity and gas suppliers and to monitor their progress in achieving them. Ofgem will also be responsible for enforcement. We intend to monitor the continuing development of the CERT. Ofgem is required to report annually to the Secretary of State on suppliers’ progress towards achieving their targets. We want to help and support householders in understanding and reducing their carbon footprint. The CERT will be an important part of this process and will sit effectively with other major policies and initiatives aimed at meeting our climate change ambitions in this sector.
Looking to the future, the Government have already made a commitment to some form of supplier obligation after the CERT to at least 2020. The new flexibilities introduced with the CERT, including new routes for innovation and for working with those most vulnerable in our society, will offer the opportunity to prepare effectively for new approaches.
I hope that the Committee will agree to the Motion. I am most grateful to the noble Lord, Lord Jenkin of Roding, who has given me advance notice of some of his questions. I am happy to set out some of the answers before he speaks, so that he can comment on them later.
I shall therefore comment on those issues later. I beg to move.
Moved, That the Grand Committee do report to the House that it has considered the Electricity and Gas (Carbon Emissions Reduction) Order 2008. 5th Report from the Statutory Instruments Committee.—(Lord Rooker.)
I thank the Minister for introducing this order. From our debates on the Climate Change Bill, I know that he shares my interest in reducing carbon emissions. While the Bill is setting out the framework for the effort to stem climate change, orders of this kind are the nuts and bolts. Thus, I welcome the opportunity to debate this order.
Under this Government, emissions have risen. There is no chance of the Government meeting their target of a 20 per cent reduction of CO2 by 2010. Scrutiny is therefore important. We need to ensure that opportunities for improvement are not missed, so it is important that the potential benefit of some of the provisions in this instrument are realised. The carbon emissions reduction target could play an important role in emissions reduction. Indeed, the housing stock in this country accounts for 27 per cent of our CO2 emissions. Targeting housing, then, is a welcome step.
The CERT will build on the energy efficiency commitment, which stimulated tremendous investment—£600 million—in energy efficiency. The net benefits to householders are estimated to be over £3 billion. This can claim to be a success. However, I remain sceptical about the way in which the Government are rolling out a scheme and trying to stimulate microgeneration. The goal in all our efforts to stop climate change is to reduce emissions and to secure for the UK a genuinely greener energy sector. Thus, we must not be, as was said in another place, too quick to pick winners in the mix of available technologies. Reducing carbon emissions through the various microgeneration technologies that are allowed to be used by suppliers under this order is by no means bad in its own right. However, it skews the market towards a narrow way of thinking about reductions. There does not seem to be enough to stimulate real investment in further green technology that could provide potentially much greater benefits.
The point here is one of emphasis. Does the Minister think that enough has been done with this instrument to encourage innovation? If we are to tackle the problem of climate change, there needs to be nothing short of a revolution in energy supply. Does the Minister see this order as the best example of encouraging the necessary innovation? Suppliers can currently claim back 50 per cent if they make market transformative actions. Will the Minister explain what constitutes a market transformative action? What standards are used to judge this? Does he think that it is adequate to encourage suppliers to innovate?
My concern is that there does not seem to be a clear enough mechanism for making a real change to energy supply. There seems to be a risk that suppliers will focus on the cheapest short-term solutions that tick the box; that is, even if the targets can be met, that will be done in such a way that suppliers are locked into a higher-carbon method of providing energy than they would be if serious emphasis were placed on greater capacity for innovation.
The order places an overall target for reduction in carbon emissions in the household sector on energy suppliers. The regulation, enforcement and determination of what measures can be used to meet the targets will be the responsibility of Ofgem. This is also a cause for concern. The report of the Government’s own Sustainable Development Commission, Lost in Transmission?, calls for huge changes to the structure of Ofgem to ensure that it prioritises the transition to low-carbon energy supply. Has the fact that a large regulatory burden is placed on a body that has been criticised by this report been considered? Has the report been considered and have the necessary changes been made to Ofgem? The accountability of the suppliers to Ofgem and of Ofgem to the Government is unclear in this instrument. Could the Minister explain the mechanism that will ensure that suppliers are accountable to Ofgem?
As the instrument stands, we will not know the progress that suppliers are making towards the targets for a three-year period. Article 22 requires Ofgem to determine whether or not a supplier has met its obligations regarding emissions cuts. The cuts must occur between 1 April 2008 and 31 March 2011, after which Ofgem will present a report to the Secretary of State. Can Ofgem intervene, if progress is not being made to meet these obligations? Will there be any interim reporting? Is there any mechanism to ensure that the efforts made by the suppliers will be on course with meeting their obligations? What if suppliers do not meet the overall targets?
When the CERT was put out for consultation, grave concerns were expressed by some of those who would be involved, particularly regarding the targets, which some respondents considered very challenging. There was concern about the fact that there might be significant costs to consumers. What will happen if consumers do not get on board? Does the Minister think that there is a need to increase customers’ willingness to participate in the scheme through incentives or marketing? There was also concern that Defra’s estimation of the costs had been too low. Consumer participation seems to be essential in ensuring that this works. If the burden on the consumer is considerable, there will be no scope without further incentives to encourage microgeneration or other types of innovation. Considering the scepticism of the consultation, what further measures have been taken to ensure that the targets are feasible?
I also wish to express some concerns regarding fuel poverty. The energy providers will be obliged to achieve 40 per cent of their reductions by promoting measures to those on benefits and tax credits and to householders over 70. In the consultations, energy suppliers and climate change groups considered this target to be unachievable. Has the fact that this target has already been deemed unrealistic been taken into account? How are the energy suppliers to identify the priority group in the first place? I know that my noble friend Lord Jenkin of Roding may speak to this part of the statutory instrument. None the less, I want to mention the lack of clarity surrounding just how this group is going to be reached. Is the Minister convinced that enough people will volunteer for this scheme? Will energy companies be obliged to spend money advertising that there are schemes for those on benefits?
We must ensure that the benefits of this instrument will be long-term benefits. For example, this is supposed to promote microgeneration, but are there provisions that allow for small generation to sell back to the grid? Are there any price-controlling mechanisms to ensure that small generators can prove to be a worthwhile investment?
It would be a cruel fate to see measures such as these, with so much potential to make a real step towards stimulating green energy and energy reduction in this country, being scuppered by quick-fix solutions and ineffective accountability. I look forward to hearing the Minister’s response.
We on this side also welcome the statutory instrument, especially the provisions for microgeneration and fuel poverty, which, given the recent rise in gas prices, will be very necessary for a growing proportion of the population.
The order omits to mention boilers, which are the most important generators of carbon in the domestic sector. It talks about insulation, which is a worthy and cost-effective way of keeping the heat in. It talks about cavity wall insulation, which is also needed, as vast numbers of properties do not have it. However, boilers have been neglected in this sphere, which seems rather strange, because boilers emit the carbon in the first place. Inefficient boilers, such as the 4 million G-rated boilers in this country, which account for 75 per cent of the energy produced through water heating and space heating, are an area where improvement could reap vast rewards in terms of carbon.
The Climate Change Bill is going through the House at the moment. While microgeneration is being given a degree of support in the order, just replacing G-rated boilers would ensure a much more effective reduction in carbon dioxide. That could be done by using EPCs—another flagship policy of the Government—through the HIPs to look at the state of boilers in every home. EPCs are of course carried out at the point of sale, but that does not have to be the case; many of the energy companies could carry out an EPC for any property in which they wished to install energy efficiency methods. The CERT could then be used towards replacing G-rated boilers. A G-rated boiler has a pilot light. I learnt a great deal about boilers recently, but I did not realise that a pilot light sticks 10 per cent of the energy straight up the chimney, with no benefit to the consumer at all. Removing the 4 million G-rated boilers, with a resulting 10 per cent efficiency gain on each and every one, would be a helpful method of vastly reducing the carbon dioxide.
One good thing about the statutory instrument is that it gives Ofgem the flexibility to look at these issues. One of the reasons why I make this point is that, although I know that Ofgem is interested in looking at this and can bring about the changes, I very much hope that there is a mood change within Defra to look at boilers, because the letters that we have received from Ministers until now have questioned the value of replacing G-rated boilers. The big problem with those boilers is that they are so simple that they rarely break down and you can keep them going for ages. I have a G-rated boiler, which I am about to change. However, my gas fitter turned around and said, “What a fabulous boiler. They’re so easy to maintain, this will go on for ever. They don’t break down. You shouldn’t get rid of this”. Of course that is fairly disastrous in carbon terms.
In the area of fuel poverty, many older people will have a G-rated boiler that they will nurse for many decades because of the cost of replacing it. The CERT could be a way of giving a grant towards replacing these boilers, which would vastly reduce the amount of carbon dioxide. I therefore very much hope that the Minister can say that he will look flexibly at this and that Defra officials will start doing the work to realise that this is a good thing.
I must express my gratitude to the Minister for not answering my questions before I asked them. I thought that that was the usual way around, but he quickly recognised that that might be the best thing to do.
I start my speech with a quotation from Hansard. As the Minister noted, I have given him notice of this. On 26 April, there was an exchange on the Floor of the House about fuel poverty. The questions were answered by the noble Lord, Lord Truscott, who was then a government Whip. I asked him what the point was,
“of setting targets for the gas and electricity suppliers to help families in fuel poverty if they are denied the information to know who they are”.
The noble Lord answered by saying,
“the noble Lord makes a valid point. We are working on sharing data, but we must bear in mind issues such as the Data Protection Act and the protection of individuals’ information. We are, however, working on sharing data between government departments to ensure that we target better those who need support. We are working actively to achieve that”.—[Official Report, 26/4/07; col. 758.]
I ask the Committee to concentrate on the words “between government departments”, because it is not government departments that need to share information. Indeed, a huge amount of information is already shared between them. The order puts obligations on the supplier industries, which are the ones that must target households. Exactly the same question was asked last week when the order was debated in another place. Mr Phil Woolas, the Minister who replied to my honourable friend Greg Barker, did not even attempt to answer the question about how the industry was to get the names and addresses.
I remind noble Lords, and emphasise the point that the Minister outlined very clearly, that at least 40 per cent of the carbon emissions reduction obligation must be achieved by action carried out in the priority group. Article 2 defines “priority group” as those who get benefits or tax credits as listed in Schedule 2, have the relevant income of £15,592 or less or are at least 70 years old. I was interested that the Minister said that that last group is the most vulnerable. I fear that I have to declare an interest, as I come into that group. I am over 70, as is my wife, but I had not hitherto regarded myself as vulnerable, although I recognise that there are many pensioners who are.
The Minister explained that the order doubles the level of energy emissions to be saved from the household sector as compared with the previous EEC target. That has nothing to do with the European Community; it is the energy efficiency commitment. The Minister’s honourable friend in another place called it “eek”. I shall not call it “eek” because I think EEC is best. Given this major increase in the overall target and, within that, the 40 per cent target to come from the priority group, it seems clear that considerable difficulties will be created for energy suppliers. Indeed, my inquiries have revealed that they are already facing considerable difficulties, even before this order.
My first port of call to find out what the Government are going to do about this was the Explanatory Memorandum that accompanies this order. To my astonishment, it runs to no fewer than 79 pages; it is a substantial document. Note A of that document, which runs from page 51 to page 57, spells out in considerable detail how many households are in the priority group. The figure for households on benefit is 8.5 million. If the over-70s are added—regardless of income, as the order makes clear—the total comes to 11.2 million target households in the priority group. However, there is nothing in all 79 pages of the Explanatory Memorandum about the problem faced by the industries in identifying which these 11.2 million households are. Even if one looks at Annexe A, “Brief Summary of Consultation Responses”, there is no reference to the problems faced by the industry. It is said that those responsible for the practical delivery of measures,
“considered that the proposed 40% priority group obligation was not achievable”,
but their view that one of the main reasons why it is non-achievable is the difficulty in identifying the target households is completely ignored.
When I started consulting the industry, a different picture emerged. I started with the Energy Retail Association. It provided a valuable brief on the Energy Bill, which has been introduced in another place, entitled Fuel Poverty, Social Tariffs & Vulnerable Customers. Section 8 is headed, “Government needs to share data with industry on vulnerable customers”, and starts:
“Identifying vulnerable and fuel poor customers has always been a challenge for the industry, and it is keen to share more data with Government Departments to help improve targeting”.
In a recent press release, the chairman of the Energy Retail Association said:
“It is crucial that the support available is reaching the right people. Energy suppliers offer a wide range of help for vulnerable and older people to help them reduce their bills, but they have no information to identify those households”.
I find it astonishing that that did not figure among the representations in response to the consultation and does not figure in what the department chose to put in its summary of those consultations.
So we are already facing a considerable difficulty. However, it is not all hopeless. I am told that last year there was a small pilot scheme run jointly by the industry, the Department for Work and Pensions and DBERR. It apparently did not involve Defra; when I asked, I was told that Defra does not seem to have been involved. This pilot scheme in England and Scotland was seen as a special project. Certain limited information about some of the most seriously vulnerable customers, 250,000 of them, was involved. That represents about 0.02 per cent of the 11.2 million that I referred to earlier.
The industry pays for the mailshot, which the Department for Work and Pensions sends out to the target households, including a coupon and a freephone helpline; the industry responds when customers return the coupon or phone in. The pilot scheme was regarded as a success and I think that it was a promising initiative. I therefore ask the Minister whether it will be, in the Government’s favourite phrase, rolled out to more than 0.02 per cent of the priority group. If so, when? When will there be a report on that pilot scheme?
Having discovered all that from the trade association, I went to two of the suppliers. I buy my gas from British Gas, which I can tell the noble Lord, Lord Redesdale, passed my boiler the other day as extremely efficient. At the end of its press release after it had to put up its prices by 15 per cent, it made a good deal of what it does for poor customers. It quoted a report from Energywatch that said:
“British Gas has and will have made the most significant voluntary commitment to measures to reduce the impact of fuel bills on its vulnerable customers”.
I got straight on to British Gas and asked how it did it. Its spokesperson, an extremely capable young lady, immediately responded and I met her yesterday. The main message is that the whole situation has been very difficult since the EEC started. She went on to describe what British Gas in fact does, a good deal of which is just advertising and blanket leafleting. However, it also goes to the local authorities, which can and do give it postcodes where people on housing benefit may be living.
British Gas told me that it tries to work in partnership with local authorities—housing departments, social services and so on—to find areas of local deprivation. Of course, it is not given names and addresses. It sounds rather like a municipal game of hide-and-seek: “We cannot tell you where they are, but we can tell you where to look”. I suppose that that is better than nothing, but it does not sound to me like a very cost-effective method. Indeed, British Gas estimates the cost of this hide-and-seek and its other measures as £2.5 billion over the three-year period of this order. It has put the cost of its past efforts to find customers at £6 per customer per fuel—many customers take both gas and electricity. Its latest estimate is that this is now going to cost £20 per customer per fuel. That is all customers, including the target customers, so a customer who buys both gas and electricity will be paying £40 for the cost of searching for the priority group.
British Gas also told me that it is in no doubt whatever that the process that it has to use involves huge inefficiencies and that much of the £2.5 billion that it has estimated is simply wasted. One reason for that is that it finds that an increasing number of these target households have already benefited from the Government’s Warm Front scheme. That means that this is a complete waste, because the household has already got insulation, or whatever it might be. Will the savings from Warm Front households count towards a supplier’s 40 per cent target? If, as I suspect may be the case, the answer is no, is not that likely to make achieving the 40 per cent target even more difficult?
I have also had a brief from Scottish and Southern Energy, whose representatives I met last week. That company is also finding identifying priority group households extremely difficult. That phrase is used over and over again. I found it used by the Energy Retail Association; it is always “extremely difficult”. It expressed concern that, even with the help that it can offer vulnerable customers once it has found them, the amounts that customers will have to pay towards the cost of the improvements available under the CERT will be beyond the means of many of them.
My noble friend mentioned Ofgem. I looked at the latest Ofgem five-year strategy consultation document, which is for 2008 to 2013. It is dated very recently—14 January. Chapter 6 is headed, “Helping to tackle fuel poverty”. Paragraph 6.6 states:
“The challenge remains getting the message across to those who most need the help and ensuring that once identified they can benefit from the full range of help available—the ‘find and fix’ approach. This requires a joined up approach from Government, industry and other agencies. It is also dependent on the Government using its sources of information to improve the targeting of the help available”.
The CERT is mentioned in paragraph 6.8, but not much is said about the monitoring role. It seems to me that Ofgem has identified this problem perfectly properly and that it needs more joined-up thinking, if I may put it that way, as others are asking for.
My attention was drawn to eaga, the Energy Action Grants Agency, which originally was an agency but is now a very successful private sector company owned by its employees. It has been successfully delivering Warm Front across England for Defra and equivalent schemes in Wales and Northern Ireland. Eaga told me that it cannot identify the costs that it has incurred in identifying constituents who are eligible for Warm Front grants, but it gives some interesting information. I quote:
“eaga reaches Warm Front eligible constituents through numerous channels (ranging from partnerships with Primary Care Trusts to liaising with minority ethnic community groups), so it is not possible to put a firm single figure on the cost of identifying those eligible for Warm Front ... Our work differs from that of the energy suppliers; for example, they are able to utilise their billing of customers to make them aware of CERT energy efficiency programmes. eaga relies on raising awareness of the programme to generate applications from the public ... However, our extensive experience in dealing with vulnerable customers”—
I accept that that is true—
“local knowledge and work with other stakeholders means we believe the costs associated with identifying eligible vulnerable constituents are far outweighed by the benefits of the energy efficiency improvements we deliver”.
To which one might say, “Well, they would say that, wouldn’t they?”. I am, however, very impressed by eaga. I did not know about it before, but I have looked at its excellent website and had long discussions with its people, and it is a good organisation. Much more of this scheme might well be routed through it, as it seems to have the experience of doing this. Many of the companies are obviously finding it difficult.
Eaga goes on to say:
“However, whilst we recognise that the absolute number of Priority Group households benefiting from CERT will technically increase, we believe it is very much worth noting that Priority Group customers are likely to pay 100% more under CERT and to receive only 44% of the additional benefits. This is worrying as these customers are the least able to meet these costs”.
Would the Minister care to comment on that? I say straightaway that Warm Front has been an undoubted success and that eaga is entitled to much of the credit for the delivery of the scheme, so I regard its anxieties as pretty worrying.
Given the real concern in the industry and in Ofgem, is it not genuinely surprising that in the entire 79 pages of the Explanatory Memorandum put out by Defra the problem of identifying priority group customers is not even mentioned, let alone addressed? Would I be unreal in thinking that this begins to look like a conspiracy of silence in Defra? I hope that that is not true, and today’s debate offers the Minister the chance to disprove it. Again, will the Minister say what Defra is doing to help the energy industry to identify PG customers and so help the industry to achieve the challenging 40 per cent target?
In conclusion, and in a lighter vein, I make three suggestions. The first is that the names of all the tax credit claimants are put on to a couple of computer disks and sent in an anonymous envelope to the Energy Retail Association. The second thing might be to arrange for the local authority to put all its information into an unnetted skip and let it fly out over the roundabouts on the bypasses. The third thing is that the Department for Work and Pensions could put all its information on to a laptop computer and arrange for it to be stolen. I say this in a lighter vein, but all these things have happened.
I had not intended to say anything—I am here to discuss the next order—but I felt that I should make a very general remark after listening to the debate. I welcome the order and anything to do with energy conservation and reducing carbon emissions. A number of years ago, we on the European Communities Committee held an inquiry into renewable energy. Of course things have moved on, but much of what the Government are doing now largely involves panic measures. Governments—previous Governments, not necessarily this one—have failed to do anything for years.
The European Communities Committee visited Denmark because it has a climate extremely like our own. We found that how little we had done and are still doing was embarrassing in Denmark. At that time, the use of energy—electricity—there had not increased in the previous 20 years, although GDP had gone up as much as ours had. Why? Because Denmark had conservation measures that actually worked. We were informed that our building control regulations were miles behind those of that similar country. The opinion was offered that this was partly because of the power of the construction industry within the wheels of government and everything else. However, our regulations were miles behind for whatever reason. They are still behind those of Denmark, which is so similar to our country. Why are our building regulations not such that we are conserving more energy than we ever did? We are not up to speed with other nations.
Secondly, there is all this encouragement for microgeneration, which I find rather interesting. It was introduced in Northern Ireland about six months before it was brought in here. Denmark went along that route 20 or 30 years ago, which helped it a great deal. Because of the eyesore problems, cost and so on, Denmark is now providing incentives to group microgeneration schemes together so that it is no longer for individual houses. Yet it appears that we are starting back where Denmark started, having learnt precious little from its experience.
We have heard this evening that the Government have not always given a lead. Without a doubt, that was the finding of our inquiry: the Government were not giving a lead or the correct incentives to the suppliers to provide what was required to meet our targets. We are now at a stage where, although it may not appear like panic, we are rushing everything through. Although I am entirely behind nuclear, it appears that the decision on it the other day was introduced in exactly the same way. I am delighted by the decision because I believe in nuclear, although I do not have a thorough knowledge of it.
A symptom of how the Government do not provide incentives is the number of projects that have failed in the past five to 10 years, whether for planning reasons or because of insufficient incentives to get the project right in the first place. I am talking about projects such as the Holsworthy biogas project in the south-west, where there was not enough incentive to get the filters right and it did not work. This Government and previous Governments are very much to blame for not giving enough of a lead. There is not enough information out there and not enough incentive for business to come to this in a major way. I hope that we achieve those targets. I welcome the order, but we need a lot more to get down to grass-roots level.
I say to the noble Viscount that we have one—I hope—day left in Committee on the Climate Change Bill. I look forward to him participating in our debate on Wednesday. He brings valuable experience.
I have no brief on this, but the short answer to the noble Viscount’s point about Denmark is that coal and North Sea oil and gas made us incredibly lazy and inefficient in this country. It made everybody ignore renewables, as there was no pressure. The Danes did not have those resources, so they went down their route. What has happened in this country is an absolute disgrace and, of course, we are making up for it now. As the noble Viscount rightly says, there has been a push in this respect in Northern Ireland because of the former Secretary of State, Peter Hain. That was in the face of some pressure that I know of—I sat at the table with him—against even the turbine experiment at Strangford Lough. It took enormous pressure to drive that through to see what we could do with renewables.
I entirely agree with the noble Lord, Lord Jenkin, about eaga. I pay tribute to the support that it gave to my former constituents. It is an absolutely first-class organisation, both when it was an agency and since it has been in the private sector. It provides a valuable service, as any Member of the other place would confirm.
I shall do my best to answer the specific questions. I shall take first those asked by the noble Earl, Lord Cathcart. He asked about the CERT, the incentives for innovation and how it would work. We think that there are two key routes for innovation: the market transformation route and the demonstration route. The market transformation activity is that for which the carbon saving is known but which was not used in the energy efficiency commitment phase 1. As an incentive for these measures new to the market, they will be attributed with an extra 50 per cent carbon saving. Solid wall insulation and ground source heat pumps are also included since, although they were used in small numbers under the energy efficiency commitment phase 1, we wish to support market transformation for those measures. Demonstration action will allow energy suppliers for the first time to count towards their obligation innovation measures in which accurate carbon savings cannot yet be determined. In return for an upfront score based on the cost of the project, energy suppliers will make publicly available the results of their demonstration projects so that we can all benefit from a better understanding of these new approaches.
The noble Earl asked how the delivery of the CERT will be overseen. The draft order makes Ofgem the regulator responsible for overseeing the delivery of the CERT. I know nothing about the background to why Ofgem was chosen as opposed to any other body. I am giving the position at the moment following the consultations and the approval by the other House. The order makes Ofgem responsible for overseeing the delivery by monitoring suppliers’ progress towards meeting their obligations. Suppliers’ proposals for meeting their targets must be approved by Ofgem, which will determine the reduction of carbon emissions that will be attributed to them. In August last year, Ofgem issued a consultation paper on its supplier guidance for the operation of the CERT and expects to issue its final administrative arrangements as soon as this order comes into force.
The noble Earl also asked what happens if a supplier fails to meet the obligation. Ofgem will be responsible for the enforcement of each supplier’s CERT obligation. It has the power to impose on a supplier a financial penalty of up to 10 per cent of company turnover if it fails. The Electricity Act 1989 and the Gas Act 1986 are the primary legislation that requires Ofgem to be the administering body. Article 16 requires Ofgem to submit annual progress reports to the Secretary of State—that goes without saying, but you always have to say these things. Those reports will also be in the public domain.
The noble Earl said that the issue depends on individual consumers taking action. I admit that there will be some difficulties. We are talking about what household consumers in this country can be persuaded or incentivised to do. In the past six years of the energy efficiency commitment, suppliers have shown that they can work effectively and creatively to deliver action from individual customers. The Government are committed to helping individual consumers to overcome real and perceived barriers to action, such as poor information, high upfront costs, apathy and the hassle factor. We intend to build on the successful Act on CO2 campaign with TV, online and press advertising, and we continue to work at local and grass-roots level. In November, the Prime Minister announced that the Government would provide £100 million to the Energy Saving Trust to transform its energy efficiency advice centre network into a proactive green homes service.
The level of the target is based on an analysis of an illustrative mix of a balanced selection of possible measures generally regarded as cost-effective. The analysis is informed by information and data provided by energy suppliers, representatives of the industries concerned and experts, including the Building Research Establishment and the Energy Saving Trust. We recognise that the costs to suppliers of achieving their CERT obligations are passed on to consumers through their bills. The Government have sought to ensure that the cost to consumers is kept at a reasonable level.
The Minister mentioned the Energy Saving Trust, which was one of the bodies I got in touch with. I am glad to hear of the additional grant going to it. I found it quite difficult to get any information. When I started asking it how it thought this identifying would work, it said, “Well, working with the local authority and NGOs can give details up to a point”. It declined to go any further than that. I wonder whether the Energy Saving Trust is doing all it can to alert people to what is necessary if there is going to be any chance of the industries getting their 40 per cent targets.
I shall come to the issues the noble Lord raises separately, in a moment.
The noble Lord, Lord Redesdale, raised the issue of boilers. They are not eligible for the CERT because efficient boilers are required under building regulations. You cannot buy an inefficient boiler today anyway. It would therefore not provide additional activity under the CERT. We are, however, promoting the early replacement of boilers through the energy performance aspect of the building directive. There is an issue with boilers and, as the noble Lord has rightly said, with inefficient ones the energy is going straight up the chimney. More and more are being replaced.
The noble Lord, Lord Jenkin, was kind enough to give me some advance warning of the point he wished to raise. I therefore have some detailed responses. If they are not sufficient, I will follow them up. The noble Lord asked what is the point of setting targets for gas and electricity suppliers to help families in fuel poverty if they are denied information about who they are. He also asked what Defra is doing to find people in the priority group. Under the CERT, energy suppliers will be required to direct at least 40 per cent of carbon savings to a priority group of low-income and elderly consumers. They are not necessarily the same—I made that point about the over-70s—but nevertheless a large element of the low-income target group is the over-70s. The priority group is defined as those in receipt of certain income-related or disability benefits, tax credits or pension credit, as well as those aged 70 or over. Suppliers may use a variety of methods to identify that group of customers. They include setting out the priority group criteria in promotional material; partnership arrangements with bodies such as housing associations or charities that work with priority group consumers, such as Age Concern, to take one at random; and showing consumers the priority group criteria when giving out measures person to person, which they do when conducting inspection checks. More generally, we are committed to using knowledge of those who are likely to be in fuel poverty to ensure that they can get help. We are considering a number of options with the energy suppliers and fuel poverty programme managers. They include the Government writing to benefit recipients on behalf of those offering the help or providing information where there is a high propensity for people to be on benefit.
Although it was said in jest, there was a serious point behind what the noble Lord said at the end of his speech. I take his point because what has happened with the recent information lapses has been nothing short of a disgrace and complete lapse in good standards in public administration. But there are serious issues about individual names, addresses and personal information. This winter, for example, we are going to support a mail shot to 250,000 pension credit recipients offering free insulation and help to install central heating. We want to look at these options before we consider fully sharing the personal data of millions of people, most of whom will not be fuel poor or eligible for assistance. We are continuing our large-scale Keep Warm Well campaign, aimed at vulnerable households in England, which gives information on the health benefits of keeping warm in winter and details of the grants and benefits available. That brings together cross-government communications that are, I hope, co-ordinated and accessible.
The noble Lord was quite right when he asked the question, and gave the answer, about Warm Front savings contributing to the 40 per cent target, which is surely impossible. As he said, the figures in the note to the statutory instrument do not take that into account. In the consultation proposals on how it would administer the CERT, the regulator, Ofgem, made it clear that where a supplier undertakes action in conjunction with the government programme, there should be no double counting of carbon savings. Ofgem will shortly issue its supplier guidance on the carbon emissions reduction target, which will set out the criteria for ensuring additionality. We are obviously very keen to encourage interaction, where possible, between the CERT, Warm Front and other government programmes, so that they support the arrangements between the CERT energy suppliers and the Warm Front scheme manager as private companies to maximise the benefit to vulnerable people.
The noble Lord asked what Defra expected a householder on the Warm Front scheme to do about microgeneration. Although Warm Front does not currently offer microgeneration technology as part of a portfolio of measures, it can provide, and has mechanisms for assessing, alternative technologies that could be brought into the scheme. In this light, Warm Front is undertaking a pilot exercise of solar-thermal systems, which will assess whether that technology is suitable for inclusion as a main Warm Front measure. It is also useful to note that, since the summer 2007 consultation, we have expanded the scope of the CERT priority group; the over-70s were not in the original consultation. The supply target has therefore increased by some 2.5 million households. The assumptions on which the CERT target is based recognise that the priority group consumers will receive the measures at little or no cost.
That gives rise to another question, which the noble Lord did not touch on but alluded to. It is generally known that those in some of the severest fuel poverty in the country pay more for their electricity and gas than the rest of us because they are still on coin meters. There is no doubt that that is a massive attack on the marginal cost of electricity. That issue is not part of this, but it will have to be dealt with in due course because there must be fairness between one section of society and another. There is no sense in targeting low-income, fuel-poor people with all these schemes but penalising them because they are still on coin-operated meters, which is what the utilities do. That issue is not in my brief, but I offer it from my experience as a constituency Member of Parliament. It is a paradox because the Government can be accused of promoting schemes to assist those people when other measures could be taken to help them directly with the cost of electricity. The hassle factor and the upfront costs of investing even in such things as energy-saving bulbs are what put people off.
There is another major issue. We currently have no proposals in legislation to allow energy suppliers to have the names and addresses of people on various benefits. That is not part of the operation. It might have been thought a good idea to do it that way around, but it is not being done that way. We must find other ways of doing it and must find out whether we can be successful. Before any Government ever submitted such a proposal, they would have to win acceptance in both Houses, let alone among the public, of what would, in effect, be a massive and intrusive measure that would require information that is got for one purpose to be given to the private sector for another. You would have to have a very good case that you had tried every other conceivable, reasonable way of targeting those people for their own benefit to lower their bills and their carbon footprint, thereby assisting us to meet our national targets. I am not saying that that is not somewhere down the road, but it is certainly not on the agenda at present. It might have been thought to be on the agenda in the past, but it is not a route. As the noble Lord will appreciate, given his former role, passing information about benefit claimants, let alone tax credit claimants, to the private sector would be highly sensitive, and is not a route that we will use at present. I am not saying that it will be ruled out in future, however.
The noble Lord did not comment on the pilot scheme, of which I gave some details. Last year, 250,000 people were involved, and there was a proposal that it should be redone for 250,000 people this year. The essential part is that the Department for Work and Pensions has the names and addresses, and the DWP sends the document out to householders. The documents are printed and paid for by the energy companies. But, as the noble Lord has said, I entirely understand the arguments about why large numbers cannot just be handed over. Is that not the way ahead? Could not other authorities perhaps do the same, so that they could be the channel through which the energy companies would eventually reach the target audience which they need to have if they are to get their 40 per cent?
That is exactly so, and I did answer that. This winter, the Government are just about to send a mail shot to 250,000 pension credit recipients. We will send out the information as regards central heating and insulation, but we need to know the results of that before we can go further. That is the answer: the Government are sending out the information from the suppliers because we hold the information. It is quite legitimate for the Government to target because that is the information we have. We know who the pension credit recipients are. As I said, we are about to do that this winter. We need to test the process to see what the value, the results and the benefits are of doing it that way around, so we are doing that.
I am sorry, but the noble Lord speaks rather fast and it is not always possible to follow him exactly. I apologise if I suggested that he did not deal with that, but there has already been one pilot scheme last year. I am told by the Energy Retail Association and by those who participated that the result was regarded as a success. It may be that the Government are thinking that they may need another pilot in perhaps a district. If that is happening, it will take some time. Three years starts next April. Presumably, this will all count towards the 40 per cent target. I just do not see these things adding up or how they hang together.
The noble Lord reeled off a long list of other initiatives, and one is getting the impression of a system which will simply collapse under the weight of its own bureaucracy. Yet, in the mean time, we wait for what seems to be the most hopeful approach on this, which is what the first pilot has already successfully achieved.
All that I can say is that the first pilot was obviously done under the other scheme. This pilot is being done under this scheme. I freely admit that the Government work incredibly slowly. That is my experience of the past 10 and a half years. You get an idea and you imagine something happening, but three or four years later, you think, “Where are we?”. The money does not flow through the system very fast, except to Northern Rock—which I should not have said! Once Ministers allocate expenditure, it is an incredibly long time before you see the flow through the system and the output. I can only apologise to the noble Lord. Frankly, we are now targeting this group for pension credit for this period, and it is probably not the same group as last time. But it is a good lesson to pilot things before letting millions go. The lesson of history is that if you have an idea like this which you want to roll out, try it out either by benefit or area first, rather than going the whole hog across the country. There may be a benefit with that in the long term. It is frustrating to the noble Lord, as it would be for those who are running the schemes, that it all appears to be so slow. I apologise for that.
I am grateful and I acknowledge that. I can also sympathise with the noble Lord, having been, if not in exactly the same position, at any rate in what was the same department some years ago, and these things do take time. But, in the mean time, we have a scheme starting under the order on 1 April. The 40 per cent obligation starts then. However, until these pilots have been properly appraised and it has been decided how to roll them out, British Gas will have to go on playing municipal hide and seek. That does not seem very satisfactory. The fact that the noble Lord’s explanatory memorandum did not have a single word to say about this fills me with some dismay. It gives the impression that Defra either does not know about it or, if it does know about it, does not care. That might be an unfair judgment, but anyone reading 79 pages of that explanatory memorandum is likely to draw that conclusion.
If I remember rightly from one of the notes that I read, Ofgem is waiting for this order to become law to get cracking on the advice to the suppliers. I hope we will not delay the order because Ofgem is waiting to issue its guidance to suppliers about how they will be measured and tested, as there will be a challenge at the end of it.
The pilot scheme—this is probably more bad news for the noble Lord, but I want to be as open as possible—is a general invitation to reach fuel-poor consumers. It is not necessarily a CERT invitation, but it is the same targeting. We use government information on people whom we know—in this case, the 250,000 on pension credit—to send out the information on the schemes for insulation and central heating. Once the order is passed, Ofgem will run the scheme, so the pressure is on Ofgem. I realise it is slow and the 40 per cent target starts from 1 April. The other scheme folds and the new scheme starts. I accept that three years is not a long time. This time next year, looking at the review of the first year, it will be fair to ask: are we on a trajectory that will deliver? I am not in a position to say at the moment. I just hope we are.
I am grateful for that information and for the noble Lord’s acknowledgement that there are considerable problems. I will not ask him to deal with this now, but perhaps he would be kind enough to write to me explaining which of the many other schemes that he mentioned in his reply will enable the supplier industries to count them towards their 40 per cent. He quite rightly said—I expected it was so—that the savings from the past Warm Front expenditure do not count. So be it. What about future Warm Front expenditure? What about other programmes that the noble Lord announced he was rolling out? Could he write to me explaining which of those will be allowed to count towards the suppliers’ 40 per cent obligation?
Many fuel-poor people do not respond very easily to mailshots. The Minister and I know from previous experience that a knock on the door and speaking face to face with someone who really understand the situation is always more likely to produce results. Is it possible for the fuel companies to fund staff employed by the government agencies so that those agencies with the information on fuel poverty could then knock on the doors? They would know which doors to knock on. Would it be possible under this or other schemes for fuel companies to pay for staff who would be employed by the government agencies—not by the fuel companies—and for that to count towards their achievement of the target? It seems that that is more likely over time to avoid a situation in which leaflets are sent out encouraging people to apply or to respond but the very poorest and those most at risk do not take up the opportunity. That is the tragedy for those whom we are talking about.
I shall certainly take some advice on that. I am more than happy to write to the noble Lords who have participated in the debate. I am not sure how they will operate with the companies or whether that will be dependent on waiting for the Ofgem programme once the order has been passed. As soon as I can get some information I shall write to the noble Lord.
The issue of the other schemes is quite important: what can be counted and how they go about trying to find the information, as I said, through social housing landlords and others. To my noble friend I say that I will get an answer, but I am not sure. In the past couple of years, I have come across schemes where there has been incredible difficulty, even within government, of one department using another department’s personal information to facilitate what is public-good policy, simply because of data protection. There is an example—nothing to do with fuel and energy—where only government departments were involved, but the information had not been given for the original purpose. It is incredibly difficult and yet it seems so obvious.
On the other hand, the objective is to try to find these people and target them. You may know that they are poor in a financial sense, but they may not be in fuel poverty. We do not know how people spend their money. People do not take kindly to someone knocking on their door and saying, “We’ve discovered that you’re poor and we’ve come to help”. The last thing people need to be told is that they live in a slum or that they are poor. One has to be incredibly sensitive when dealing with this, as my noble friend will be aware. His suggestion about those who have the information being seconded or paid by those who need the information to deliver this public-good policy seems so sensible. I shall certainly get information on that and write to noble Lords.