The law is an asset
July 04th 2007

Without a legal basis, carbon reduction targets through energy saving will not have success. If you have a wooly, vague aspirational target, the chances are that you will not meet it states Andrew Warren,ACE

The Government Climate Change Bill has one overarching objective: to match the goal set by the Royal Commission on Environmental Pollution, of achieving a 60% reduction in emissions by 2050.That was the goal endorsed by the former Prime Minister, Tony Blair, when he launched the first Energy White Paper for a generation. That is the over-arching brief given to the Carbon Trust, turning us into ‘a low carbon society’.

But is this target firm and binding? Can those who must undertake the millions of investments necessary to realise it depend upon it? The answer is, quite simply:no. Indeed even if you look more short term, at where we might wish to be in 2030, or 2020, or even 2015, there can as yet be no confidence that potential investors can truly know where the government wishes to be.

We all know there have long been aspirational targets, for all kinds of sectors. But most have no legal force.And while they may appear in ministerial speeches, White Papers or political manifestos, you cannot take such aspirations to the bank. Such casuistry matters.

Consider the market for Combined Heat and Power (CHP). I have lost count – although I am sure its trade association has not – of the number of official statements to the effect that the UK will have 10GW of CHP in place in 2010. Not one of these statements has been legally binding.

Investors cannot therefore have confidence that, come hell or high water, the government will ensure that the policy instruments are in place to ensure that this target is realised.So the investment is not forthcoming.And hence the complete stagnation of that market, at under 6GW. Contrast that with the position enjoyed by those making energy saving equipment for the residential sector.They began the decade with similar comfort, with various government statements saying that efficiency in this sector could be improved by 20% by 2010.This metamorphosed in the 2003 White Paper into the same target,expressed as 5 million tonnes of carbon (MtC) reduction for the sector. Investors took note.But remained wary.There had been false dawns before.What was the status of this target?

They sought, and received, umpteen official reassurances over the ensuing year. But then a year on from the White Paper,came a bombshell. The Energy Efficiency Implementation Plan was issued. Overnight, the official target for 2010 dropped by a massive 16%,down to just 4.2 MtC. All hell broke loose. Manufacturers considering expansion reassessed their plans. So did those who trained and employed people who would install the conservation measures. They demanded to see ministers. They saw them. They told how such volte-faces created uncertainty in the market, deterred investment, increased borrowing costs.

I well recall sitting with the CEOs of several such companies, as they outlined to the Energy Minister and the Energy Efficiency Minister the enormous problems that the change in target was causing. The Ministers, to give them their due, acknowledged the difficulty and took steps to rectify it.Which is why, when the Housing Act was approved the following autumn, it contained, again, precisely that original 20% improvement/5MtC saving target by 2010 in homes.And this time it had real credibility. For one simple reason. Because this target reduction – just like the one at Kyoto – is a legally binding one.

The lesson is clear.If you have a woolly,vaguely aspirational target, the chances are you won’t meet it. Even if you do, it will probably be via a more expensive route than necessary. If however government states in law what it wishes to achieve, and by when, and with enough notice, the ingenuity of the private sector will certainly ensure the target is reached. But if government procrastinates, and changes its mind,it causes confusion and despair.The draft climate change Bill promises to set firm targets.These need to be on a sectoral, as well as an overall, basis – if only to stop the buck for delivery endlessly being passed around.

The government argues these targets should be on a rolling five year basis.I disagree.To be effective,the judgement period should be shorter than that of a single parliament.So,let us make it a maximum of three years.And then enshrine it in law.