A low carbon industrial strategy?

DECC has been absorbed by BEIS. I’m cautiously optimistic about this because climate policy, particularly energy efficiency, didn’t really work out on its own. The value of DECC was securing the consensus for the 2008 Climate Change Act. It’s record in actually delivering effective policies, as the Committee on Climate Change bluntly pointed out last month[1], is less than stellar.

So why do I think the new Department will be any different? Because climate and industry policy have many similarities. The UK has a serious and persistent productivity gap and BEIS marks a radical shift away from laissez-faire capitalism of BIS (and DTI before it) to a corporate interventionist model that sounds almost Bennite.

What is interesting is that the UK also has a serious energy productivity gap. Take commercial buildings. Here, on average, their efficiency has flat lined since 2002. However in Australia, pretty much the world leader in this space, commercial buildings are twice as efficient now, and the best use 20% of the energy they used in 2002[2].

Why is this? It’s not for want of trying. The UK has loads of policies aimed at buildings: DECs, EPCs, Building Regulations, MEEPS, CRC, CCL, ESOS. But there are two big problems with the current policy mix:

• First the focus is on the building itself and not how it works in real life, so the market designs buildings for compliance and not for performance.
• Second it’s all been developed with no real understanding of how the industry works or how it has evolved over the last 30 years.

 

It’s a bit like being told to go on a diet without a set of weighing scales. It’s hardly surprising that nothing has happened in 15 years.

Why is Australia so far ahead of us? Because they focus relentlessly on the real-world performance of their buildings. But there’s much, much more to it than that. The Australian system is a mini-industrial strategy for their commercial buildings sector:

• It started as an industry-led voluntary scheme to build confidence and shake down the system.
• It focused on the parts of the building that the developer can control – the “base building”.
• It uses a 5-star system that rewards good performance (the UK system focuses on the worst).
• It used “soft regulation” – public procurement standards – to remove the worst performers.
• It was flexible enough to learn and develop as energy performance data began to build.
• It doesn’t focus on carbon but on real market drivers: cost, asset value, void times, lease length.

The system has been so successful that poorly performing buildings have all but vanished in many Australian cities. And the smart money has followed the market – there are so many top-performing buildings that they had to invent a sixth star for them. And, tellingly, the scheme survived the Abbott government, which for a climate-related policy is quite an achievement.

I don’t know what a modern industrial strategy looks like mainly because we haven’t had one since 1974. But the Australians have showed that if you get it right, energy and industrial productivity can go hand in hand.

I’m optimistic about BEIS because it gives our government the chance to do the same here.

 

[1] Meeting Carbon Budgets –2016 Progress Report to Parliament – Committee on Climate Change 2016

[2] UK Commitment Agreement Feasibility Study final report – Better Buildings Partnership 2016