Government's ECO cuts '£250m deeper than first thought'

The government’s proposed cuts to the Energy Companies Obligation will wipe £245m more from the key retrofit scheme than previously predicted, analysis by the Association for the Conservation of Energy has found.

The Department of Energy and Climate Change (DECC) announced plans to cut the Energy Companies Obligation (ECO) in December 2013 after pressure from energy companies, who blamed the scheme for the rising cost of energy bills.

The government’s consultation on the cuts, published in March, estimated they would wipe £900m off the value of the scheme, leading to 14,000 fewer jobs being created in the energy efficiency sector over the next three years.

But in its response to the government’s consultation, which closes today, the Association for the Conservation of Energy (ACE) estimated the total cut to the scheme is actually £1.15bn.

ACE said it had come to this conclusion because the latest data on carbon reduction delivery from the Department of Energy and Climate Change (DECC) - which was not available when the consultation was published – indicated that around £245m of retrofit work would no longer need to be undertaken to meet the scheme’s revised targets.

When taken together with the £900m in cuts to the scheme already identified by the government, this means ECO is worth £1.15bn less to the industry than it was when the overhaul was first announced in December.

Under the government’s plans energy companies that exceeded their targets under the Carbon Emissions Reduction Obligation (CERO) part of the scheme would get 1.75 times the credit for the carbon reductions they delivered over and above their targets to the end of March.

The mechanism was introduced to prevent an immediate drop off in energy efficiency work between the announcement of the cuts plan and the end of March.

However, ACE’s analysis, found that once the uplifts were taken into account energy firms would have delivered 9.2MTCO₂ savings to the end of March, compared with just 6.MTCO₂ under DECC’s estimate. It said this 2.9 MTCO₂ that would not need to be delivered under the plans equated to £245m of work for the construction industry.

It added that when carbon reduction from changes to what energy firms could “carry over” from previous energy efficiency schemes was included that “very little of the original 2015 CERO target of 20.9 MtCO₂ remains to be delivered: just 6%”.

It added: “Following next to no delivery to March 2015, to deliver CERO post-March 2015, delivery would have to be ramped up again five-fold.”

Andrew Warren, director of ACE, said: “It’s another example of the way in which the big energy companies run policy to their commercial advantage.”

A spokesperson for DECC said it would respond the consultation “in due course”.