Leading article: A package that puts the environment first

The Government's energy proposals strike the right balance

For the first time in what seems an age, Gordon Brown has delivered on his promise to make the right long-term decisions for the country. It was sensible of the Prime Minister yesterday to reject calls to impose a windfall tax on the energy companies and instead to demand that they spend £910m on helping their customers insulate their homes.

The unions, which had strongly lobbied for a windfall levy, were, naturally, deeply angry. And ministers were accused of "caving in" to the greedy energy companies. In one respect, the unions have a point about the poor behaviour of the energy sector. They are quick to pass on price rises in the wholesale energy market to customers, but suspiciously slow to pass on price falls. Their pre-paid meter system squeezes those who can least afford it. And they have reaped an entirely unmerited £9bn windfall from European Union polluting permits (although this is the fault of European governments for giving out the permits for free, rather than auctioning them).

The head of E.ON's emissions trading division was forced to apologise yesterday for making a joke in which he welcomed high gas and energy prices as a generator of higher profits. But the energy sector has considerably greater failings to apologise for than a dodgy sense of humour. At best, the privatisation of energy producers and the liberalisation of the market have not delivered the consumer benefits anticipated. At worst, profiteering is going on. The Competition Commission should be called in to investigate.

Yet the truth is that a windfall tax on recent profits would have merely been a short-term and highly political fix to make it appear that the Government is helping those struggling with higher fuel bills. It would also have disrupted the energy investment market. Governments need to set a clear and unambiguous tax framework if the markets are to deliver strategic national energy goals. A windfall tax would have shown the Government to be an unreliable partner.

To demand that the energy companies deliver free insulation to those on low incomes is a much better way all round for the state to bring them into line. To put it crudely, to give an old lady in a drafty old house a one-off rebate on her gas bill will help her for one winter; but giving her free insulation will help her keep her bills down for the foreseeable future. It is imperative, however, that the energy firms do not just pass on the costs to their customers.

The other reason why this was a sensible decision is that it addresses one of the central drivers of our national production of greenhouse emissions: energy waste. There is an acrimonious political debate about what the Government should be doing to reduce our carbon emissions and to forestall climate change. We seem to go in circles debating issues such as petrol tax, the location of new wind turbines and the construction of new coal-fired power stations. But it is usually overlooked that Britain could cut its carbon emissions by a quarter simply through increasing energy conservation in our homes.

A report from Oxford University's Environmental Change Institute published last November estimated that there is room to cut carbon dioxide emissions from our homes by as much as 80 per cent. Seen in this light, a windfall tax recycled as bill rebates would merely have been as a subsidy to waste energy.

The unions and the left of the Labour Party can rail all they like against this "betrayal", but the fact is that the Government made the progressive and environmentally responsible choice.