Insulation bungle a case study in bad management

Assistant Minister for Climate Change, Greg Combet, announces the dumping of the home insulation scheme today.
Assistant Minister for Climate Change, Greg Combet, announces the dumping of the home insulation scheme today. 

They’ll be teaching the Federal Government’s home insulation program in graduate schools around the world as a classic case study of poor public policy design, implementation and administration.

It was left to Assistant Minister for Climate Change Greg Combet today to announce the final nail in the coffin of the scheme – the government’s decision to drop its plan to relaunch the program by offering a $1000 rebate for householders installing ceiling insulation from June.

Combet said the government’s priority now would be on fixing up the safety problems in the 1.1 million houses already insulated under the program rather than in trying to insulate still more houses in the months ahead.

The trigger for this decision was a report handed to the Department of Climate Change and Energy Efficiency by the former senior public servant Allan Hawke earlier this month.

The Hawke report, released today by the government, expressed ''grave concerns about the wisdom of proceeding with any further government supported insulation program''.

It would have been more beneficial to have spent the money paying people to paint rocks.

The program seemed like a good idea back in the dark days of February 2009 when the outlook for the global economy was the biggest slump since the 1930s Depression.

By offering householders a rebate for putting insulation into their ceilings it would not only stimulate the economy quickly by providing work for low-skilled employees at risk of unemployment but also achieve significant improvements in energy efficiency.

In the economics textbooks this would be a rolled gold example of good fiscal policy: stimulating demand in the short-term while also achieving lasting economic benefits that exceed the costs of the government spending.

But in the public administration textbooks the scheme would be an example of how ideas devised in policy departments can turn into a fiasco if there is not sufficient time, resources or expertise in the program implementation and management departments.


Dr Hawke's report argues that the prorgam's immediate pump-priming goals were largely met.

It did indeed generate a significant level of activity and insulated more than 1 million homes.

But the problems arose because there were no established regulatory or institutional ''pathways'' for delivering the scheme, which meant the Department of the Environment had to devise the implementation arrangements more or less from scratch all the while under pressure to get the money flowing as quickly as possible.

''The Houshold Insulation Program took the Commonwealth into construction industry operations where it had little expertise,'' Dr Hawke’s report says.

''Program delivery mechanisms, which required innovative approaches, were developed and rolled out in very short timeframes.

''Despite some safeguards against fraud, no one foresaw the possible extent of potential malfeasance, which was simply alarming – a classic example of why governments need to regulate markets to ensure their proper functioning.

''(P)rogram management infrastructure and expertise at the Department of the Environment, Heritage, Water and the Arts were not sufficient to support the (at-the-time unanticipated) demands placed on them.''

So while the scheme may have generated short-term economic activity, it did so at the cost of unacceptably high levels of non-compliance, which will now require still further government spending to be rectified.

This amounted to highly wasteful pump-priming. It would have been more beneficial to have spent the money paying people to paint rocks.

But what about the energy savings achieved from insulating so many homes?

There is bad news here too in Dr Hawke's report.

''While insulation clearly has energy saving benefits, public confidence in savings estimates may have declined and there are questions about whether substandard products have been used, which would not contribute to savings at all.''

The unexpected level of demand for insulation stimulated by the scheme outstripped the production capacity of local manufacturers and led to the use of significant amounts of imported insulation materials.

Dr Hawke said the imported products ''may have lower thermal properties than claimed and result in lower energy efficiency improvements for households (comparable with poor installation)''.

This means that not only did some of the short-term economic stimulus created by the scheme leak out of the domestic economy by way of the imported insulation product, but some of the anticipated longer-term benefits in energy savings may have also evaporated.

Little wonder then that Dr Hawke warned the government not to go ahead with its plans to relaunch a $1000 rebate until it had a stronger regulatory framework for the insulation installation industry, better audit and compliance systems and greater certainty about the energy savings from home insulation.

And that prompted cabinet this week to drop the plan altogether in favour of spending the remaining funds in the scheme's $2.45 billion budget on fixing the problems created by the poor implementation.