PUBLIC BUILDINGS AND FUEL POOR HOMES NEED PUBLIC MONEY

Lead analyst on residential buildings, Marcus Shepheard, reflects on the UK Government’s strategy for buildings.

The UK has more than 28.5 million homes, and another 1.9 million other buildings – offices, hospitals, shops, warehouses and more. The majority of these are heated by gas boilers, which also provide hot water – the bulk of the rest use petroleum for the same end. Burning these fuels produces carbon dioxide, making buildings the second-largest source of greenhouse gases after surface transport (cars, trucks and trains). Nearly a fifth of all the UK’s emissions come from buildings, and that is before we even consider electricity used within buildings.

We cannot reach Net Zero if we continue to use gas for heat. Changing how we heat our homes and buildings is essential; but this effort will deliver a range of other benefits. Ending our reliance on gas can also help to reduce the cost of living through lower energy bills. Homes which are more energy efficient can be warmer in the winter, cooler in the summer, better ventilated, less damp, more comfortable and ultimately be more affordable places to live.

The UK Government’s Heat and Buildings Strategy, published in October 2021, describes a broad set of policies and programmes to tackle this challenge. We have examined these proposals in detail and today we publish an independent assessment of the Strategy. Here are five key takeaways from our report:

A step forward for ambition

Successive governments have struggled to make meaningful progress on decarbonising buildings. But with the Heat and Buildings Strategy the UK Government has taken a clear step towards Net Zero. This strategy brings the actions the Government is committing to closer to its ambitions.

Much remains to be done, but the signs are encouraging. The Strategy includes promising new proposals including: specific deadlines for when gas and oil boilers should be phased out, new long-term policies for low-carbon heat, and new funding for heat networks, public buildings and the fuel poor.

We are now in a new phase of action on climate change as the Government, and the CCC, shift from considering what needs to be done to how well policies are being delivered. Our assessment reflects this, accepting that while the broad approach aligns with the CCC’s earlier advice, the Government has also made clear choices about specific policies. For example, the Government expects a different balance between heat pumps (more than our Balanced Net Zero pathway) and district heat networks (less) by the late 2030s. Although in overall terms this can still deliver the same result.

Funding and policy gaps remain

Public buildings and fuel poor homes need public money for energy efficiency and low-carbon heat improvements. The UK Government has committed funds but it is likely to need to invest more. Especially given that the number of households in fuel poverty is rising dramatically as the wholesale price of gas rises to unprecedented levels.

Action can pay dividends. Improving energy efficiency of homes is one of the easiest and most cost-effective steps to reduce the impact of high bills in the near term and will help get the UK to Net Zero in the longer-term. In our Sixth Carbon Budget advice we noted how the capital investment needed to get to Net Zero more than paid for itself through savings on fuel, healthcare, and other costs. Recent events have shifted the calculus on this even further in favour of taking decisive action now.

There are also key areas where there are gaps in policy. Critically, the policies needed to drive improvements in energy efficiency in homes that are not fuel poor are currently inadequate. Ideally the Government would have stronger standards for these homes, perhaps enforced at the point of sale or new tenancy, which will drive improvements in line with the natural turnover of properties in those markets. There are also gaps around policies for energy efficiency in small commercial buildings which need similar attention.

The benefits and risks of a market-based approach

A key feature of the Government’s approach is creating new markets for low carbon heat. Currently, the UK does not have anywhere near enough capacity in its supply chains to install the number of heat pumps or heat networks that the UK will need in the years to come. The Government projects 600,000 heat pump installations per year by 2028, up from around 35,000 last year.

A market-based approach has upsides. It creates space for innovation, it places less of a burden on the Exchequer, and it allows homeowners, communities and local authorities more flexibility around how, when and what technologies they use to improve buildings.

However, new markets need demand to grow, and supply to match it. The Government is providing some limited capital funding to prime the markets and is introducing new, tighter, regulations to create demand. These include higher standards for new build homes, intended to create demand for heat pumps, and zoning regulations for heat networks. The Government is also pursuing supply-side policies, including obligations on boiler and heat pump manufacturers and potentially energy companies to deliver a certain number of low carbon heat installations each year.

But there are risks. To grow both demand and supply at the same time requires an extraordinary level of policy coordination. Many different parts of Government and the private sector will need to act in concert. And there are important barriers, such as the relative costs of electricity and gas and shortages of skilled installers.

Time is short and more detail is needed

For all its detail, the Strategy leaves many questions unanswered. Our analysis highlights these, from uncertainties around how the market-based mechanism will operate, to the governance arrangements for energy planning. Many of the policies for heat and buildings have ambitious timelines. And the Government will need to take a careful, consultative approach. These are big, strategic decisions that will be difficult to shift away from. For example, the role of hydrogen in the UK’s future energy mix.

The consultations will need to produce decisions. The Government needs to move fast to complete its current engagement and clarify the fine details of how many of its policies and programmes are going to work. If nothing else, this detail is essential to enable individuals and firms to start taking action, raising finance and making spending decisions to improve homes and other buildings.

These details include: what efficiency standards will apply to for existing residential and non-residential buildings, how obligations will apply to boiler manufacturers, mortgage lenders and others, and what new powers will bodies have, both in central government and local.

Taking action on ‘enablers’

Our assessment also considers the key role of a range of other factors which we call ‘enablers’. These include the size of the workforce, access to finance, the availability of good information about homes and buildings, planning systems, and public engagement. These will require action from many parts of Government. For instance, the UK’s construction workforce has shrunk since 2019 – yet we are about to need thousands more workers to install heat pumps and energy efficiency measures, to conduct surveys and assessments, and design new, stronger electricity grids to meet future demand. Getting this will require new, and similarly ambitious policies to help reverse the current trend and see this sector grow again. More detail on plans to ensure homes and building owners have access to affordable finance to fund retrofit and low-carbon heating installations will also be needed.

Next steps for buildings

The Government is beginning a multi-decade programme of policies which will fundamentally transform how our homes use energy. At the same time, the price of that energy is driving sharp increases in the cost of living. Navigating this situation will be tough, but the multiple benefits of reducing the nation’s dependence on fossil fuels have never been clearer.