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The UK Heat and Buildings strategy. Does it go far enough?

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After over a year of waiting, the UK government published the Heat and Buildings Strategy (HBS) alongside the Net Zero Strategy this week, which shows that the built environment is now the key challenge for decarbonising the UK (see figure 1).

Overall direct and indirect emissions from building energy use account for about a quarter of the UK’s emissions; little progress (only 2%) has been made in cutting direct carbon emissions from buildings in the last decade. This is a deep and urgent policy challenge: to cut energy use and to increase the amount of low and zero carbon energy produced and used on site. The HBS opens up new directions in addressing that challenge, and has many good new proposals, but it is not yet the national strategy that we need to get the UK fully on track towards a decarbonised built environment.

Heatandbuildingstartegygraph | BRE Group

The HBS shows a strong, new, government focus on how we will decarbonise our homes and business buildings. It presents substantial new analysis and sets new and welcome policy directions. There will be billions of pounds of new funding to decarbonise public sector buildings and to upgrade the insulation and heating systems of homes for low income families. The most high profile of its announcements has been a plan to support much wider scale roll-out of heat pumps, matching a commitment made last year for 600,000 installations a year by 2028.

What the HBS is not, though, is a national retrofit strategy. The proposals in the document do not come together to create an overall policy plan of how to bring the UK’s homes to zero carbon emissions over the next 30 years, including a detailed strategy on how to train (or retrain) the hundreds of thousands of workers needed. It’s that sort of national retrofit strategy that many organisations, including the Construction Leadership Council, have argued for.

The central part of a national retrofit strategy would focus on fabric upgrades. The HBS makes clear that over the next two decades homes will switch away from gas boilers to heat networks, heat pumps and perhaps hydrogen powered boilers. Improving the poor energy efficiency of homes by upgrading insulation is an essential part of delivering those new heating technologies in the most technically and cost-effective way. (While building experts often point to the need to upgrade insulation for heat pump heated homes, research shows clearly that extra insulation is a key component for UK building decarbonisation whatever the exact mix of heating technologies installed).

The gap between what the HBS plans and what a national retrofit strategy would require is most obvious in relation to the policies to drive energy efficiency upgrades in mainstream, owner occupier homes. The Government has shown an impressive willingness to expand grant programmes focused on home energy efficiency: the Energy Company Obligation – by far the biggest energy efficiency programme – has had its target increased from £600bn to £1bn a year.

The HBS announces new funding for the Home Upgrade Grant and up to £160m for the Social Housing Decarbonisation Fund in 2021/22, with a further £800m between 2022 and 2025. What all these new and enhanced funding streams have in common is that they are focused on low income households (including social renter households). Local authorities will need to do more to identify the households which can benefit from this funding – many do not have the capacity or the expertise to do so, and this is an area in which BRE’s experience of housing stock data can support them.

The majority of homes in England are lived in by owner occupier households who are not on low incomes and these households will not qualify for any government funding support to upgrade insulation. Of course, there‘s an argument that better off households should pay for their own home upgrades rather than relying on government handouts. BEIS may be nervous after the experience of last year’s Green Homes Grant, which focused on mainstream households and was cancelled early.

But if it’s not going to be done through handouts then the government needs to use other levers to grow the wide market for energy efficient homes. BRE’s analysis in the English Housing Survey’s Energy report shows that only 3% of homes with solid walls are insulated, and 47% of homes with cavity walls.

The HBS suggests that more proposals will be coming for the owner occupier market. Many stakeholders have argued that fiscal incentives such as a discount on council tax or VAT reductions for renovation materials and installation could start to drive this market. But, unless we get more news in Wednesday’s Budget, the government seems very reluctant to embrace such fiscal measures.

Another approach to unlocking the mainstream market for improved energy efficiency in existing homes could be regulatory measures – for example, mandating that all homes must be at EPC “C” before they can be sold. This approach is already taken in the rented sector and the HBS says that it has planned for business buildings, but it contains only a tentative hint that minimum regulatory standards could be under consideration in the owner occupier sector.

Plans are more advanced – but not yet finalised – for the government to work with mortgage providers to expand the green mortgage market to help make financing more readily available. Certification schemes which can measure and report on buildings’ green credentials, like BRE’s BREEAM for commercial buildings and Homes Quality Mark (HQM) for dwellings, can provide valuable assurance that buildings meet a given standard to be eligible for green lending.

A key barrier for owner-occupier households taking action is that householders simply don’t know about low carbon options and feel unsure of the new technologies. This is another area where the HBS recognises the problems but only makes tentative suggestions as to solutions. The document reports that “consumers who considered, but did not proceed with, a heat pump installation through the Renewable Heat Incentive, fed back that the main barrier was the difficulty finding trustworthy and consistent advice bespoke to their needs.” Local Authorities are suggested as playing a key role in future advice and support provision, but the document rightly recognises councils can lack the necessary technical expertise.

This is an area BRE feels strongly about: we work closely with councils and see day-to-day their enthusiasm to drive retrofit in the stock, but also need for greater capacity and technical expertise to work with households and businesses.

The HBS announces a major new grant programme for clean heating: households will be eligible for a £5,000 grant for an air source heat pump, £6,000 for a ground source heat pump or £5,000 for a biomass boiler. The scale of the grant fund has been criticised – the £450m allocated will only pay for 90,000 installations.

But this is not the only plan to promote heat pumps in the announcement. The much larger Homes Upgrade Grant programme – for example – will also support heat pump installations. And there is a plan for a ‘Market-Based Mechanism for Low Carbon Heat’, an obligation on boiler suppliers to increase the number of heat pumps they sell each year.

Although we don’t have the unambiguous market signal for households to embrace retrofit that many hoped for, the wide range of grants and funds should be enough to get the heat pump market moving in the next two to three years and bring prices within the reach of more people. BRE already tests heat pumps and will be looking at what more we can do to increase knowledge and understanding of their use.

The heat pump scheme which attracted the most press coverage is focussed on homes – which do account for most buildings in the UK – but non-domestic buildings represent a significant and distinct carbon challenge. We’ve barely made a dent in carbon emissions from private non-domestic buildings over the last ten years: action here is urgently needed.

Around 9% of building emissions comes from public sector buildings and the HBS lays out significant and impressive investment and capacity building support to decarbonise public buildings. That’s important not just in itself but also because public sector leadership can help build an appetite and capacity for low carbon renovation across the real estate market.

The proposals for commercial buildings show less appetite for intervention, perhaps in recognition that schemes like BREEAM are gradually driving up standards among large buildings in particular, and because we know that a plan for a performance based rating scheme for the energy efficiency of large buildings is coming after a recent consultation.

But plans for support for smaller businesses in particular were missing: the government consulted in 2019 on the type of help small businesses in England might need to invest in low carbon energy improvements and we are still awaiting detailed proposals as a result.

The HBS does represent a major step forward. But it will require more action from government, businesses and householders to achieve the huge change in pace of decarbonisation that we need in the built environment. Hopefully next week’s Budget will contain some of the measures on VAT, council tax or business rates, which could make a substantial difference.