Written evidence submitted by the Social Market Foundation (DHH0027)

About the Social Market Foundation

The Social Market Foundation (SMF) is Britain’s leading cross-party think-tank, standing proudly in the centre-ground of politics since 1989. The Foundation’s main activity is to publish original papers on key topics in the economic and social fields, with a view to stimulating public discussion on the performance of markets and the social framework within which they operate. The SMF is a registered charity (1000971) and a company limited by guarantee. It is independent of any political party or group and is funded predominantly through sponsorship of research and public policy debates. The SMF is overseen by a Chair and Board of Trustees

About this evidence

The SMF is currently undertaking a stream of work investigating the politics and policy solutions around reaching Net Zero. This evidence submission draws on analysis from a recent report, Boiler alert, published in October 2020. The report was informed by an expert roundtable of senior politicians, academics and industry experts, alongside survey data commissioned for the SMF on public attitudes towards Net Zero and low-carbon energy solutions. A previous report in the series, The virus and the climate, also discusses public attitudes, awareness and appetite to support the Net Zero agenda.

What has been the impact of past and current policies for low carbon heat, and what lessons can be learnt, including examples from devolved administrations and international comparators?

1. Central to the SMF’s work on the Net Zero challenge is the notion that public consent for Net Zero is neither widespread nor full proof. Decarbonising home heat is where the public will ultimately experience the reality of reaching Net Zero. Retrofitting homes and installing low-carbon heating systems will test the public’s willingness to adapt and support Britain’s Net Zero ambitions. 
2. Early ‘green’ initiatives, including SMART meters and Feed-in Tariffs, may have been well intended but they were often met with confusion and in many instances despondence from voters. Policymakers did not appreciate the public’s lack of awareness as to why these policies were being introduced, nor did politicians clearly explain their potential benefits to consumer finances and/or the environment. In some cases, notably FITs, policies were poorly designed, regressive, and caused scepticism and a lack of enthusiasm towards the Net Zero agenda. Political will for such policies also quickly expired once the public’s limitations were reached.
3. Caution should be exercised, however, when extrapolating from past policies to future initiatives. In comparison to the extremely significant disruption and cost of decarbonising homes, SMART meters, for example, were a relatively small-scale initiative and yet were still greeted with anything but wholehearted support by consumers.
4. Politicians must therefore provide clear and sustained leadership on Net Zero, particularly when it comes to raising awareness of and developing the market for low-carbon heating.

What key policies, priorities and timelines should be included in the Government’s forthcoming ‘Buildings and Heat Strategy’ to ensure that the UK is on track to deliver Net Zero? What are the most urgent decisions and actions that need to be taken over the course of this Parliament (by 2024)?

5. First and foremost, the Government must ensure much more widespread public understanding of the need to transition to low carbon heat systems and secure buy-in for the policies needed to facilitate the decarbonisation of Britain’s homes.
6. Our research – outlined in Boiler alert and The virus and the climate - indicates that the Government has a significant gap to close in this space. Recent SMF polling, conducted by Opinium, reveals a concerningly low level of accurate understanding of Net Zero and low-carbon heating alternatives amongst the public:
• Only one in three respondents were able to select the most accurate explanation for Net Zero from a list of option. 
• Additionally, nearly two in three respondents said they either “did not know enough” or were “unaware of alternatives” to traditional gas heating systems.
• Only one in 10 had heard of hydrogen boilers; less than 20% had heard of ground or air-source heat pumps.
7. If the take-up of low-carbon heating systems is to grow significantly, the process of growth has to begin with awareness of alternatives among consumers. Followed by an understanding of the potential benefits, and ultimately, a ready market able to supply a good standard of products and services for what consumers want and need.
8. The priority, therefore, which should be baked into the forthcoming Buildings and Heat Strategy, is to ensure public understand of the rationale for and urgent need to take the carbon out of our homes.
9. This has particular relevance in the context of any decision relating to the introduction of a ‘mandatory phaseout’ of traditional gas boilers. Such a policy has costly and disruptive consequences for 85% of households, a process which at present involves navigating an often confusing, complex and market for alternative heating systems without transparent and trusted information for consumers.
10. Two in five respondents in our polling supported mandatory “switchovers”, raising concern over the fragile foundations for a mandatory phaseout of gas heating system. Support must be significantly reinforced before such a phaseout begins.
11. We therefore argue that should the Buildings and Heat Strategy mandate the removal of gas boilers from homes, it should do so on a strictly conditional basis. Full details of these conditions are set out in our report Boiler alert, but include:

• Securing a much greater public awareness of the need to decarbonising home heat;
• Ensuring the development and deployment of a package of support for low-income and vulnerable households to cope with the upfront capital costs of transitioning to low-carbon alternatives;
• A framework for building a trusted market with guaranteed protections for consumers and greater certainty for industry.
• A direct stimulation of demand by mandating the conversion of all government buildings to alternative heating systems. Such a move would have a stimulatory effect on the market, initially helping to guarantee a minimum demand level and incentivise investment and expansion.

Which technologies are the most viable to deliver the decarbonisation of heating, and what would be the most appropriate mix of technologies across the UK?

12. The SMF takes no firm view on which technology or technologies should be prioritised to deliver the decarbonisation of heating. Rather, we would argue that with over 24 million UK homes currently using gas the primary source of heating, a mix of technologies seems necessary to transition to low-carbon alternatives by 2050.
13. Decisions on technology will likely need to be locally-orientated, accounting for the local asset infrastructure, housing stock and weather of an area, and consider whether it involves household-level deployment of heat pumps or restructuring local energy and heat delivery networks.
14. Experts we engaged with as part of our research suggested that government can and should send clear market signals on prioritising certain technologies to secure business confidence and encourage investment in innovation, manufacturing and deployment. At the same time, industry too can no longer delay and wait for the Government to ‘back a horse’, but must innovate and develop an exciting, low-cost, high-quality market in low-carbon heating solutions.

What incentives and regulatory measures should be employed to encourage and ensure households take up low carbon heat, and how will these need to vary for different household types?

15. Our research has analysed what factors and incentives would encourage the take-up of low-carbon alternatives. SMF polling indicates that:

• More than three in 10 said either “nothing would help” or they “don’t know enough” to consider switching away from natural gas.
• Respondents were less likely to feel incentivised to switch if it costed more than they were currently paying.
• Conversely, respondents were most likely to be incentivised if they were convinced it would save money (roughly one in four) or if a proportion of the cost were subsidised (roughly one in five).

16. Whilst our findings support the view that incentives based on cost-saving benefits to the consumer are the most successful, we would highlight the 3 in 10 individuals who said “nothing would help” or they “don’t know enough”. Incentives must be deployed alongside effective information in order to build an effective market.

What action is required to ensure that households are engaged, informed, supported and protected during the transition to low carbon heat, including measures to minimise disruption in homes and to maintain consumer choice?

17. We identify “filling the information gap” as a key priority for policymakers. A well-functioning market is in many ways an effective information transmission mechanism. This requires the right kind of information being available to the market actors. Promoting the Net Zero agenda through sustained information campaigns will be a necessary prerequisite of public support.
18. The types of information measures that consumers would benefit from span different parts of the “consumer journey” from measures that would help consumers understand why low-carbon alternatives are important (sometimes referred to as recognising the initial “need” or “want”) through information that would help reduce costs associated with “searching the market”.
19. Our polling indicates the most popular forms of information that consumers want to see:
• Information on why “switching” offers “value for money” was the second most popular response (25%) from respondents in our polling, after those who “did not know”; 1 in 5 also highlighted price transparency as a helpful information measure, for example information allowing consumers to easily compare costs of switching across various providers.
• 1 in 5 respondents said both written and visual materials that explained the environmental benefits of alternative heating systems would be useful.
20. To remedy the information gap and support the demand-side, we recommend Government introduces a “transparency guarantee” to enable consumers to make informed choices with consumer-friendly independent guidance available through trusted sources (such as the Energy Savings Trust and Citizens Advice). A consultation on current installation standards, such as those of the MCS and relevant performance standards, should also be undertaken to identify where new rules might improve the minimum standards in the industry. Such standards would give confidence to providers and help build trust among consumers, helping dispel scepticism about the product offering.

November 2020