Written evidence submitted by Policy Connect (DHH0094)
About Policy Connect
Policy Connect is a membership-based, not-for-profit, cross-party think tank dedicated to improving people’s lives by influencing UK public policy. We bring together parliamentarians and government in collaboration with academia, business and civil society to inform, influence and improve UK public policy through debate, research and innovative thinking. Our work focuses on key policy areas including: health, education & skills, industry, technology & innovation, and sustainability. This submission has been compiled by the Sustainability Team.
Evidence submitted to this inquiry draws on the expertise we gained from managing Carbon Connect, an independent forum that facilitates discussion and debate between independent experts, industry and parliament to bring about a low carbon transformation underpinned by sustainable energy. Our answers to this inquiry are based on two of our reports: ‘Uncomfortable Home Truths: why Britain urgently needs a low carbon heat strategy’ (2019), and ‘Pipeline to 2050 – building the foundations for a harmonised heat strategy’ 2020).
Policy Connect’s submission highlights that currently, the UK has a patchwork of heat policy initiatives, which are dispersed and in themselves not enough to drive the level of coordinated action that is needed given the complexity of heat decarbonisation. Highlighting the challenges related to heat decarbonisation in the areas of finance, deployment and innovation, governance, and public engagement, the submission puts forward suggestions of what the government’s new Heat and Buildings Strategy should cover to ensure that UK is on track to the net zero target in the heat sector. Therefore, our submission focuses on aspects to ensure that the UK has a comprehensive Heat and Buildings Strategy which puts forward a systematic approach, joins up all policy aspects and principles needed for the transition to low carbon heat, and incentivises action from all stakeholders whose participation is needed for effective heat decarbonisation.
1 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?
As Policy Connect – Carbon Connect’s November 2020 report, Pipeline to 2050 – Building the foundations for a harmonised heat strategy highlighted, there is currently an uncoordinated patchwork of heat policy initiatives. This indicates the lack of a joined-up approach that simultaneously addresses all aspects of heat decarbonisation. While existing initiatives might incentivise the deployment of low carbon heat, individually they cannot drive the level of action that is needed given the scale of the heat decarbonisation challenge and cannot facilitate the coordinated deployment of low carbon heat. Therefore, the forthcoming Heat and Buildings Strategy should show a step change in terms of ambition for heat decarbonisation and establish a strategic framework that enables the joining up of all policy aspects and principles needed for the transition to low carbon heat.
When designing the Heat and Buildings Strategy, government should take into account what lessons can be learnt from previous policy design and build in these principles to any new strategy or individual policy consideration.
As the Renewable Heat Incentive (RHI) is coming to an end, it is important that government learns lessons from the RHI when designing the new policy approach. While the RHI did facilitate the uptake of low carbon installations, it was often criticised for slower-than-expected uptake. As demonstrated by the NAO’s analysis, installations under the scheme have been much lower than planned by BEIS – as of December 2017, only 78,048 installations had been delivered by the RHI which is only a small proportion in comparison to the 513,000 installations by 2020 anticipated by BEIS. The reasons that the RHI did not have the expected uptake includes the high upfront capital cost of purchase and installation of low carbon heating systems, and the uncertainty over returns arising from the system of automatic tariff reductions.
Moreover, analysis has demonstrated that their policy design often contributed to reinforcing socio-economic inequalities. As analysis indicated, higher income households were more able to use the both the RHI and the Feed-in Tariff (FiT) schemes, due to their ability to afford the upfront costs, as well as the fact that their property and tenure types were more likely to enable them to participate in such schemes. However, the cost of the Feed in Tariff (FiT) was spread across all energy consumers, causing an increase of £20 on energy bills per year for non-FiT users. As poorer households pay a higher percentage of their income on bills and it was mostly richer households who took advantage of the scheme, poorer households have contributed proportionately more to the funding of the scheme without receiving any direct benefit. This is because there was no mechanism in place to support less well-off households to access the FiT.
It can be seen as a positive development that the Clean Heat Grant, the scheme replacing the RHI from April 2022, will provide an upfront grant, because in several cases the barrier to deployment is upfront capital. Yet, the CCC’s 2020 Progress Report forecasted that this funding will support only around 12,500 domestic heat pumps a year – which is well below what would be needed to phase out of oil boilers in this decade and new gas boilers soon after. Furthermore, it is risky to rely exclusively on individual subsidies to boost the installation of low carbon heating systems, because the uncoordinated deployment they can lead to will likely fail to consider local characteristics and harness the economies of scale from coordinated investment.
Therefore, funding mechanism have not always been designed in a way that had positive outcomes for the least well-off and/or often failed to facilitate ambitious deployment of low carbon heat. We provide further detail on how these learnings should be built into policy design in our response to question 5.
2 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)?
As Policy Connect – Carbon Connect’s Uncomfortable Home Truths (2019) and Pipeline to 2050 (2020) reports highlighted, BEIS, in collaboration with MHCLG, should set out a long-term target of reaching net zero emissions in buildings and associated milestones through the Heat and Buildings Strategy.
The Heat and Buildings Strategy should also outline an action plan for the immediate at-scale deployment of ‘low regret’ options. This should include the decarbonisation of heat in new build and off-gas grid properties. While these represent a relatively smaller proportion of the overall building stock, they are important opportunities to encourage visibility and trust in low carbon heat, as well as build up skills amongst installers, therefore, it is crucial to ensure that low carbon heating solutions work well and provide good consumer experience in off grid and new build properties. Moreover, low regret options include the roll-out of district heat networks, heat pumps and hybrid heat pumps in appropriate buildings. A nationwide energy efficiency programme should also be included in the Heat and Buildings Strategy, since the Strategy should set out a coordinated approach which ensures that low carbon heat and energy efficiency policy go hand in hand.
In addition, the Strategy should set a target to phase out the installation of carbon emitting boilers that cannot be adapted to low carbon fuels from 2025 in all property types, potentially combining this with an obligation to fit hydrogen-ready boilers once they are available at little or no cost penalty where no alternative zero-carbon solution is practical or economic. The question was phrased slightly differently, but the recent Climate Assembly also demonstrated that 86% of assembly members would support the phase out of new gas boilers.
The most urgent decisions that need to happen in this parliament (by 2024) include:
It is also important to recognise that currently, government will not be able to provide a complete overview of heat decarbonisation, due to the remaining uncertainties around the exact role various technologies. However, it is important that government commits to the publication of a complete heat decarbonisation strategy by 2025, putting forward legislation for the phase out of carbon-emitting heating; a long-term funding mechanisms for low carbon heat and setting up a central delivery body for low carbon heat (or net zero in wider terms).
3 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?
It is important to recognise that due to varying geography, industrial activity, building types, political economy and demographics, the most effective low carbon heating solutions are likely to differ locally and regionally which necessitates a mix of technological solutions. This implies that the implementation of the national heat decarbonisation strategy will require highly localised delivery, ensuring that the locally most appropriate solutions and technologies are deployed in each place. It is crucial that decision-making and delivery of these solutions is highly coordinated at all governance levels to ensure the best technologies are deployed locally and to avoid stranded assets (e.g. people changing their natural gas boiler to a heat pump whilst a district heating network is rolled out in tandem).
4 What are the barriers to scaling up low carbon heating technologies? What is needed to overcome these barriers?
As outlined in our response to question 1, the lack of a coordinated, long-term strategic approach and policy framework to low carbon heat provides a significant barrier to scaling up of low carbon heat technologies which is the reason why government should urgently put forward the Heat and Buildings Strategy. This is coupled with multi-faceted finance, public engagement and governance challenges. As we provide further details on these barriers in our response to question 5, 7 and 8, in this response, we focus on three other barriers to the scaling up of low carbon heat: the upfront cost barrier of low carbon heat installations, the skills gap, and the challenge of deployment, development and innovation.
The upfront cost barrier for the installation of low carbon heating systems:
Besides the high operational costs of low carbon heating solutions, the equipment and installation costs of most low carbon heating systems are currently higher than their conventional counterparts which creates a barrier for their large-scale deployment when they compete with high volume and high efficiency gas boilers in the supply chain.
To address this, government should ensure a sufficient scale of early deployment in order to grow the low carbon heat market and drive down costs of low carbon installations through the economies of scale in supply chain development. Moreover, developing a low carbon heat market can also increase investment which can reduce costs as well. Previous examples demonstrate that initial government support can greatly increase the cost-effectiveness of new technologies. For instance, condensing gas boilers were initially significantly more expensive than those they replaced, but the price dropped quickly as part of their mass roll-out.
The skills gap:
As Government’s current Green Homes Grant has also brought to surface, skilled installers and engineers play an essential role on the road to net zero and without them, the transition cannot be carried out. Besides their crucial work to appropriately fit appliances, they also play an essential role in informing households about heating and energy efficiency solutions, as households often consult them on these questions. Many consumers only replace heating systems as part of a ‘distress purchase’ when the existing system breaks or needs major repairs and a new system has to be installed immediately. As there is little time in such cases to find alternatives, consumers often rely on installers to inform them about alternatives to natural gas boilers. However, as a 2019 survey of industry member organisations found, 74% of responding installers do not consider themselves very confident to recommend or choose the best low carbon options to their clients.
To overcome this, government must guarantee the provision of training courses to upskill engineers and installers to ensure they become confident working with low carbon technologies and incentivise their enrolment in such courses, so as to make sure that they can provide trusted and impartial advice to consumers regarding these. As the best fitting low carbon heating programmes are likely to differ regionally, these training programmes should be developed and delivered in a regionally specific way. The Heat and Buildings Strategy should therefore put forward a vision regarding training programmes to facilitate the transition. As an important incentive to re-train, government should announce the deadline for mandating low carbon heating sources which would be a significant encouraging factor for installers to re-skill.
Deployment, development and innovation challenges:
Many technologies that will be needed to enable the transition to low carbon heat have not been deployed (at scale) yet. Historically, it has taken new technologies around 30-40 years between discovery and the commercialisation necessary to be deployed at scale. If the UK would like to make the transition towards low carbon heat soon, it is therefore important that government directs funding towards technologies and propositions which already exist but are not deployed at scale yet, or which are close to commercialisation. To ensure the decarbonisation of the UK heat system, the government must lay out a consistent and coordinated policy framework to support the development of low carbon supply chains and help investors with long-term planning. Since this requires a whole systems approach with a thorough understanding of how different elements of the heat (and wider energy) system interact with each other, the forthcoming Heat and Buildings Strategy must incorporate deployment, development and innovation into the strategic framework for decarbonisation in the heat sector.
Besides the overall framework, government should also provide the long-term strategic approach to specific technologies. Similar to other countries, government should publish a Hydrogen Strategy. However, it is also important to recognise that besides hydrogen and electrification, which are often perceived as main routes to heat decarbonisation, the role of other technologies needs to be understood as well on the path to low carbon heat, because as outlined in our response to question 3, the solution to complete heat decarbonisation is likely to be provided by a mix of technologies. Therefore, it is important to provide funding to understand the role of these technologies and scale them up. Therefore, investment in developing energy storage capacities, exploring the role of biofuels (preferentially from a waste feedstock) and energy from waste, as well as enhancing energy efficiency innovation should be supported.
To understand the role of different technologies in the low carbon heat transition and their feasibility, government should also increase investment in pilot projects. The Heat and Buildings Strategy must therefore commit new funding for at-scale pilot projects and provide information on the safety, economic, technical and public engagement aspects of different long-term options for the decarbonisation of heat, serving as an important evidence base for consequent heat decarbonisation strategies.
In addition, it is important to encourage the development of new business models and market designs.
5 How can the costs of decarbonising heat be distributed fairly across consumers, taxpayers, business and government, taking account of the fuel poor and communities affected by the transition? What is the impact of the existing distribution of environmental levies across electricity, gas and fuel bills on drivers for switching to low carbon heating, and should this distribution be reviewed?
One of the biggest challenges to (heat) decarbonisation is caused by the varying effective carbon prices across different sectors. The UK’s current policy mix of incentives, obligations, taxes, regulations and standards create an uneven playing field across the economy and lead to incomplete incentives that cannot reduce the level of greenhouse gas emissions appropriately across the economy as a whole.
The impacts of this uneven policy landscape also raise barriers to the decarbonisation of the heat sector due to the pricing disparity between electricity and natural gas for comparable units of energy. Carbon pricing has been levied on electricity, but the price of natural gas for domestic and commercial consumers includes neither the cost of carbon nor many of the other costs associated with decarbonisation policies. This makes electricity more expensive per unit of energy than natural gas. Moreover, there is no carbon pricing on oil and liquefied petroleum gas (LPG) either.
Electricity consumers, in contrast, pay carbon costs and substantial policy costs associated with a wide range of decarbonisation schemes. Consequently, the average consumer today has little incentive to switch from fossil gas heating to electrified heating systems, because if they switch to heat pumps from gas, they need to pay higher bills. Therefore, government must address the cost imbalance between gas and electricity as a crucial first step to incentivise the market to move away from natural gas, but must be wary of the impacts of additional costs on the fuel poor and take appropriate remedial steps to protect them while still taking the appropriate decarbonisation policy actions.
This can be achieved via various potential routes, including the options that exist for the introduction of an economy-wide carbon tax, and potential sector-related measures that could even the playing field between gas and electricity. But the implementation of these potential solutions can bring significant challenges and the forthcoming HMT Net Zero Review should provide a comprehensive analysis of the impact of various policy routes.
Therefore, government must consider the distributional impact of financial mechanisms when deciding about the ways in which the low carbon heat transition should be funded. The forthcoming Net Zero Review by HMT should thus dedicate special attention to this question, as well as explore which methods are the best to ensure the fair and equitable sharing of costs. Working together, BEIS and HMT must ensure that heat decarbonisation policy creates a just transition.
As the RHI is coming to an end, designing financial mechanisms to support low carbon heat and their distributional impact is especially topical. There is no clarity on the long-term financial support mechanism post-RHI, since the proposed Clean Heat Grant at the moment is only matched with funding for two years and in itself would not be able to facilitate the level of ambition needed to achieve net zero. Therefore, accompanying the Heat and Buildings Strategy, government needs to set out a longer-term financial approach to boost the deployment of low carbon heating and provide financial support to consumers to install low carbon heating technologies, considering the distributional impact of such schemes as highlighted in our response to question 1. The government should also provide incentives to drive wide-scale rather than individual adoption.
Learning from the mistakes of past schemes:
The poorest households pay proportionately more for policy costs levelled through bills than the richest. As a UKERC study highlighted, while the poorest households spend 10% of their income on heat and power, the richest households only spend 3%, which means that any general increase in energy prices levelled equitably across bills is likely to affect the poor disproportionately. Moreover, research also found that if recovered evenly across levies on energy bills, heat decarbonisation could create an extra 0.6 million fuel poor households in Great Britain. While raising taxes can be a contentious political issue (similar to raising bills), covering the cost of heat decarbonisation via general taxation is a better solution to support a just transition.
Strongly interlinked with the need for a just transition, BEIS has to design the upcoming Heat and Buildings Strategy in a way that ensures that fuel poverty is addressed as part of the low carbon heat transition. Modelling carried out for the implementation of the fourth carbon budget found, if programmes are properly targeted towards supporting fuel poor households together with energy efficiency upgrades, the required emissions reductions from domestic heating to meet the fourth carbon budget could lift 74% of those who are currently fuel poor out of fuel poverty by 2030. However, the study has also demonstrated that in the absence of policy measures helping fuel poor households throughout the implementation of carbon reduction measures, fuel poverty levels are likely to increase.
Thus, to ensure a just transition to low carbon heat, fairness and equity must be built in as key principles in the Heat and Buildings Strategy. Furthermore, they must guide all aspects related to the design and the implementation of the strategy.
6 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?
Policy Connect’s Uncomfortable Home Truths (2019) and Pipeline to 2050 (2020) reports outlined several options for regulating and incentivising different housing sectors on the road to low carbon heat.
For off-gas grid homes: Government should set a target and a trajectory to phase out high carbon heating technologies in off-grid areas from the mid-2020s. Particular attention should be paid to the highest carbon emitting heating systems (oil and coal). This could be put in place with a tank scrappage scheme.
For social housing: Minimum energy efficiency standards should be strengthened to achieve the Clean Growth Strategy’s target of all being EPC Band C by 2030, and further scaled up to EPC Band B or A by 2050, with simultaneously tightened standards on carbon emissions from heating systems. This should be put in place alongside enabling funding solutions and incentives. As part of the Chancellor’s 2020 funding announcement, government rightly identified the importance of decarbonising social housing which can drive new jobs and support a green recovery from the pandemic. This is currently carried out under the £50 million demonstration project of the Social Housing Decarbonisation Fund for the least energy efficient socially rented homes. For the decarbonisation of the social housing sector, further funding will be required in the long run.
Private rented sector: Minimum energy efficiency standards in the private rented sector should be strengthened, together with visible monitoring and enforcement. BEIS’ recent consultation proposal to bring forward the targets for private-rented properties to reach Energy Performance Certificate (EPC) banc C level by 2025 and 2028 for new and all tenancies respectively is a welcome step on this way and should be implemented. There should also be stronger sanctions for those who do not meet the minimum standards for energy efficiency. The Green Homes Grant currently provides financial support for energy efficiency upgrades, but after this short-term funding runs out, government should continue to immediately provide further financial incentives and support mechanisms to drive energy efficiency upgrades.
For home and building owners: Extending the minimum energy efficiency standards to the owner-occupier sector on a whole-house basis is likely to be politically difficult. Therefore, rather than strengthening regulation, in the short term the government should aim to incentivise energy efficiency upgrades and the installation of low carbon heating solutions. While the recently launched Green Homes Grant is an important step in this direction, as the EEIG’s September 2020 report argued, it is important to take further steps and couple this short-term stimulus with longer-term capital investment and strategy. This is to ensure that any progress that is made on energy efficiency upgrades, green jobs and upscaling in supply chains does not fall of the cliff edge after the scheme ends and recreate boom-and-bust failures of past schemes. In addition, it is important that government supports and trials green mortgages for energy efficiency upgrades and low carbon heat installations– such as through the Green Home Finance Innovation Fund. Any new schemes in this process should build on the lessons learnt from the Green Deal.
For new homes: New homes should not have to be retro-fitted with extra energy efficiency and low carbon heating before 2050. The new ‘Future Homes Standard’ currently outlines that all new homes will have low carbon heating and excellent levels of energy efficiency from 2025. By bringing this forward, government could ensure that new homes that are built between now and 2025 will not have to be retrofitted.
Alongside specific measures for different household types as outlined above, recognising households for the installation of low carbon systems, energy efficiency measures can also help encourage the decarbonisation of the heat sector. Therefore, the government should change the Energy Performance Certificate (EPC), as energy savings associated with low carbon heat sources should be better promoted within the EPC and credits awarded as part of the Standard Assessment Procedure (SAP) methodology should reflect the benefits of these schemes. (Currently, switching from a highly energy efficient gas boiler to an electricity-powered heat pump would worsen the Energy Efficiency Rating of the property, since the SAP methodology used for calculating the EPC does not reflect the decreasing carbon emissions of electricity production.)
7 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?
Public awareness and engagement:
As polling commissioned by Policy Connect in 2019 demonstrated, only 14% of respondents from the general UK public put heat decarbonisation as a top priority to tackle climate change (placing it below other areas, such as greener transport, renewable electricity or waste reduction). Moreover, as a 2020 survey by the Energy Systems Catapult found, only 49% of respondents identified gas boilers as a contributor to climate change. This indicates low public awareness of the importance of heat decarbonisation. While other transformations, such as phasing out coal from the grid, can be carried out with no or little consumer engagement, heat decarbonisation will require change in almost every UK household. Therefore, it is important to help consumers understand and carry out their role in the low carbon heat transition.
Currently, there is no overarching strategy to understand and integrate public attitudes into policy on heat decarbonisation. It is crucial that BEIS defines its approach to raising public awareness and engagement in the upcoming Heat and Buildings Strategy in order to help the public understand what the low carbon heat transition involves and why it is important. Government must make public engagement and awareness raising a core part of its policy framework for the transition to low carbon heat.
Therefore, it is very important to create a nationwide awareness raising and information strategy that engages people from all parts of society. Not everyone will seek to engage with low carbon heat in the same way and to the same extent, thus it is important that government develops and applies creative approaches and uses various different channels to reach the maximum amount of people possible. Overall, government’s public engagement strategy should be centred on a multi-level engagement process, including the national and local levels and deliver a range of different activities, from citizen-led, grassroots and community engagement to more traditional communications and consultative processes, conducted by multiple actors.
Learning from previous large-scale transformations, it is important to invest in making low carbon heating options more visible and attractive for customers to engage with. The low public awareness of heating issues is partly caused by the fact that heat provision is mostly invisible to consumers and unattractive to engage with. Therefore, government, working together with industrial and third sector stakeholders, needs to bring heat – which is currently mostly absent from everyday conversations on climate change – to the forefront of climate change messaging and make the general public ‘excited’ about the low carbon heat transition.
Government should also run a nationwide information campaign on low carbon heat. This should be related to the Heat and Buildings Strategy, informing the public about what is the government’s long-term vision on low carbon heat. The campaign should also explain why the transition is needed and how it fits in with wider decarbonisation work and climate goals, highlight the benefits of switching to low carbon heat, as well as inform consumers about the role they will need to play in the transition.
Demonstration projects, showrooms, roadshows, as well as community-owned heat projects play an important role in engaging the public in the low carbon heat transition, as they can help households and communities accept the move to low carbon heat. Furthermore, they can help understand the public acceptability of disruption that the installation of low carbon heating systems involve. The forthcoming Heat and Buildings Strategy should set a target to increase the number of pilot and trial projects besides already existing ones to increase buy-in for low carbon heat and build consumer trust in the reliability of low carbon technologies. Government must ensure that pilots are carried out in a safe way and work is done to the highest standard, with excellent customer service and trouble-shooting if things go wrong to ensure consumers have a good experience.
When raising public awareness of heating, government must choose the right framing to ensure it communicates in an honest and easy-to-understand way, free of jargon. Government should learn from the failure of previous schemes, such as the case of the Green Deal, which was framed as a financial case, rather than a scheme improving comfort or health. As low carbon heating systems are generally more expensive than their conventional counterparts and research found that there are significant concerns about the costs and efforts required to install low carbon heating technologies, trying to sell the transition exclusively as an economic case or purely based on environmental benefits will be difficult. Therefore, breaking out of silo thinking, government should emphasise the co-benefits low carbon heating systems and energy efficiency retrofits can bring to consumers, including increased levels of comfort, air quality and health benefits. Highlighting the community angle of certain heat projects (e.g. heat networks) can be also an effective frame to low carbon heating projects.
It is also important to give consumers a voice in the decisions that are being made nationally, regionally and locally. Citizen assemblies have an important role in engaging the public in the low carbon heat transition and helping policy-makers navigate a publicly acceptable path to decarbonised heat, with the Climate Assembly being a notable example in this area. Government should consider and build on the findings of the Climate Assembly in the forthcoming Heat and Buildings Strategy. Although deliberative processes, like citizens’ assemblies can be resource intensive, it is important that government enables more of these initiatives both nationally and regionally/locally over time. Furthermore, government needs to ensure that the process is carefully designed to guarantee transparency and the proper consideration of recommendations in policy-making.
Moreover, consumers need to be empowered to make an informed choice from the range of options available to them. Consequently, government must ensure that consumers get impartial, localised, visible and free advice. The public needs to have access to advice from trusted sources to give them the confidence to engage in the low carbon transition and empower them to make informed choices from the range of options available to them. Currently, Wales, Scotland and Northern Ireland provide free energy advice from trained advisors on how households can improve energy efficiency. England used to have a nationally coordinated, locally delivered energy advice service until 2012, but the current ‘Simple Energy Advice’ website does not offer access to a trained adviser. To effectively catalyse and enable the transition to low carbon heat, central government should immediately take action to provide trusted, publicly funded advice services with regional centres to give households impartial and locally tailored advice on how they can start their decarbonisation journey. Besides setting up these services, it is important that government ensures their visibility as well. Scotland’s regional energy advice services, which offer free home visits, provide a gold standard the rest of the UK should follow.
BEIS should also review and update consumer protections, since one of the most important prerequisites for the low carbon heat transition is the need for adequate consumer protection systems.
Setting up consumer protection frameworks for low carbon heat/energy efficiency schemes and technologies, it is important to learn lessons from of previous schemes. As the failure of the Green Deal highlighted, the quality assurance framework of the scheme was found to be overly complex, yet did not guarantee high quality work. The scheme demonstrated that energy efficiency and low carbon measures can have a complex nature and especially in the case of new schemes, products and technologies, consumers are likely to have limited understanding of how they work and potential risks. This highlights that a key element of consumer protection strategies is to set adequate quality assurance frameworks and standards. Furthermore, government must guarantee sufficient installer and supplier standards to help both consumers and industry actors throughout the low carbon heat transition.
BEIS’ recent work on building a market framework for heat networks is an important step in ensuring that consumer protection frameworks are adequate. However, central government needs to take further steps to review existing consumer protections and create new ones in sectors where they do not exist or are incomplete, as it has to be ensured that the rights of consumers are the same regardless of the technologies they use to obtain their heat and energy. Under the principle of fairness, the outcome should be the same even if the specific protections for technologies differ.
It is also important to highlight that there is currently no low carbon heat market. Some elements of heat are regulated through the electricity and natural gas market by Ofgem. However new systems and services are currently unregulated. Therefore, Ofgem’s statutory remit needs to be reviewed to enable it to set up a regulatory framework for this market and protections need to be guaranteed for these heat consumers as well. The Competitions and Markets Authority 2018 proposals would extend Ofgem’s remit to cover heat networks, but a more comprehensive review is needed of Ofgem’s role in heat.
Finally, one of the most complicated questions of the low carbon heat transition is how much choice consumers and market forces should be allowed to have versus local or national government mandating certain technologies, especially for low carbon technologies that require zoning. A balance has to be found between offering attractive choices for households – over costs, aesthetics, disruption, the model of low carbon heating system installed (e.g. premium or basic model), etc. – but still allowing government bodies to lead the low carbon heat transition in an efficient way for meeting climate targets. Therefore, more thinking and discussion are needed to find the right balance between offering attractive choices to households and allowing government to lead an efficient and fast transition to net zero consistent. The government will need to provide guidelines regarding the acceptable net zero consistent level of choice for households, the required engagement with communities and ground rules around disruption to households.
8 Where should responsibility lie for the governance, coordination and delivery of low carbon heating? What will these organisations need in order to deliver such responsibilities?
There are many actors involved in the low carbon heat transition, but, it is Whitehall-Westminster that holds the keys to heat decarbonisation in the UK. Regulation, taxation, the design of subsidies, tariffs and obligations play a central part in this, dedicating a key role to central government in setting consistent targets and trajectories for heat decarbonisation.
As no single actor can achieve heat decarbonisation alone, government must set heat policy in a way that drives action from all key stakeholders, making heat decarbonisation a shared responsibility. As the challenge of heat decarbonisation will persist for the next three decades, it is important that government achieves this long-term heat decarbonisation policy trajectory via a cross-party consensus to guarantee long-term policy credibility and security for all actors involved in the transition.
It is thus important that government delivers the Heat and Buildings Strategy in 2020 to set long-term policy signals and clear milestones to industry and consumers about what steps need to be taken to catalyse action. Although the market cannot deliver change on its own, it is capable of delivering on heat decarbonisation if government sets out a clear long-term framework of incentives and regulatory mechanisms.
Although it is central government that has the power to determine the future of heat, for legitimacy and for public engagement, decisions need to be made based on a consultative approach. Therefore, Westminster needs to work with the devolved administrations on the division of powers and resources to decarbonise heat in the UK. This is important, because while numerous areas of heat policy are reserved for Whitehall-Westminster, (regulation, licensing and taxation programmes, as well as consumer protection frameworks), certain elements of heat policy, including its areas related to housing and planning, are devolved to Wales and Scotland; and Northern Ireland has a fully devolved energy system.
Devolution is a sensitive issue and it is important to allow for a dynamic relationship between devolved and central government, in which Westminster supports devolved administrations in devolved areas and ensures strong coordination in areas that are not. However, as achieving the net zero target in each of the UK’s nations is contingent on all the others, devolved administrations and central government need to work closely and more strategically together to best capitalise on devolved and reserved policy levers.
Local and regional authorities:
Besides devolved administrations, local and regional authorities need to be engaged in heat decarbonisation as well, since the most effective solutions are likely to differ regionally and locally due to varying characteristics. Although the long-term policy trajectory has to be set by central government, heat policy cannot be delivered via centrally-taken technocratic rules; rather, there is a critical need for local knowledge planning, as well as local civic engagement. As the results of the recent Climate Assembly showed as well, 94% of assembly members agreed or strongly agreed with the statement that ‘[p]eople in different parts of the country should be offered different solutions to zero carbon heating’. Moreover, 89% of assembly members supported ‘local plans for zero carbon homes’ and this would ‘involve central government giving local authorities the powers and resources to develop an area-wide plan for moving to zero carbon homes’.
Place-based decarbonisation programmes have been recognised as central tools to allow local and regional governments to drive the local deployment of low carbon heating systems. Having the most granular knowledge of local conditions and priorities, local and regional leadership must ensure that local strategic objectives are met. Local and regional authorities are also the best placed actors to combine locally appropriate solutions for heating, transport, power generation and storage, and consider synergies and efficiencies between them to drive decarbonisation in a cost effective manner. In addition, adopting a place-based approach is crucial to the targeted deployment of certain low carbon technologies, such as heat networks, where zoning – the process in which local authorities strategically define the locality of e.g. heat network developments – helps maximise the potential of low carbon systems.
Although most actors agree that the transition to low carbon heat requires locally specific planning, there is dissent regarding in what capacity, to what extent and with what resources local and regional authorities should take part in the heat transition process. This includes the risk of potential regional variation in the success of the heat transition which brings up questions of fairness to residents living in various areas of the country. Moreover, there are dangers arising if central government does not provide local/regional authorities with the necessary powers and resources which have already become apparent: while some regions and devolved governments have ambitious plans for heat decarbonisation, they lack the means and powers to implement them, as they do not have the necessary room for manoeuvre to secure the necessary cross-sectoral engagement for these plan.
Consequently, it is important that central government makes a decision about the exact role local and regional authorities are expected to play in the low carbon heat transition, and communicates the strategic direction regarding this in the upcoming Heat and Buildings Strategy. Once their role is defined, it is crucial that Westminster provides local and regional authorities with sufficient powers and resources to act as efficient actors in the process. BEIS should thus review the necessary statutory powers, technical capacities, data access and resources required for strategic planning for low carbon heat and energy efficiency.
To take part efficiently in the process, local and regional governments need to have robust data on energy performance, energy sources and demand, as well as patterns of fuel poverty; and they need appropriate tools and skills to carry out smart modelling of solutions best suited to the local area. In addition, local governments must pay attention to understand local needs in a consultative way, running effective consultations with local people, and they need to have the capacity and power to bring together the necessary cross-sectoral engagement needed for the deployment of low carbon heat.
The need for a central delivery body:
Given the complex governance structure of heat policy in the UK as described above, there is a need for strong coordination between central government, devolved administrations, local authorities, as well as local industry, business and community groups. While local and regional planning can be a powerful tool to deliver area-specific pathways that best suit each region, central government must provide support and oversight, including decisions about taxation, pricing, infrastructure and standards. In addition, government must coordinate the delivery of programmes and policies across BEIS, MHCLG, HMT, DfE and Ofgem.
This is why Policy Connect’s Uncomfortable Home Truths report in 2019 recommended a Central Delivery Authority to coordinate the transition to low carbon heat, ensuring that heat policy planning and implementation is sequenced in the right way and at the right time. Others, such as the CBI and the Institute for Government reached similar conclusions, with slightly varying outlines of the exact role the central delivery body should play in the low carbon heat transition.
Although further works needs to be carried out to determine the exact role the proposed central delivery body should play in the low carbon heat transition, it could:
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