EEH0017

Written evidence submitted by Coalition for the Energy Efficiency of Buildings

The Green Finance Institute was established in 2019 to mobilise capital and accelerate the domestic and international transition to a climate-resilient economy. The Institute convened the Coalition for the Energy Efficiency of Buildings (CEEB) for the purpose of developing the market for financing net-zero carbon and climate-resilient buildings. Formed of global experts from financial services, local and national governments, energy and construction industries, academia and civil society, under the chairpersonship of the Green Finance Institute’s chief executive Dr Rhian-Mari Thomas OBE, the CEEB is a unique and powerful collaboration. The CEEB is supported by the environmental think tank, E3G, which provides secretariat capacity.

This response is compiled based upon reports and insights drawn from CEEB members, but does not necessarily reflect the view of individual members of the coalition.

Summary of key points

-          The Government’s current approach to residential energy efficiency falls short of what is required to meet the net-zero challenge. A more ambitious and holistic approach is needed, going beyond EPC targets to consider the full range of measures required to decarbonise UK homes.

-          There are numerous environmental, social and economic benefits associated with accelerating the ambition of the UK’s approach to energy efficiency, which will in turn support market and financial innovation and progress. These measures and targets could be set in legislation in order to create a level playing field.

-          While EPCs have a role to play in the toolbox of measures needed to decarbonise UK homes, they face many well-reported shortcomings; and thereby need to be considered in conjunction with additional measures and approaches.

-          To fund the necessary level of retrofitting activity, the government needs to act alongside the private finance sector to help overcome regulatory barriers and enable systemic change, driving the investment needed to flow into homes at the speed required.

-          The transition to zero-carbon heat is simply not affordable for all UK households, particularly those on low incomes or in fuel poverty, without UK Government support to make all homes energy efficient.

-          Energy efficiency must be considered as a major infrastructure project within the UK’s post-pandemic recovery package. CEEB members have identified a range of policy and stimulus measures which would support the scaling up of energy efficiency renovations for the owner-occupied, socially-rented and private-rented sectors.

-          Around the world, there are positive examples that can be drawn upon of countries embedding green stimulus measures for building renovation within their post-pandemic recovery plans. This document identifies further case studies of measures that could support the scaling up of finance for home improvements for energy efficiency.

1. Are the Government’s targets on residential energy efficiency still appropriate to achieve its ambition to reach net-zero emissions by 2050?

The overall government ambition for, and pace of change in, the decarbonisation of homes currently falls short of addressing the net-zero challenge. The Committee on Climate Change (CCC) found that insufficient ambition for home emissions reductions – including energy efficiency improvements and clean heating systems, which are essential to keep decarbonisation costs to a minimum – account for nearly 40% of the overall shortfall to 2030.[1]

In the UK, an Energy Performance Certificate (EPC) is required for properties when constructed, sold or let. The EPC provides details on the energy performance of the property on a scale of bands A (highest) to G (lowest), along with a numerical score out of 100. The UK’s Clean Growth Strategy set a target to upgrade as many houses to EPC band C by 2035 “where practical, cost-effective and affordable”, and for all fuel poor households, and as many rented homes as possible, to reach the same standard by 2030.[2] There is policy ambiguity due to the lack of clear definitions of “practical”, “cost-effective” and “affordable”.[3] Additional EPC targets apply in devolved nations, and many Local Authorities have committed to enhancing the energy efficiency of residential buildings as part of their climate emergency declarations. For instance, Bristol has pledged that new buildings will be carbon neutral and climate resilient by 2030, and the energy performance of existing buildings will be improved through tailored retrofit solutions to minimise heat demand and prevent overheating.[4]

While EPC targets are a helpful instrument in a broader toolkit of measures to support UK housing move towards net-zero, ambition will need to be accelerated and expanded with a whole-scale approach to the decarbonisation of buildings.

First, current targets are not ambitious enough. Decarbonising the UK’s housing by 2050 will require a longer-term roadmap going beyond EPC C, which still leaves significant room for improvement in the energy efficiency performance of buildings. The Scottish Government has issued a consultation to mandate EPC band C on all homeowner’s properties offered for sale or which undergo major renovation by 2024.[5] The UK Government could similarly consider accelerating the pace of action on EPC performance, however a full assessment on the risk of creating a two-tier mortgage market, where low EPC homeowners cannot access financing, must inform any decision.

Second, EPC targets alone cannot capture all the relevant information required to put the UK on track to achieve net-zero for the built environment. For example, they do not capture the real energy use of a home and its optimum operational performance – a household may continue to expend an above average amount of energy, despite the home achieving a high EPC rating. Moreover, the net-zero target will require all homes to move to zero-carbon heating and energy – something that EPC targets do not cover. Nor do they address climate and sustainability issues arising throughout the lifecycle of buildings – from the production and choice of materials, through construction, use and renovation, demolition and subsequent impacts. The CEEB are working on projects that will help overcome these shortcomings – including on metered energy savings and building renovation passports (for more information, please see question 4) – and would be pleased to collaborate with the EAC and Government on these areas.

It is clear that a more ambitious and holistic approach is needed to bring UK homes in line with the Government’s net-zero ambition. EPC targets can play a role in this mix, but the level of ambition needs to be increased in order to accelerate progress. The Government could bring the EPC C target for all homes forward to 2030 and set out a longer-term roadmap to decarbonise all housing by 2050 or sooner with clear governance arrangements, a long-term plan and capital budget to achieve it. Additional targets need to be considered which capture the fuller body of changes required to decarbonise UK homes – for example, in line with the Passivhaus standard or the Energiesprong approach, which also incorporate factors on energy use and sustainable material use.

2. What are the potential risks and opportunities of bringing forward the Government’s energy efficiency target?

There are huge upside opportunities for the UK in bringing forward energy efficiency and related targets on residential decarbonisation. These are outlined below.

●        Greener, healthier homes and households: Foremost, accelerating action on energy efficiency will put the UK in a better position to meet climate targets, while improving the health, comfort and wellbeing of those who live in them. As noted in response to question 1, the CCC has identified energy efficiency as a major potential shortcoming for the UK to meet its climate targets. Furthermore, homes are a significant contributory factor to excess winter mortality in the UK, which is the sixth highest among all European nations.[6] The latest five-year moving average number of excess winter deaths in Great Britain is 35,600 per year. 10,680 deaths were attributable to living in a cold home, one fifth are linked to the coldest quartile of homes and one in ten excess winter deaths are directly linked to fuel poverty.[7] Bringing forward energy efficiency targets presents the UK an opportunity to make faster progress on both these important issues.

●        A boost to the economy and employment: As the Government looks for stimulus options to reboot the economy following the coronavirus pandemic, stimulating action on energy efficiency improvements could help revive the construction and renovation sector and supply chains. Recent analysis from the Energy Efficiency Infrastructure Group (EEIG) found that investment in home renovation for net-zero will help to ‘level up’ infrastructure and opportunity across the UK – supporting over 150,000 skilled and semi-skilled jobs to 2030, reducing household energy expenditure by £7.5 billion per year at today’s prices – doing more in regions most affected by unemployment, under-investment and fuel poverty.[8] This money will be available for the public to spend elsewhere in the economy, providing a boost to consumer spending. During a policy roundtable, CEEB members identified practical measures to unlock these benefits, outlined in response to questions 7 and 8.

●        Opportunities for investment and financial innovation: Targets can play a role in acting as a signpost and roadmap for investors and finance providers in raising capital for home improvements for energy efficiency. They could also spur innovation in the development of new products and services, as lenders and providers look to expand options for financing retrofits. There is clear appetite from investors and lenders for the development of financial products. A segmental market review undertaken by the CEEB identified additional policy signposting on various energy efficiency issues as a key opportunity to overcome barriers to scaling up demand for green home retrofits.[9]

●        Scaling up the supply chain and skills: Currently, the UK supply chain and skillset of construction workers is not commensurate with the net-zero challenge, with new approaches, materials and knowledge required to decarbonise UK housing. Bringing forward energy efficiency targets could spur action to address these shortcomings.

There are also risks that will need mitigating:

-          The Government must be careful to prevent a two-tier mortgage market, where low EPC homes cannot access mortgage financing, cannot sell their house, and cannot access the financing to improve their property - akin to a ‘mortgage prisoner’ scenario. This risk could be addressed through additional funding and support for lower income families to enhance the energy efficiency of their property to mandated standards.

3. Should Government targets for energy efficiency be legislated for, and if so, what difference would this make?

As indicated above, there are a wide range of environmental, social and economic benefits associated with accelerating progress on energy efficiency. A clear, legislated Government mandate provides a stronger signal to markets, financial actors and Local Authorities of the direction of travel and necessary roadmap to net-zero.

While some market players are already making progress on energy efficiency - such as registered TrustMark users, and businesses engaged in the Passivhaus and Energiesprong approaches - mandating more ambitious targets will help level the playing field and ensure that all construction and renovations are in line with UK ambition. There are additional benefits of accountability where targets are legislated for, with the Government, Local Authorities and other actors in a stronger position to spur action where standards fall short.

For example, private landlords, as a sector of housing, own the largest proportion of non-decent homes according to the Decent Homes standard, and are typically the least engaged owners of properties with recent surveys suggesting only 42% were unaware of the requirement which was first due to enter into force in 2018 for let homes to be a minimum of EPC E (English Private Landlords Survey 2018). Better regulation and enforcement, supported by awareness raising, education and advice services, are required to reach the number of properties which must meet net-zero.

4. How effective is the EPC rating at measuring energy efficiency? Are there any alternative methodologies that could be used? What are the challenges for rural areas?

EPCs are based on Standard Assessment Procedure (SAP) or Reduced Standard Assessment Procedure (RdSAP) methodologies, and provide an energy efficiency rating on a scale of A (highest) to G (lowest). EPC data is available on every residential property that was built, sold or rented in the UK since 2008. They are a valuable source of data and describe the general features of a property (e.g. fabric, heating systems, renewable energy technologies).

However, EPCs have several widely recognised shortcomings: the data is static and provides no insight on operational performance, the results can be inconsistent and undermine confidence in their reliability, and the open source database of EPC lodgements does not link to Land Registry data (a significant issue for lenders seeking to assess the efficiency of properties on their mortgage portfolio).There are further issues associated with the limited range of data sources included in EPCs, as well as their limited scope which does not capture broader aspects of decarbonising UK homes beyond energy efficiency improvements.

The CEEB is working on a number of projects to help overcome these barriers, with indicative alternatives and complements to the EPC outlined below:

●        Metered Energy Savings: EPCs do not provide real-time data on the energy efficiency of homes, but an estimate based on a number of assumptions. As a result, property owners and lenders are currently unable to measure the real-time energy savings that are delivered by energy efficiency measures. To overcome this data gap, a standardised savings calculation methodology, based on proven models in other countries, can be developed and calibrated to homes in the UK to deliver rich data on actual energy savings over the lifetime of retrofitted buildings. The CEEB is currently working to develop an industry-recognised metered energy saving methodology for the UK, building on existing work based on smart meter data analysis.

●        Capturing the full range of benefits: Energy efficiency improvements bring benefits beyond energy savings – for example, households might be able to heat their homes to a more comfortable and healthy level. EPCs do not collect data on heat or air quality, although they do assume a minimum level of heating in their calculations. It would be possible to incorporate these additional data points - such as temperature, heat and weather - into a metered energy savings approach. Business models which provide heat/comfort as a service to property tenants rely on these methodologies to ensure they are delivering not just energy efficiency improvements, but also a guaranteed level of comfort for households.[10]

●        Energy efficiency is just one measure in decarbonising UK homes for climate resilience. EPC ratings do not capture information on low-carbon energy or heating, nor do they register the reliance of homes to future climate shocks, such as extreme heating and flooding. A more comprehensive framework, such as a building renovation passport, would be suited to capture this additional information. The CEEB is currently working to develop an industry-recognised framework for a building renovation passport - while simultaneously exploring opportunities with TrustMark, Local Authorities and devolved nations to become early adopters of this framework - which could be adopted in time by the government to ensure the full range of factors are measured and addressed.

As the CEEB works to develop complementary methodologies and frameworks, we would be pleased to engage with the EAC on recommendations for the Government to adopt these.

Rural areas

Rural areas face challenges with regards to the energy efficiency of homes. Incidence of fuel poverty is generally highest in rural areas outside of the South and South East – such as in Cornwall, Cumbria, the East England coast, Lancashire, Lincolnshire, the West Midlands.[11] This reflects general trends in income and areas where austerity measures have been felt most keenly. The combination of lower energy efficiency and expensive to run heating systems accounts for the higher prevalence of low EPC-rated properties in rural areas. The Campaign to Protect Rural England and others in the devolved nations have identified this disparity as holding rural areas back.[12]

The combination of insulation, cheap to run low-carbon heating systems and better heating controls presents an opportunity to level up this urban-rural infrastructure disparity. This positions rural areas as a top priority for supporting the decarbonisation of heat and associated supply chains through a near-term stimulus package, to develop the supply chains and lay the foundations for decarbonising heat across the UK.

5. How will lack of progress on residential energy efficiency impact the decarbonisation of heat and the associated costs of this?

The transition to zero carbon heat is simply not affordable for all UK households, particularly those on low incomes or in fuel poverty, without UK Government support to make homes energy efficient. Reducing emissions from homes requires a joined-up approach to energy efficiency and heat. This will present the most cost-effective way to decarbonise.

The UK Energy Research Centre found that cost-effective investments in residential energy efficiency and efficient low-carbon heating, equivalent on aggregate to getting all homes up to the Band C target, could reduce energy demand by 25%.[13] At current energy prices, this would reduce average household energy costs by £270 per year. In total, this represents an energy saving equivalent to the annual output of six nuclear power stations the size of Hinkley Point C.

Under the net-zero target all homes will need to move to zero carbon heating, against which limited progress has been made to date. Energy efficiency is key to making this transition affordable. In a typically sized home that is efficient, installation of a heat pump could be £1,000 cheaper than for a home that is not[14] and running costs would be significantly lower. Energy efficiency can avoid annual costs of decarbonising heat to 2050 of up to £6.2 billion.[15] It would reduce the need for costlier upgrades to the electricity grid and new power supply, with a present value of avoided electricity network investment of £4.3 billion.[16] Without energy efficiency, the costs of decarbonising heat to 2050 – ultimately borne by consumers – could be £6.2 billion higher per year.[17]

The replacement of fossil-fuelled heating systems with clean alternatives requires considerably more investment, for which energy efficiency upgrades will play a crucial role in keeping costs to a minimum. ‘No regrets’ avenues to pursue heat decarbonisation through heat pumps in off-gas areas and the scaling up of heat network investment can provide the most cost-efficient solution when coupled with improvements in residential energy efficiency.

The CEEB is exploring the opportunity to establish a ‘Heating Taskforce’ that will replicate the successful model applied to the residential building sector; to review the systemic and segment-specific barriers and enablers for investment into low-carbon heating systems, and to apply the findings to co-design and launch a series of innovative financial solutions to unlock the investment barriers.

6. How can the Government frame a Covid-19 stimulus strategy around improved energy efficiency of homes?

The Government’s Covid-19 stimulus strategy presents a key opportunity to improve the energy efficiency of UK homes. The availability of public finance to support scaled and ambitious retrofit programmes could help unlock economies of scale across the supply chain, thereby making investments in home decarbonisation and resilience more attractive for consumers and the private finance sector. This could build upon existing policy and manifesto commitments to increase the energy efficiency of homes and address fuel poverty.

The CEEB compiled a short report presenting the insights and ideas discussed at a roundtable of experts, drawn from members of the coalition - including banking and insurance specialists, economists, housebuilders and civil society. It summarised the practical actions put forward by the group to stimulate consumer demand, scale up the retrofit supply chain and promote the construction of low-carbon buildings, in order to support the economic recovery of the UK’s building and retrofit sectors, and actively contribute towards the UK’s climate targets.[18] A number of these are outlined in response to questions 7 and 8.

In addition, the EEIG identifies a number of ways that the Government can frame a Covid-19 stimulus strategy around improved energy efficiency of homes in order to reflect key priorities, outlined below.[19]

●        First, investment in home renovation for net-zero will help to ‘level up’ infrastructure and opportunity across the UK – supporting over 150,000 skilled and semi-skilled jobs to 2030, reducing household energy expenditure by £7.5 billion per year at today’s prices – doing more in regions most affected by unemployment, under-investment and fuel poverty.

●        Second, energy cost savings for households translate into a persistent boost to consumer spending on local goods and services, in addition to household spending on the upgrades themselves – a dynamic that accelerates economic recovery. Energy efficiency delivers a net benefit to the economy and the public purse: Germany’s federal energy efficiency programme has succeeded in leveraging €6 of private energy efficiency investment for every €1 of public money spent on the programme, recouping its outlay through VAT receipts alone.

●        Third, energy efficiency stimulus delivers quickly and reliably by linking it to shovel-ready projects, delivery mechanisms and supply chains already in place under existing schemes for homes and public buildings across the UK, through social housing providers and Local Authorities already leading the way, their partnerships, energy suppliers, Salix Finance, regional energy hubs and agencies – and by leveraging the growing participation of the financial sector.

Moreover, there are strong environmental and social benefits associated with energy efficiency improvements, which would put the government in better stead to meet its targets on fuel poverty and net-zero. Our response to question 2 provides more detail on these.

Many Local Authorities have declared climate emergencies and are working to decarbonise far quicker than 2050. Given the local delivery routes required to support energy efficiency measures, there are opportunities for the Government to frame these measures as an opportunity for accelerated progress on climate emergency commitments.

7. Is the £5 million Green Home Finance Innovation Fund enough to stimulate the market for and drive action from the banks to encourage owner occupiers to improve the energy efficiency of their homes?

Meeting the 2035 target for ‘as many homes as possible’ to reach EPC standard C will require a total investment in energy efficiency upgrades of up to £65 billion, while the broader decarbonisation challenge will require even greater sums of public and private capital to be mobilised. The £5m fund is a starting point to catalyse innovation and investment by the private finance sector into low-carbon buildings. The GHFIF was welcomed by the CEEB and its members, and additional rounds of seed/innovation funding to support further private-sector innovation, including those ideas under development by the CEEB, would be welcomed.

There is wide recognition that some households, those in fuel poverty or low incomes, will require significant public sector support to decarbonise their homes. As a starting point, the £9.2 billion worth of commitments to energy efficiency investment made in the Government’s 2019 manifesto – to the Social Housing Decarbonisation Fund, Home Upgrade Grants and Public Sector Decarbonisation Scheme – need to be confirmed in full and treated as instrumental to an energy efficiency stimulus package, financially and programmatically, by bringing forward and deploying £1.5 billion of the investment in low income households, social housing and public buildings over the next two years.

The private sector will also have a critical role to play in deploying the additional capital required to meet the current shortfall of demand in the owner-occupied sector. Government policy and investment can play an important role in incentivising innovation and pump-priming this market, either through funding to support financial product innovation or guarantee schemes to de-risk retrofit investments for the private sector. Furthermore, Government-supported renovation programmes in the social housing sector will help drive cost reductions across the whole retrofit supply chain, enabling private finance to go further in delivering ambitious energy efficiency improvements for owner-occupiers.

The aforementioned stimulus report produced following consultation with CEEB members contains further stimulus measures to support this, outlined in more detail in response to question 8. The EEIG identifies a range of additional incentives worth £1.2 billion for all homeowners designed to leverage £3.2 billion of private investment over the next two years – comprising a renewed Landlords Energy Saving Allowance for landlords who exceed the Minimum Energy Efficiency Standard, a Stamp Duty rebate for energy efficient properties, government-backed low or no-cost finance for renovations and the 5% rate of VAT on building energy renovation restored for all.[20]

8. What policy and/or regulation could supplement it?

In addition to the stimulus measures described in response to question 7, members of the CEEB identified a series of stimulus actions in a recent report:[21]

●        Energy efficient technology rebate system: Similar to the US ‘Cash for Clunkers’ scheme, property owners are incentivised to upgrade inefficient or fossil fuel technologies (e.g. old windows, boilers) to efficient and clean ones through a government grant or voucher scheme. The proposed Clean Heat Grant from 2022 could be brought forward to this year and offered alongside Renewable Heat Incentive support. While providing immediate stimulus to eligible technologies and associated supply chains, the scheme also increases household disposable income.

●        VAT reform to stimulate energy efficient renovation. At minimum, reintroduce the reduced rate of VAT payable on Energy Saving Materials (ESMs) to the previous level of 5%, rather than the standard rate of 20%. For higher impact and wider construction sector stimulus, introduce 0% VAT on all renovation activity, conditional on the inclusion of energy efficiency measures.

●        Domestic energy efficiency salary sacrifice scheme. Comparable to the ‘Ride to Work’ scheme, employees draw a loan through their employer to invest into home energy improvements and repay the financing via gross salary contributions.

●        Property Assessed Clean Energy (PACE) financing. Financial institutions provide long-term capital for retrofit projects, while Local Authorities or associated independent third parties collect repayments via an additional property charge that is passed through to the lender. Proven models in Australia, Spain and the US.

●        Sliding ‘bonus-malus’ Stamp Duty scale. As recommended by the Green Finance Taskforce, a sliding scale of Stamp Duty designed to be fiscally neutral and linked to energy performance could drive demand for more energy efficient properties. Could be preceded by near term action in the form of a Stamp Duty rebate for the purchase of highly efficient properties. A pilot scheme may be of potential interest to Welsh or Scottish Governments.

●        Green Help-To-Buy (HTB) scheme. The current HTB scheme could be extended beyond new-build housing and repurposed to preferentially support first-time buyers to purchase an energy-efficient and resilient home, through minimum EPC criteria or government guarantees to support energy improvements once the property has been purchased.

●        Retrofit programmes for void and commercial buildings. The systematic retrofit and repurpose of void buildings, both public and commercial, supported by appropriate government incentives and capital – in particular by accelerating the implementation of the £2.9 billion Public Sector Decarbonisation Scheme – offers an efficient channel to stimulate the retrofit sector and addresses the still-present housing shortage. In addition, retro-commissioning – updating a building’s electromechanical systems – is a low-cost measure that can reduce energy consumption by up to 20%, which could be more easily carried out whilst buildings are temporarily empty during an extended lockdown period.

●        Skills and training programmes. A government-funded training programme, available to those looking to upskill or requalify from sectors impacted by Covid-19, delivers the skills and capacity required to address the UK’s retrofit challenge. A subsidised training programme could rapidly scale a high-quality supply chain and engage furloughed workers.

●        R&D investment into net-zero construction methods. Grants, matched funding and other forms of public investment to support research, development and demonstration of energy and resource efficient materials, technologies and methods of construction. This could be achieved by enhancing and accelerating the Government’s Transforming Construction Challenge Fund. While delivering jobs in the STEM sector in the near-term, this enhances the UK’s position as a leader in building and efficiency research, with the potential to advance the UK’s manufacturing base.

Additional measures were identified by the EEIG:

●        New Minimum Energy Efficiency Standards (MEES) for owner occupied homes, applicable at point of sale and major renovation – modelled on Scotland’s proposals – would provide the clearest signal to homeowners that they need to upgrade their homes. This can be complemented by plans for regulation to phase out the use of fossil heating systems, beginning in off-gas grid homes.  A full assessment on the risk of creating a two-tier mortgage market, where low EPC homeowners cannot access financing, must inform any decision.

●        Compressing and boosting innovation investment and timescales in the sector, for instance by challenging and supporting the participants in the Industrial Strategy’s Construction Sector Deal to halve the energy use of new buildings and halve the cost of renovating to that performance by 2025 instead of 2030, and accelerating the demonstration of metered energy savings to facilitate their commercial rollout alongside renovation programmes.

●        Low or no-interest loans, or government-guaranteed private-sector lending, for energy efficient renovation and low-carbon heating systems, later backed by the Shared Prosperity Fund and potentially a new, independent national infrastructure bank.

9. Which models in other countries have been successful at stimulating demand for energy efficiency within this market?

In response to the current crisis, Denmark is leading the way on ensuring the decarbonisation of homes plays a central role in its post-pandemic recovery strategy, earmarking DKK 30bn (over £3.5bn) for green renovations to social housing between 2020 and 2026, including insulation measures, window replacements and replacing oil-fired heating systems. Minister Jørgensen said these improvements will provide for healthier homes and lower energy bills, as well as creating employment opportunities.[22] While these improvements are focussed on the social housing sector, as previously noted, efforts in this space will bring down supply chain costs which will benefit the owner-occupied sector.

Other recent measures include Australia’s A$680 million (£375 million) stimulus package aimed at supporting the construction and home building industries, with a A$25,000 grant to subsidise the cost of renovating an existing property or building a new house. The scheme is intended to provide around 27,000 grants, support 140,000 direct jobs and up to one million related jobs in the residential construction sector.[23]

Luxembourg has announced ‘green stimulus’ measures within its recovery plan, focussed on accelerating insulation of homes and increasing renewable energy. State subsidies will cover 50% of the green home renovation, capped at €30,000. Subsidies for clean heating have been increased by 25%, and the state will cover 81% of the costs for replacing a heat pump.[24]

There are other case studies of good examples of stimulating demand for energy efficiency within the owner-occupied market, outlined below.

Minergie is a Swiss building label for new and retrofitted low-energy consumption buildings, providing a quality assurance in planning, construction and operation.[25] To comply with the standard, buildings and retrofits must meet stringent social and environmental standards. Distinctive features of Minergie buildings are that they go beyond energy efficiency to include comfortable and healthy living conditions, high-quality building envelopes, controlled air exchange, and very low energy consumption with maximum possible use of renewable energies. Those with homes that comply with the Minergie standard benefit from favourable mortgage conditions, as well as subsidies for retrofit. For instance, Banque Cantonale Vaudoise offers a 0.25% point reduction on the interest rate for those purchasing Minergie® certified properties. This can act as an incentive for prospective homeowners, as well as acting as a quality assurance for the providers of finance.

Property Assessed Clean Energy (PACE) loans allow homeowners to finance energy efficiency, renewable energy and other eligible improvements on their homes using private sources of capital to finance the up-front cost and then pay the costs back over time. The unique characteristic of PACE loans is that the loan is attached to the property rather than an individual. PACE has been growing in impact in the US where programmes have seen public-private partnerships support 200,000 homeowners to invest $5 billion in energy.[26] The European Union has been exploring this financial model through EuroPACE to explore the opportunity for long-term secure repayment of financing to reduce energy consumption, emissions and energy poverty. EuroPace has developed a demonstrator with GNE Finance in Olot, Spain, where loans of between EUR 5,000 and 100,000 are open for application and recorded in the property registry. A notary deed secures a title against the homeowner’s assets in case of default.[27]

Building renovation passports are another essential piece of the puzzle to make homes net-zero and enable homeowners and landlords to meet future energy efficiency standards sensibly, including Minimum Energy Efficiency Standards as they rise for private landlords. Government sanctioned methodologies underpin the renovation roadmap component of passports already available in Denmark, Flanders, France and Germany, in many cases available with government subsidy.[28]

10. What additional policy interventions are needed for social housing, leaseholders, landlords and tenants?

Members of the CEEB identified a series of actions in a recent report on stimulus measures that could support energy efficiency improvements in social housing, for leaseholders, landlords and tenants:[29]

●        Retrofit programmes for social housing. Large-scale programmes to retrofit social housing portfolios provide a valuable mechanism to deploy public capital and stimulate rapid growth across the retrofit supply chain, from manufacturing to installation. This represents a quick and effective way to unlock economies of scale and bring down costs for the able-to-pay sector, while helping Local Authorities deliver on their climate emergency commitments. A non-exhaustive list of mechanisms include: accelerated implementation of the £3.8 billion Social Housing Decarbonisation Fund to contribute to stimulus, grant funding on efficient technologies, energy performance guarantees to de-risk projects and unlock favourable financing terms, and easing borrowing and hypothecation rules for investment into retrofit projects. The proceeds of a Green Sovereign Bond could support these and similar schemes.

●        Retrofit programmes for low income households in inefficient homes. Area-based programmes to retrofit the homes of households at increasing risk of fuel poverty could stimulate supply chains and job creation in the most deprived areas of the country. This can be supported through accelerated deployment of the £2.5 billion earmarked for Home Upgrade Grants.

●        Landlord and business energy saving allowance. Reintroduce the Landlords Energy Saving Allowance (LESA) that allows the cost of acquiring and installing certain energy-saving items to be deducted when calculating taxable profits, made to Landlords who exceed Minimum Energy Efficiency Standard (MEES) requirements. The allowance could be extended to SMEs by reinstating the Enhanced Capital Allowances scheme for energy and water-efficient equipment, and targeted communications could improve uptake.

●        Compliance cycles for energy performance standards. To deliver long-term demand certainty to the retrofit supply chain, properties over a specified square footage that fail to meet a local median energy performance standard will be required to follow a performance pathway to improve over a five-year compliance cycle. This complements and enhances the existing Minimum Energy Efficiency Standards (MEES).

●        Fiscal incentives for energy efficient social housing. Grants, subsidised funding and technical assistance for new social housing developments that achieve energy efficiency and resiliency standards that are far in excess of those required, aimed at stimulating low-carbon construction and demonstrating best practice to the industry.

Additional policy and regulation measures were identified by EEIG to supplement existing Government plans regarding the Social Housing Decarbonisation Fund (SHDF) that can build on registered social landlords’ (RSLs’).[30] The SHDF can latch onto the social housing sector’s planned maintenance and repair activities – which among the housing association subset amounted to £11.9 billion of investment since 2010 in England alone – to ensure swift and effective deployment of funds. The SHDF can be designed to leverage development of the social housing sector’s skills base – such as by training provision for furloughed workers – and quality supply chains, for example by supporting the trend for the sector’s contractors to branch out into privately-owned housing renovation works. This could be achieved by a complementary government-backed loan guarantee for large-scale, ambitious social housing renovation projects that encompass neighbouring private homes, to accelerate the growth of its supply chains.

11. How should the proposed Home Upgrade Grant Scheme be delivered to help the fuel poor? Should the new grant scheme supplement ECO in its current form, or should ECO be redesigned?

The EEIG, who are members of the CEEB, identified a number of measures with regards to the Home Upgrades Grant (HUG) and ECO.[31] For instance, the HUG can initially be deployed for instant impact in areas of local authority leadership on energy efficiency and heat, prioritising where the need amongst low income households is greatest, schemes are already on the go and broadly aligned with the HUG’s eventual objectives. Most Local Authorities lack the funds to procure contractors, a situation made more difficult by the current crisis. To further facilitate swift deployment, the HUG must be free for households to access, guarantee assistance for those eligible and be designed to complement, but not rely on or wait for, other schemes such as ECO. To ensure it is reliably invested and delivers value for money, it must provide additionality to MEES requirements for private-rented properties, ensure the right upgrades are chosen for every home – backed by high quality advice and delivery– and be robustly governed, evaluated and monitored.

Considering the longer term, the HUG can be leveraged alongside the SHDF and ECO to build out capacity and capability for delivery across the country. Specifically, it could: apply the model of local authority led area-based schemes and local heat and energy efficiency planning in Scotland to other parts of the country; facilitate the leadership and coordination provided by larger, more experienced Local Authorities and independent energy agencies to neighbouring areas; and build on the network of Regional Energy Hubs established by BEIS.

Publicly-funded schemes in the devolved nations complement it, particularly Scotland’s Area-Based Schemes (operating in every local authority) and Warmer Homes grant, and Wales’ Arbed area-based programme and its Nest grant. Their contribution is significant: Wales, Northern Ireland and Scotland invest respectively two, three and four times as much per capita on home energy efficiency programmes than is invested in England through ECO, underpinned by a programmatic approach. Local Authorities, registered social landlords, independent energy agencies and supply chain contractors across the country are key delivery partners for deploying ECO and devolved nation investment, with many delivering separate, local schemes. This network is therefore key to deploying an energy efficiency stimulus package.

12. Are there examples of where energy efficiency policy has fallen between Government Departments? How could cross-departmental coordination be improved?

There is a need for a joined-up approach between government departments such as HMT, BEIS and the Ministry of Housing, Communities & Local Government; as well as devolved nations, Local Authorities and Local Enterprise Partnerships.

UK Government would benefit by convening a cross-Whitehall working group drawing on expertise across departments to achieve a set of aims. The Green Finance working group currently established to support the work of the 2018 Green Finance Taskforce is a model for this type of coordination, drawing on members from BEIS, HMT, MHCLG, Defra, FCO and others. An energy efficiency group would benefit from a clear strategy or mandate on energy efficiency and economic development with a Ministerial figurehead to which it reports, this could be a spoke from the five round tables currently convened by the Secretary of State, Alok Sharma.

Where the devolved nations have demonstrated success and ambition, the other members of the Union should learn lessons and seek to implement these. Energy efficiency is political priority across the Union, thus all nations should seek to reinforce best practice.