Decarbonising homes will need more than rules and bans
By Jess Ralston, Analyst @jessralston2
Published:25 May 2021
Britain’s homes are now firmly at the centre of the net zero debate. Without fixing up inefficient properties and moving away from gas, our climate goals will remain out of reach.
However, recent reports suggest plans are brewing to get our homes back on track. With suggestions of minimum standards at the point of sale causing quite a stir, coupled with rumours of harsh fines that have already been dismissed by government, temperature is rising on expectations for the impending Heat and Buildings Strategy.
Changes in the home need to work politically, as well as on a policy level. Therefore harsh regulations should be firmly at the bottom of the government’s to-do list.
Thankfully, there are dozens of other options to make the transition as easy as possible.
First up are financial incentives – changing taxes, offering grants, issuing bonds.
Stamp Duty has been amended to boost the covid-addled housing market, so there is a strong precedent to utilise this unpopular tax for more than just raising revenue. New homeowners often want to make changes when first moving in, and rebates or lower rates would only make this more appealing.
So much so, UK Green Building Council estimates that of the 1.2 million homes sold across the UK each year, somewhere between 135,000 and 270,000 retrofits could come forth as a result of this incentive.
Similarly, Council Tax is long overdue an update – it is still based on Thatcher-era house prices and the think tank Bright Blue has described it as ‘highly regressive’ and ‘a fudge’. Rebates or variable rates according to energy performance (similar to proposals for Stamp Duty) could both stimulate action.
The first has been done before and would be easier to implement – a noughties cashback scheme was estimated to benefit around 160,000 households per year, cutting lifetime bills by £1.2bn.
Attractively for government, financial incentives also don’t have to be publicly funded, with the private sector able to step in.
Green mortgages with lower interest rates for more efficient properties would boost the value of energy performance in the housing market. Likewise, so could conditional mortgages that rely on the homeowner carrying out retrofits in the first year of ownership in return for preferential rates. In these options, it is essential that those unable to make upgrades are not penalised with higher rates.
Products are appearing thick and fast – 1 in 5 mortgage lenders now have green mortgage products and 3 in 5 landlords are interested in signing up. The mortgages come in different formats, with Barclays offering lower fixed rates for new builds A or B rated and Natwest currently offering £500 cashback on Energy Performance Certificate (EPC) A (£250 on EPC B).
Natwest also offer a 0.75% loan for additional borrowing as long as 50% of the loan is spent on energy efficiency or heat – an approach which has had huge success in Germany. Here, 2.1 million homeowners have made use of the loans, contributing up to €7.2 billion (additional revenue and reduced cost to the public), supporting 350,000 jobs and saving nearly 4MtCO2 per year between 2006-2009. Following this example, interest free loans in Scotland are now available, in their first year funding more than 1,000 energy saving measures.
That’s not to mention the numerous other incentives that could be employed by a government serious about driving down emissions from our homes. Reducing VAT to 5% for energy saving measures, help-to-renovate savings accounts, boiler scrappage schemes (estimated to tackle 34,000 replacements in its first year) and a green homes bond are just a few others.
Building consumer awareness
New financial products will only work though if the public know about them. Knowledge is power, after all.
Engineers are the main source of information for heat upgrades, yet overwhelmingly recommend replacing gas with gas. The government getting behind a training scheme would see homeowners presented with more options. This would then trickle down to the general public and word-of-mouth between friends and family.
Consumer awareness could also be increased via buildings passports – a beefed up EPC – presented when buying or selling a house. These digital alternatives will see information carried over between owners and make it easier to follow a home’s bespoke net zero plan. This could result in systematic, stepped changes to homes and make retrofits highly affordable once split between different owners.
Another way of creating consumer demand and also carrying some of the risk away from consumers are novel packages such as Heat as a Service. These would see energy companies supply both the heating system and the energy supply – for example, a heat pump and the energy that it uses – rolled into one monthly payment like a mobile phone. Trials have been successful and the idea is still developing, with potential to become available over the next few years.
For now though, minimal support from government means there is limited buy-in to clean heat or more efficient homes.
Innovations and competition are also powerful tools to bring down costs. The Buildings Mission to halve the cost of retrofit by 2030 is expected to unlock £250m from the private sector. There is no reason that a similar challenge can’t be set for clean heat.
As the heat pump market develops, competition between manufacturers will kick in. As we have seen with wind and solar power, costs are likely to be slashed once the policy environment is stable and investment rockets. Energy suppliers are even getting in on the action, with Octopus Energy building a huge new training centre for clean heat specialists – securing trainees jobs for life.
Overall, there are a wealth and breadth of more sellable options than bans to stimulate homeowner investment in energy efficiency and low carbon heat. Unfortunately, hardly any are currently being used by the government, which makes little sense for a political party that aims for market stability over public cash handouts.
A ban should be any decent policy maker’s last resort and with the right suite of policies in place over the next few years, should be left largely redundant. It is on the government now to make sure this is the case.