Public Policy

October 20, 2021

Government plan to reach Net Zero and decarbonise heating by 2050 finally unveiled

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With COP26 fast approaching, the Government was under pressure to publish its long-awaited Heat and Buildings Strategy and its Net Zero Strategy. The Heat and Buildings Strategy, which details how the Government intends to decarbonise the UKs heating and building stock in line with its Net Zero ambitions, has been plagued by dither and delay. For months Number 10 has been wrestling with the document – and the battle between Treasury and BEIS – driven largely by concerns about the cost of its policies to consumers, and the hard reality of the political decisions which must be made if we are to achieve Net Zero by 2050.

The main headlines from the Heat and Buildings Strategy are:

  • A £450 million, three-year Boiler Upgrade Scheme to provide households grants of £5,000 to encourage homeowners to install more efficient, low carbon heating systems, such as heat pumps, from April next year.
  • Government and industry look set to work together to bring down the costs of heat pumps, so they cost the same to buy and run as a traditional fossil fuel gas boiler by 2030.
  • To make this happen, the Government has announced a £60 million Heat Pump Ready innovation programme with a view to make them smaller and easier to retrofit into existing properties.
  • Following the release of its Hydrogen Strategy earlier this year, the Government has said it will decide hydrogen’s role in heating by 2026. This will be influenced by trials which are looking at how hydrogen can be blended into the existing gas network.
  • Grant funding will be provided to cover the cost of improving home energy efficiency and installing low-carbon heating solutions in households that are fuel poor, living in poorly insulated off-grid properties and social housing tenants.

The Heat and Buildings Strategy is less ambitious than many originally thought and brings less financial support with it than was expected. It is full of the big government interventionism that has come to symbolise the Johnson Government over the past 18 months, but without the financial support seen during the pandemic. The caveat to that, of course, is that the Budget will be delivered in a week’s time.

Under its plans, the Government has set a target of all new heating systems installed in UK homes by 2035 being low carbon. The Government is hoping to ban the installation of new gas boilers in homes by 2035 and is going all in on heat pump technology and hydrogen.

Recognising the cost to households, the Government will offer grants of £5,000 to help households install more efficient, low carbon heating systems like heat pumps. Delivered through the new Boiler Upgrade Scheme, the Government hopes this will bring the average price of a heat pump down, so it is comparable with a typical gas boiler.

The problem is that currently a heat pump costs £11-£18K to install. This is in stark contrast to the cost of gas boilers which range from £500 to £2,500. Even with the grant, for many households, this remains unaffordable. If the Government is to speed up the transition to low carbon heating, further financial assistance for consumers is needed, something the Treasury will be reluctant to provide after its big spending during the pandemic.

Central to the Government’s strategy is the assumption the cost of low carbon heating technology will come down. It has said it will work with industry to achieve big cost reductions of between 25 and 50% by 2025 as the market grows and technology develops. Still, this is far from a guaranteed outcome. If these cost reductions are not realised, the Government will struggle to meet its Net Zero targets without further Government spending.

Weeks after Energy Minister Lord Callanan expressed scepticism about making hydrogen cheaply or at scale, eyes are on the hydrogen trials that are taking place across the country. The Government looks set to back the technology – taking a no regrets approach – but is holding off on making a final decision about hydrogen’s role in heating buildings until 2026.

However, there are clearly unaddressed challenges with the document.

Aside from the costs, analysis suggests that the Boiler Upgrade Scheme will cover no more than just 90,000 heat pump installations a year. With a target of installing 600,000 heat pumps a year, this intervention falls far below what is likely needed.

The Government has also failed to address older, rural buildings, many of which are often old historic buildings which are hard to heat due to the lack of installation and are harder to retrofit.

A consistent narrative across a range of sectors in recent weeks and months is the need to provide and create skilled jobs. The UK doesn’t have enough heat pump installers and engineers. Already experiencing a severe shortage in skills, the push toward 600,000 installations a year will be significantly impacted by the size of the workforce. The Government knows that a transformational change is needed but needs to do more than rely on industry to provide new training opportunities – it needs to play a leading role in incentivising training and retraining so the UK has the skilled workforce it needs to reach Net Zero.

In the Heat and Buildings Strategy, the Government recognises that electrifying heating in the UK to reach Net Zero will be moot if not powered by green electricity. Developing and increasing the UK’s capacity to generate renewable energy will be key to realising the 2050 Net Zero targets. The Net Zero Strategy, released alongside the Heat and Buildings Strategy, sets out the Government target of 40GW of offshore wind by 2030, alongside a commitment to other renewable energy sources including solar.

Recognising that one of the barriers to renewable energy generation can be planning consent, the Government has used the Net Zero Strategy to set out its commitment to ensuring the planning system can support the development and deployment of low carbon energy infrastructure. The Government is currently consulting on its draft National Policy Statements for energy infrastructure; the aim of this is to provide greater clarity on the need and urgency for low carbon infrastructure. It also explores ways of streamlining processes through the Nationally Significant Infrastructure Projects reform programme. While this will address issues at a strategic level, it is significant the Government also recognises the role of local authority planning consent in delivering the renewable energy the UK needs. Ahead of the Government’s planning reforms – currently on pause – being unveiled, this sends a clear message to local authorities that the Government wants them saying yes to more renewable energy planning applications.

Ahead of the climate change summit in a few weeks’ time, the Johnson Government is clearly looking to boost its chances of success with an ambitious plan to drastically reduce our emissions. As the host nation, the UK wants to be seen as a world leader and driving the agenda; admittedly, a task made more difficult with the Leaders of Russia, China and Brazil staying away from Glasgow. In its strategies published yesterday, the Government is setting out its stall – installing more heat pumps, investing in innovation of and domestic production of heat pumps and working with industry to drive down the costs to consumers. Key to making its heat pump programme successful is greening the electricity that powers them – with clear plans to achieve this set out in the Net Zero Strategy – and making them an attractive, and affordable, choice for consumers.

The affordability point is key. Alongside these long-awaited strategies on decarbonising heat and achieving Net Zero, the Treasury released its estimates of just how much realising our emissions reductions targets will cost. The Government has already broken a manifesto commitment not to raise taxes and Treasury’s Cost of Decarbonisation review sets out clearly to achieve Net Zero, the UK Government will need to raise taxes or cut spending – or, indeed, both. The Business and Energy Secretary has used media interviews to hit back at suggestions of tax rises to fund emissions reductions ambitions, arguing the private sector has a significant role to play and Treasury’s forecasts do not include the anticipated £90bn in private investment BEIS and Number 10 hope to attract.

Many commentators and politicians are already saying that the Government’s financial support for consumers doesn’t go far enough. With the Budget in a week’s time, we only have a short wait to see if the Government will set out further mechanisms to help consumers reach Net Zero.

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