The UK government’s proposed low carbon mandate on heating appliance manufacturers is a quietly ambitious proposal that could generate real movement in a sector that is lagging on decarbonisation.
The soberly named “market-based mechanism for low carbon heat” did not make headlines when it was announced in the Heat and Buildings Strategy. Nevertheless, it has the potential to be one of the most significant of the government’s recently revealed net zero policies.
Clean heating faces market barriers that the mechanism seeks to address
14% of UK emissions come from heating our homes with fossil fuels, particularly gas. The best solution is to electrify domestic heating by installing heat pumps instead.
Heat pumps have historically struggled to compete with gas boilers. Gas is much cheaper than electricity and the upfront costs of switching over to a heat pump are high (with average installation costs of between £8,000 and £10,000). The government has pledged to review the relative costs of gas and electricity in 2022, and to work with industry to bring the upfront cost of heat pumps down.
A heat pump sales mandate could drive innovation in the market
The new proposal is to oblige companies that sell fossil fuel appliances – like gas and oil boilers – to sell more heat pumps. The number of heat pumps they would have to sell would be based on a proportion of their overall appliance sales, which would rise every year in line with government targets (600,000 heat pumps per year by 2028). The idea is that this would create a strong incentive to innovate and provide better consumer offers for net-zero compatible appliances.
The policy would also incorporate credit trading, like the EU Emissions Trading Scheme or the Zero Emissions Vehicle (ZEV) mandate in California (the basis for a similar mandate the government has proposed here). Heat pump sales would generate a certificate which could then be traded, so that manufacturers could meet their obligation by buying excess certificates from other companies, including specialist heat pump manufacturers.
The mechanism also needs complementary policies
Just as successful electric vehicle mandates around the world have needed supporting infrastructure – like a charging network – to work, this policy will not succeed in a vacuum. Other important supporting measures to decarbonise heating include:
- Support for upskilling and new training opportunities along the heat supply chain
- Structural incentives in the housing market, through measures like green stamp duty
- Lowering the relative cost of electricity in a way that protects vulnerable gas consumers
- Reforming the retail energy market to encourage and enable demand flexibility and allow customers to benefit from the ultra-low costs of renewable electricity
- Public support for energy efficiency
The consultation process must produce a high-ambition final proposal
Although supplier sales and production obligations are nothing new, this is the first time they have been tried in the heating market. This really could be an example of world-beating net zero delivery, with the right design in place:
- Penalties for non-compliance must be set appropriately high. Otherwise, manufacturers may choose to accept fines as a tax on business-as-usual.
- The government needs to be able to monitor how the mechanism is working and adjust surrounding policies – including grant, innovation, and training funding – in response. The government should expand available grant support but build in tapering mechanisms to manage costs and phase them down over time.
- The government must ensure a stable investment environment by signalling its intention to keep the mechanism in place well beyond 2028. It should be aligned with the government’s ambition is to phase-out all fossil fuel heating installations by 2035. This would mirror the proposed zero-emissions vehicle mandate, which is linked with the 2035 phase-out date for internal combustion engine vehicles.
Although some industry incumbents are likely to be fiercely opposed to the idea, BEIS deserves credit for thinking creatively about how to induce a mass market for heat pumps. Their challenge now is to see this policy through and put in place the complementary measures it needs to succeed.