After a year-long wait and much political wrangling, the Heat & Buildings Strategy is finally out. E3G considers three key takeaways on the politics, policies and finance.
The politics of the Heat & Buildings Strategy
Heat decarbonisation has been the subject of some political turmoil. Heat pumps became the poster child of climate-sceptic push back against net zero over the summer. Critics of climate action stirred up media frenzy that the Government was coming to rip out the boilers of the great British public. Navigating the politics matters, although the climate doesn’t know that.
In the struggle to signal ambition, perhaps one of the most significant aspects of the Heat & Buildings Strategy (H&BS) sits outside official Government paperwork and in the Sun newspaper. The Prime Minister promised readers that the shift to green homes will be affordable, attractive and fair. This is an essential promise for public acceptability. It is imperative for the Government to stick to this and massively reduce costs, requiring nationwide action and investment.
Another major political barrier is the ongoing dispute between HMT and No10 as to how to prioritise green spending and borrowing to invest. The spending commitments which came alongside H&BS reflect that the tussle is by no means over. Green homes remain severely underfunded, with commitments falling below Manifesto commitments, and even further behind net zero. Sunak currently risks standing in the way of Johnson and BEIS minister Kwarteng from achieving green goals – while leaving millions of households without support to improve their homes.
The policies of the Heat & Buildings Strategy
Moving into the substance, key policy elements include the ambition to phase-out of fossil gas boilers by 2035. This is a major stride forward for the UK, with around 85% of homes currently on the gas grid.
The Government has sent a clear message that it sees heat pumps as the major heating technology of the future. Its plan to make this a reality rests on three main policies: the Boiler Upgrade Scheme; low-carbon standards for new build homes; and a ‘market mechanism for heat pump deployment’. The latter is a push for boiler manufacturers to sell a minimum number of heat pumps per year. Only £450m over three years has been committed to the grant scheme. This suggest Government is betting heavily on the success of industry innovation.
Progress is (slowly) being made toward implementing minimum energy standards within the private rented and social housing sectors. These regulations could act as an enormous driver of action of investment, with the right measures and support in place. However, the biggest policy – and emissions – gap is for the owner-occupier sector, the largest housing tenure. The Strategy references the possibility of action, but does not set out a clear signal or near-term action plan.
Financing the Heat & Buildings Strategy
The absence of sufficient public funding to support green homes is our major concern. The new commitments in this Strategy fall £2bn short of Conservative manifesto pledges. The pledges fall shorter still on what is needed for net zero, particularly on energy efficiency. New analysis by E3G has shown that around 80% of mid- to low-income households living in inefficient housing have no access to nationwide support for fabric measures. Energy Efficiency Infrastructure Group analysis suggests a further £3.6bn in energy efficiency subsidies and £4.15bn for heat pumps would be needed this Parliament to get on track.
There remain high hopes that private finance will do the heavy lifting for those classed ‘able to pay’ or not in fuel poverty. This is despite lenders making clear that green homes finance cannot thrive in a vacuum, but will flourish among an ecosystem of incentives, subsidies and demand drivers.
Government can address this investment gap through existing commitments and delivery channels. The new green gilt, or sovereign bond, commits the UK to £10bn of public spending on green infrastructure, and the new UK Infrastructure Bank could issue subsidised loans and grants.
The right funding must be put in place
The Heat and Buildings Strategy can be the framework through which we get on track for net zero homes. The Prime Minister will only be able to come good on his promises to the British public around affordability if the right level of funding is place. Despite new commitments, there remains no funding or incentives in place to support energy efficiency for the vast majority of households. This must be turned around – and quickly – to ensure an affordable transition and get on track for net zero.