Reports

Turning Stimulus into Recovery

From the Green Homes Grant towards a resilient net zero economy

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The Government’s decision to include a major focus on green home retrofits among stimulus measures announced this summer was a welcome, ambitious first step – if short-term – to support jobs and boost economic activity across the country. With the Spending Review and other major policy decisions expected by the end of this year, now is the time to build on summer’s announcements and set out a long-term programme that combines recovery from the pandemic with getting on track to net zero greenhouse gas emissions.

Only a long-term programme and investment plan to decarbonise homes can provide confidence for industry to invest in the supply chain, and for consumers to invest in their homes over this decade. Only a long-term programme underpinned by public capital investment can ensure the economic benefits needed for better recovery are maximised, as it ensures:

  • Larger and more widespread energy cost savings that boost spending across the country, driving economic expansion;
  • Which generate a greater return to the taxpayer by way of tax cuts that the expansion affords;
  • Together driving more job creation in the wider economy, particularly in local retail and services, and a larger permanent increase in GDP.

Turning stimulus into recovery while forging the path to zero carbon homes requires a comprehensive, ambitious and fair Government programme and investment plan for the next ten years. Economic recovery must be connected to getting on track for net zero. This summary of a report, co-authored by E3G for the Energy Efficiency Infrastructure Group, envisions how a such a programme contributes to all six of the Spending Review’s priorities:

  1. Stronger recovery by prioritising jobs and skills: a long-term programme supports 190,000 jobs in energy efficiency and heat across a range of trades through to 2030; with opportunities to upskill the workforce to meet the net-zero challenge; and Government working with businesses, unions and employees to ensure green jobs are quality jobs. Underpinned by public investment, the number of net additional jobs created in the wider economy beyond the end of the programme – especially in local retail and services, induced by increased consumer spending – is easily in excess of 100,000.
  2. Levelling up by investing in infrastructure, innovation and people: an ambitious, achievable long-term programme to get all homes to at least EPC C by 2030 reduces household energy expenditure by £7.5 billion per year at today’s prices – averaging £400 per home upgraded – doing more in regions most affected by unemployment, under-investment and fuel poverty, reducing north-south and rural-urban disparities in infrastructure, opportunity and living costs.
  3. Improving public service outcomes, including from the NHS: the Public Sector Decarbonisation Scheme reduces schools’ and hospitals’ energy costs, freeing up money for frontline services. The avoidable pressures placed on the NHS by fuel poverty and cold, unhealthy homes are consigned to the past, potentially preventing 10,000 excess winter deaths every year and saving the NHS £1.4 to £2 billion annually. 
  4. UK as a scientific superpower: supported by industrial and innovation strategy, a long-term programme supercharges home retrofit, driving productivity gains. New buildings’ energy consumption can be demonstrably halved by 2025, and so too the cost of retrofitting to that standard. A Heat Pumps Sector Deal supports the creation of a mass market for smart zero carbon heat by the mid-2020s. Innovation investment accelerates the creation of new standards for the use and sustainability of construction materials and products, supporting the establishment of a circular economy. The rollout of digital infrastructure assures the carbon and energy performance of buildings, providing investor confidence for a thriving market in new, green financial products and services
  5. Strengthening the UK’s place in the world: ahead of COP26, a long-term investment programme closes the UK’s biggest climate policy gap – decarbonising heat – to meet domestic carbon budgets, demonstrating how to combine ambitious climate action with economic recovery and inspiring other nations to do the same. UK-based manufacturers with world-leading expertise in insulation and exterior systems, glazing, low carbon heating, ventilation, air-conditioning and building control systems drive construction sector exports well beyond the £8 billion seen in 2016. UK construction and financial service providers gain competitive advantage in foreign markets seeking to deliver net zero buildings.
  6. Improving delivery of commitments: a new National Infrastructure Bank leads the reduction of investment risk for decarbonising home and buildings, reducing the financing cost and drawing in capital markets and institutional investors to back new green financial products and services at scale. Local councils lead on improved delivery of commitments by engaging communities, coordinating supply chains, protecting consumers and raising capital. The new Bank assists local actors in drawing up investable heat and energy efficiency plans while Government continues to invest in their delivery capabilities. Good governance supports the delivery of net zero and fuel poverty targets at national and local levels.

To arrive at this vision, the foundations for a long-term programme and investment plan for the decarbonisation, resilience and safety of our homes need to be laid through the raft of critical policy decisions expected by the end of this year, building on the positive trajectory set up by the Green Homes Grant. The EEIG has carefully analysed pathways for, and the balance of, public and private investment needed. On this basis, our major recommendations are that by the end of 2020:

  • BEIS extends the retrofit project completion timeline of the Green Homes Grant by at least six months (with vouchers allocated by the end of March 2021), ensures strong delivery of its first phase and other near-term measures, using them as a launchpad for a long-term programme and investment plan for decarbonising homes.
  • HM Treasury, through the Spending Review, allocates a further £7.8 billion of public capital to BEIS for home energy efficiency investment over the four years to the end of this Parliament, building on the energy efficiency funding already allocated in this summer’s Economic Statement. This includes the full deployment of the Government’s manifesto commitments, and would bring the total public energy efficiency investment in homes during this Parliament to £9.2 billion. In addition, it allocates £5.8 billion of public capital over the next four years towards supporting heat pumps deployment in existing homes, drawn from the £100 billion infrastructure budget for this Parliament.
  • HM Treasury, in its National Infrastructure Strategy, designates zero carbon heat and energy efficiency as infrastructure investment priorities and proceeds to establish a new National Infrastructure Bank to bridge economic recovery with achieving net zero, as well as to play an important role in governing delivery and attracting private investment for decarbonising homes.
  • HM Treasury, in its next Budget, introduces a suite of new structural incentives to drive demand for home energy upgrades using Stamp Duty, a Landlords Energy Saving Allowance, reduced VAT and explores a carbon price on natural gas use with compensatory measures.
  • BEIS, in its Heat & Buildings Strategy, brings forward the EPC C target to 2030, sets a new target to halve emissions from heating existing homes by 2030, expands the trajectory for minimum energy performance standards and sets out how to deploy its capital allocations for energy efficiency and heat decarbonisation to complement structural incentives.
  • BEIS, in its Fuel Poverty Strategy, revises the measurement of fuel poverty as it proposed, and places health and wellbeing along with locally led delivery at the heart of how it intends to meet the 2030 fuel poverty target.

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