This blog sets out some of the wider government policy considerations with respect to decarbonising heating, while an accompanying post covers the details of the Scottish Government’s consultation on a Heat in Buildings Bill.
The role of the Scottish Government
The Climate Change Committee consider heating buildings to be an area where the Scottish Government have ‘significant devolved powers’ (as opposed to ‘largely reserved’ e.g. Electricity Supply). The potential introduction of regulations (the Heat in Building Standard) requiring households and businesses to improve energy efficiency and to install a clean heating system is, in part, being brought forward due to the relatively low impact of existing policy.
Financial incentives
There have been financial incentives available for clean heating systems for nearly 10 years. In Scotland, currently the Home Energy Scotland (HES) scheme offers owners grants up to £7,500 for some energy efficiency improvements, and for clean heating systems (up to £9,000 in rural areas). There are also 0% loans that can be used alongside these to cover further costs. This has been more generous than what is available in England and Wales (although the grant levels for clean heating systems have recently become the same).
The Scottish Government has pledged £1.8bn for heat and energy efficiency measures this parliamentary term, whilst estimating that the total investment needed for decarbonising heat will be over £33bn. A Green Heat Finance Taskforce has published its first report on how to ‘scale up existing financial mechanisms’ in Scotland.
There has been some difficulty persuading people to act on heat decarbonisation. In the 2022-23 Autumn Budget Revision, some energy efficiency and heat budgets were reduced due to uptake being ‘lower than originally forecast’. While there has been low take-up of the Private Rented Sector Landlord Loan, recent interest from owner-occupiers is more contested. The Scottish Government reports 5,000 heat pump installations a year and have stated that the overall take up of HES incentives ‘is currently high, and we expect that demand may exceed allocation’.
Some financial incentives schemes in elsewhere in the UK have also been underperforming. The House of Lords Environment and Climate Change Committee House has said the UK Government has been ‘seriously failing to deliver on its objectives with a disappointingly low take-up of grants’. While some observers have suggested in recent months that net zero policy needs ‘more carrots and less sticks’ the available ‘carrots’ in heat decarbonisation policy have not thus far not proved sufficiently effective.
The HiB Bill consultation states that the Government ‘want to ensure that similar products (0% loans) remain available in future (subject to future budget decisions, made following the usual process)’.
New buildings
There are various other areas where the Scottish Government have been developing policy related to heat decarbonisation. The New Build Heat Standard will see all new buildings consented from April 2024 use clean heating systems. There are also separate plans for new buildings to conform to a Scottish version of passivhaus for which Scottish Government plans to ‘make legislation by December 2024’.
Heat networks
In 2021, the Heat Networks (Scotland) Act introduced powers to regulate the heat networks market in Scotland for the first time. This contained statutory targets for heat network deployment for 2027 (2.6 TWh) and 2030 (6TWh); this is roughly 3% and 8% of current heat supply. This mandate was initially proposed alongside an additional requirement for new heat networks to be low or zero carbon from 2024, although in the final Heat Networks Delivery Plan a commitment to exclusively zero carbon heat in new networks was not thought practical.
Recently passed regulations set a new target figure of 7TWh by 2035. The 2022 Heat Networks Delivery Plan reports 1.18 TWh of heat from Scottish heat networks (about 1.5% of heat supply).
Heat network planning closely links to the recently delivered Local Heat and Energy Efficiency Strategies (LHEES), where every local authority in Scotland must set out how they think heat decarbonisation will be achieved in their area. The Strategies are published alongside Delivery Plans and in some cases include potential heat network zones, areas where properties will be encouraged to connect to heat networks.
Energy Performance Certificates
An Energy Performance Certificate (EPC) is required whenever a property is sold or leased, with the majority of Scottish properties having had an EPC at some point. They are used to enable the operation of several policy programmes but in their current form are frequently cited as being unreliable, in part due to their non-invasive assessments which make it difficult to know, for example, if a property has cavity-wall insulation or not. The Scottish Government has set out to reform the EPC system with the intention of ensuring EPCs “are an appropriate tool for the role that they play, are accessible and clear, and that the value of the data they gather and hold is maximised.’
The role of the UK Government
While decarbonising heating is thought to be a task within which there are ‘significant devolved powers’ there are some very important policy levers that are not controlled by the Scottish Government.
The price of electricity
Probably the most cited is the high price of electricity, and specifically its price relative to gas. While heat pumps are thought likely to be more expensive upfront, than gas boilers for the foreseeable future, lower electricity prices would mean they are less expensive to run.
‘Policy costs’ are a component of electricity bills that are used to fund various schemes such as the renewable obligation. While they have been around 25% of the total electricity bill in recent years, they form a much smaller part of gas bills (about 2%).
‘Urgent action to rebalance energy prices’ has been a longstanding ask of the Scottish Government. The UK Government’s Heat and Buildings Strategy committed to rebalance these policy costs to ensure heat pumps were no more expensive to buy and run than gas boilers. Wider efforts to reduce the cost of electricity include the Review of Electricity Market Arrangements.
The gas network and the potential role of hydrogen
Another critical issue is on the future role of the gas network (a reserved area of policy) and specifically the use of a low carbon gas like hydrogen within it. The UK Government has earmarked 2026 as the point at which ‘strategic decisions on the role of hydrogen for heat’ will be made. The Scottish Government has requested ‘a clear and fast decision on the future role of our gas networks’.
The 2026 date will, in theory, allow for the results of a hydrogen neighbourhood and village trials to inform the decision. These trials – including one in Buckhaven, Fife – have, however, faced opposition and delay which may bring in to question the current timeframe.
Recent statements from the UK Government, however – that there might only ‘be a small role in some localised areas’ – suggest that they are getting close to a decision. The National Infrastructure Commission have also recently concluded that ‘the government should not support the rollout of hydrogen heating’ (although not discounting the potential for solely commercial developments). Their assessment concluded that scenarios with greater hydrogen heating would be more costly, more environmentally damaging and less resilient .
Industry mandate
Finally, a Clean heat market mechanism (CHMM) has been set to launch in 2024 which would require fossil fuel boiler manufacturers to install a certain number of heat pumps proportional to their fossil fuel boiler sales.
A 4% target is expected in the first year which will gradually be increased. The policy is very similar to that recently passed for zero emission vehicles, although the level of ambition in the vehicles policy is much higher; 22% in the first year. In recent weeks, there have, however, been reports that the UK Government may scrap or water down the CHMM.
Summary
While heat decarbonisation is one of the most difficult parts of net zero there is a lot of policy activity on either side of the border designed to smooth its delivery. The initial ambitions of the Scottish Government have been slightly rolled back however, and there is still uncertainty as to when the regulatory timeframe will be legislated for.
It is worth noting that the targets in this sector are not arbitrary but are driven by the Scottish Government’s legislated target of 75% emission reduction by 2030 and net zero by 2045 (ultimately agreed with cross party consensus). The Scottish targets are in turn guided by global emission reduction requirements and the Paris climate agreement.
Less ambitious emission reductions in heating have implications for the next Scottish Climate Change Plan with the potential need for other sectors – agriculture, transport etc. – to deliver bigger emission reductions if heat delivers less.
Niall Kerr and Kate Berry, Senior Researchers