Energy efficiency: building towards net zero Contents

Conclusions and recommendations

Energy efficiency and net zero

1.A major upgrade of the energy performance of the UK’s entire building stock will be a fundamental pillar of any credible strategy to reach net zero emissions, to address fuel poverty and cut energy bills. (Paragraph 7)

Delivering Residential Energy Efficiency

2.It is unacceptable that 18 months after publishing the Clean Growth Strategy the Government is yet to define the condition of “where practical, cost-effective and affordable” that it pinned to the EPC Band C targets. This serious flaw creates policy ambiguity that requires clarification. We recommend that the Government in the first instance sets out the proportion of houses it deems “practical”, “cost-effective” and “affordable” to upgrade to EPC Band C, as well as clear definitions of what these terms mean to provide clarity and accountability. (Paragraph 14)

3.The 95 per cent drop in insulation rates since 2012 demonstrates that progress has slowed to walking pace. The average annual rate at which homes undertake significant energy performance improvements in the UK needs to increase by a factor of seven. If the Government is serious about meeting the energy efficiency aspirations it set out in the Clean Growth Strategy, it needs to rapidly shift a number of policy gears in order to achieve this rate of acceleration. (Paragraph 20)

4.It is unacceptable for the Government to use the Energy Company Obligation (ECO) to mask its lack of commitment towards energy efficiency. The disparity between the public money invested per capita in England to support households to make energy efficiency improvements compared to what is made available in the rest of the UK implies that the Government considers it less of a priority than its counterparts in the devolved administrations. We encourage the Government to view energy efficiency as a public good that can unlock a full suite of public benefits, rather than a cost to diminish or outsource. (Paragraph 27)

5.There is a clear and considerable investment shortfall to meeting the Government’s energy efficiency targets. If the Government does not address this deficit, it is likely to end up in contravention of statutory fuel poverty and climate targets. The Government cannot rely on market mechanisms alone to bridge the gap. There are upfront costs, but BEIS itself accepts that there are significant long-term returns on energy efficiency investment. (Paragraph 31)

6.Only with HM Treasury backing will enough upfront investment be made available to meet the UK Government’s EPC targets. We are concerned that BEIS will fail to secure investment for energy efficiency at the forthcoming Comprehensive Spending Review if it does not have a sufficient grasp of what its own EPC targets mean in practice, nor the required costs to meet them. We are also concerned that the Government will use the caveat of where “practical, cost-effective and affordable” that it affixed to its EPC targets as a vehicle to circumvent upfront costs. If the Government will not back energy efficiency, one of the cheapest measures to reduce emissions, it will not bode well for the other, costlier actions required for decarbonisation. The Spending Review will provide a litmus test for whether the Government is serious about energy efficiency, and in turn net zero. (Paragraph 34)

7.We recommend that BEIS sets out with greater precision how much total capital investment will be required to meet its EPC Band C targets, as the range of the current estimate is too wide to be helpful. We strongly recommend that the Government does not use the caveat it attached to its EPC Band C targets as a means to minimise costs, and instead the Government’s ambition should meet what is required to reach the goals of the Paris Agreement. (Paragraph 35)

8.We also recommend that BEIS determines how much public funding will be needed to leverage enough private investment and to consider the available evidence which indicates that a minimum of £1 billion per year of additional public capital investment will be necessary. We further recommend that BEIS strongly makes the case for energy efficiency and negotiates with HM Treasury ahead of the Spending Review to guarantee that adequate investment is secured to resuscitate the Government’s efforts to meet its EPC targets. (Paragraph 36)

9.The ambition of the Paris Agreement obliges rapid intervention in almost every building in the country. We do not see how a task of this enormity can be accomplished without energy efficiency being designated as an infrastructure priority. The Scottish Government recognised this in 2015 and is already delivering energy efficiency improvements through a long-term and properly funded infrastructure programme. (Paragraph 45)

10.Treating energy efficiency as a national infrastructure priority is more than just signalling. It can transform the mindsets of policymakers and position energy efficiency as a public good that requires clear, coherent, coordinated governance arrangements, targets, a long-term action plan as well as sustained Government funding. It would ensure that energy efficiency is consistently classified as investment rather than expenditure in Government accounting, allowing for appraisals that put it on a level playing field with other infrastructure projects. It is crucial to overcoming a disjointed policy landscape and would signal to the market that energy efficiency is a wise long-term investment. (Paragraph 46)

11.We recommend that the Government follows the advice of the Committee on Climate Change—and almost all stakeholders in the sector—to treat the energy efficiency of all buildings across the UK as a national infrastructure priority and implements the policies to reflect this. (Paragraph 47)

12.A more comprehensive assessment by the National Infrastructure Commission is required on the funding needed to deliver an energy efficiency infrastructure programme. It is crucial that this assessment takes into account the Government’s fuel poverty and carbon reduction targets. We recommend that the Government asks the National Infrastructure Commission to produce a dedicated report on energy efficiency that quantifies the investment needed to meet its EPC targets. (Paragraph 49)

Fuel Poverty Policy

13.The Energy Company Obligation (ECO) has value in delivering low-cost measures, but it should not operate in isolation. ECO is underfunded, and those most in need may be neglected under current targeting, or unable to access ECO as the top-up funds are prohibitively high. To ensure the Government’s fuel poverty ambitions are met, additional schemes to complement ECO will be needed. (Paragraph 59)

14.We conclude that central funding for fuel poverty is needed. We recommend that the Government follows the example of the devolved nations by supplementing ECO with central Government funding for fuel poverty. (Paragraph 64)

15.We appreciate that devolving greater responsibility for fuel poverty would represent an added requirement for local authorities at a time when their resources are stretched. However, the examples of local schemes, including some in England, make it clear that devolving greater responsibility for fuel poverty to local authorities can be a success. The Government needs to properly resource local authorities to enable the progress made elsewhere to be replicated. (Paragraph 69)

16.Different areas have different fuel poverty challenges, and local authorities are best placed to tailor and target support to where it is most needed. We recommend that the Government develops a formula to allocate central funding to local authorities based on need. Local authorities should be subject to a new statutory requirement to spend these funds on energy efficiency in vulnerable homes but should retain flexibility in how they do so. (Paragraph 70)

17.It is vital that no fuel poor home should fall through the gaps if they are not identified by either their energy supplier or their local authority for assistance on energy efficiency. We recognise the value of Wales’ Nest and Scotland’s Warm Homes schemes in providing a safety net of national funding to which all fuel poor homes can apply. We recommend the Government establishes a central national fund to provide access to assistance for all low-income, vulnerable and fuel poor homes. (Paragraph 74)

18.It is disingenuous of the Government to include the Warm Homes Discount in the energy efficiency fuel poverty figures as this distorts evidence of progress and obscures the true number of households that will be missed under the Government’s 2030 statutory target. We recommend that the Government no longer counts the Warm Homes Discount towards fuel poverty energy efficiency targets. (Paragraph 77)

19.Funds for lowering energy bills should be targeted in a cost-effective way and should seek to achieve lasting change. In principle, we are in favour of refocusing the Winter Fuel Payment to those most in need. However, we recognise that unintended consequences, such as high administrative costs, may limit the cost effectiveness of any change. We recommend that the Government assesses the value of refocusing the Winter Fuel Payment to those most in need and using any savings to invest in energy efficiency programmes for fuel poor households. (Paragraph 79)

20.Over two years after the publication of the Each Home Counts review, the Government has no excuse for the delays in implementing all of the recommendations. The longer the Government neglects this issue, the more people are at risk from sub-standard interventions in their homes. We recommend the Government immediately brings forward the necessary secondary legislation requiring ECO funds to be spent only with companies accredited by the new Trustmark quality scheme. We recommend that the Government puts in place the necessary monitoring and feedback mechanisms to ensure that the Trustmark scheme is operating effectively to provide consumers with adequate protection. (Paragraph 84)

21.A system to provide personalised and tailored advice is vital for the building of public engagement and consumer trust in energy efficiency. We recommend the Government implements the other recommendations of the Each Home Counts review, including expanding the information hub to provide access to trained advisors who can give customers tailored and personalised support. (Paragraph 87)

Able to pay

22.The Government’s announcement in July 2019 of a £5 million Green Home Finance Innovation Fund is woefully inadequate to stimulate demand for energy efficiency within the ‘able to pay’ sector and drive the scale of supportive action needed by the financial sector. The Government’s lack of ambition is particularly disappointing given international evidence that attractive finance and incentives have the potential to pay for themselves through VAT alone. It is also regrettable that the Government’s Green Finance Strategy rejected the Green Finance Taskforce’s key recommendation of linking Stamp Duty to energy efficiency. We remain none the wiser as to how the Government intends to meet its target for all homes to reach EPC Band C by 2035 without providing sufficient incentives for the market to grow. At present, this remains an empty commitment. (Paragraph 100)

23.We recommend that the Government publishes its energy efficiency ‘Action Plan’ without further delay to explain how it intends to meet its EPC Band C 2035 target. We recommend that the ‘Action Plan’ drastically increases the £5 million allocated to the Green Home Finance Innovation Fund, to underpin a coordinated demonstration programme that tests a comprehensive and varied package of incentives and finance mechanisms for the ‘able to pay’ market. This should include a Stamp Duty incentive and low-interest loans, in addition to green mortgages. This demonstration programme needs to go well beyond the Green Home Finance Innovation Fund to be delivered at scale. We further recommend that the Government engages seriously with the retail banks to put in place the necessary enticements to ensure that attractive energy efficiency products that can be delivered on a nationwide basis are developed. (Paragraph 101)

The Rented Sector

24.The Government should be more resolute in its approach to regulating the energy efficiency of the private rented sector, so only exceptional and exorbitant costs can be avoided by landlords. We are concerned that current ceiling of £3,500 that is attached to the Minimum Energy Efficiency Standards (MEES), allowing landlords to claim an exemption if works exceed this level, seriously restricts the scope of the regulations. We therefore recommend that the Government raises the current cost cap attached to the private sector regulations to £5,000 so the regulations achieve closer to the 70 per cent upgrade of the lowest rated properties that was envisaged when first developed. (Paragraph 109)

25.We welcome the Government’s strengthening of the Minimum Energy Efficiency Standards, but with strained local budgets and competing priorities, we are concerned that there is weak enforcement of the regulations by local authorities, making them effectively valueless. We recommend that the Government rigorously monitors enforcement of the regulations and properly resources local authorities to ensure that they have capacity to impose the standards. (Paragraph 113)

26.The Government wants the social housing tenure to be a “flag bearer” but has failed to set out a trajectory for the sector, let alone a policy framework. Social landlords have to balance supporting investment in energy efficiency and the limitations of cost recovery; ensuring future investment is not taken away from provision of new homes. We are concerned that the social housing sector is not going to be able to undertake more complex, expensive works without a change in policy or investment. (Paragraph 118)

27.We recommend that the Government acts with urgency to agree a trajectory and strategy for the social housing minimum standards. We recommend that the Government carefully considers the recommendation of the National Infrastructure Commission to allocate £3.8 billion to social housing between now and 2030. If the Government does not accept this recommendation, it should clearly set out in its response to the National Infrastructure Commission an alternative approach to upgrading this tenure. Once the Government puts a delivery mechanism in place for the social housing tenure, we recommend that social landlords are required to have a 30-year plan showing how they will manage their stock to ensure the tenure is aligned with the UK’s climate obligations. (Paragraph 119)

New Build Properties

28.We welcome the announcement of a Future Homes Standard. Any attempts by housebuilders to water down the standard should be blocked by the Government. The only barrier precluding housebuilders developing to higher standards before 2025 is a preoccupation with profit margins and shareholder returns. Despite receiving billions in taxpayer funds, most housebuilders will only raise the energy standards of their stock if forced to do so. Progressive housebuilders who want to go further are being held back by the laggards who actively lobby the Government to boost their profits, rather than help meet carbon reduction obligations. (Paragraph 126)

29.We recommend that the Government legislates for the Future Homes Standard as soon as practically possible—and by 2022 at the very latest—to guarantee that no more homes by 2025 are built that need to be retrofitted. We recommend that the Government considers policy drivers at its disposal to drive early uptake. At a minimum, the Government should put in place a compulsory ‘learning period’ from 2022 in a subset of properties in preparation for the full-scale deployment. The Government should oblige bigger housebuilders to undertake regional demonstration projects to show how they will achieve the standard. (Paragraph 127)

30.It is unacceptable that new developments are not always built to the latest building standards. The classification of what counts as a commenced building project is too lax. This provides developers with a loophole that allows them to claim a project is too far advanced to meet changes to Building Regulations. As a result, a substantial number of new homes are being built to outdated standards. If loopholes are not closed it will almost certainly be much later than 2025 before we actually see houses with “world-leading” levels of energy efficiency built. The Government cannot continue pandering to housebuilders’ claims that delivering the latest standards would stall development. We recommend that the Government urgently closes those existing loopholes that allow homes to be built which do not meet the current minimum standards for new dwellings. The Government must ensure that the most recent building standards are complied with in all but exceptional circumstances. (Paragraph 132)

31.Those who purchase homes that are built to outdated standards should not be provided with EPCs that are based on outdated modelling. This typically results in their energy efficiency rating being overstated, so when the home owner goes to renew their EPC they will find that they have been misled. We recommend that the Government requires that the EPC provided to the home purchaser must be the most current version. (Paragraph 133)

32.It is highly regrettable that the Building Regulation regime enables developers to sell homes that do not meet the energy efficiency standards they advertise, with no risk of discovery. Currently, the house purchaser has no way of knowing what was ‘designed’, never mind whether the property actually operates to that energy efficiency standard in practice. Developers should be bound to the standards they advertise, and consumers should be able to access redress when these are not met. (Paragraph 138)

33.We recommend that the Government ensures the ‘as built’ performance of homes is better monitored. The Government should incentivise the voluntary take up of ‘as built’ testing while it puts in place a suitable framework for this to become mandatory. The direction of travel must be for the Government to mandate percentage level testing of ‘as built’ thermal performance of new dwellings and for housebuilders to be required to publish their results. (Paragraph 139)

34.We also recommend that the Government requires housebuilders to provide the information used for the Standard Assessment Procedure calculation to the purchaser. Should this be incorrect there is then a ‘risk of discovery’ and the housebuilder would be open to a legal claim through existing routes. (Paragraph 140)

Commercial Buildings

35.The market is not delivering change at the pace needed within the commercial sector and neither is the current regulatory framework. The Government should act swiftly to agree a trajectory for the ratcheting up of the Minimum Energy Efficiency Standards for commercial buildings. We recommend that the Government assesses the viability in raising the Minimum Energy Efficiency Standards for rented commercial properties to EPC Band B by 2035, with milestones of D and C in the lead up time. (Paragraph 148)

36.The strengthening of design ratings will not deliver the full energy efficiency potential available for commercial buildings. There is strong evidence that mandatory operational ratings can successfully reduce energy use. We recommend that the Government moves to the public disclosure of operational energy data for the commercial sector, and the use of rating tools that focus on performance outcomes, from 2020. (Paragraph 151)

37.The Government should improve the Energy Saving Opportunities Scheme (ESOS) so that it is more obviously geared towards driving business investment in energy efficiency. We recommend that the Government requires ESOS audits to be publicly available and to mandate that businesses in scope of ESOS demonstrate that they have acted on the energy saving opportunities identified. (Paragraph 153)

38.We see no reason why the “world leading” levels of energy efficiency that will be provided by the Future Homes Standard cannot be extended to new commercial buildings. In the upcoming review of Building Regulations, we recommend the inclusion of an equivalent energy efficiency standard for the development of commercial buildings, not just homes. By 2025, no new commercial buildings should be built that will require energy efficiency retrofits. (Paragraph 155)

Published: 12 July 2019