7.In June 2019, Parliament enshrined in law the net zero target, thereby committing the UK to reduce emissions by “at least” 100 per cent below 1990 levels in 2050. Most sectors will need to reduce emissions close to zero and those that are difficult to decarbonise completely will be able to use offsetting and negative emissions technologies.
8.The Climate Change Committee (CCC) has said that to meet net zero, the UK’s building stock needs to be nearly completely decarbonised by 2050. Low-carbon heat cannot be deployed cost-effectively unless buildings are properly insulated. The CCC has repeatedly warned that energy efficiency needs addressing immediately if the UK is to meet its Fourth (2023 to 2027) and Fifth (2028 to 2032) Carbon Budgets. The National Infrastructure Commission has highlighted energy efficiency as a vital component to the “most effective and cheapest total-system-cost approach to decarbonising the energy system” in its National Infrastructure Assessment issued in July 2018.
9.The energy efficiency performance of a building is currently assessed by an Energy Performance Certificate (EPC). These are graded on a scale of A (most efficient) to G (least efficient), and have two metrics: a fuel cost-based energy performance rating and a rating relating to CO₂ emissions. To achieve net zero, the CCC recommended that all buildings achieve EPC C over the next 10 to 15 years. Yet the latest Government data has indicated that 16 million homes in England—two thirds of the English total—and nearly 19 million homes across the UK, have EPC ratings of D or worse.
10.The Government’s ambitions on energy efficiency are set out in the Clean Growth Strategy issued in October 2017. It included an aspiration for homes in England and Wales to achieve EPC Band C by 2035, where cost effective, practical and affordable. Progress towards this ambition has stalled, and it was introduced in the context of the UK’s previous greenhouse gas emissions target for an 80 per cent reduction by 2050. E3G, a climate change think tank, told us that in light of the net zero target, the ambition was no longer appropriate and should be reviewed. E3G suggested that a target should be brought forward to 2030 and recalibrated so that homes should be required to achieve a rating higher than EPC C. Pedro Guertler, E3G’s programme leader, explained that any emissions reduction scenario would require the decarbonisation of the domestic property sector to a greater extent than in other sectors, since it was demonstrably achievable: delivery here would reduce the risk to the overall target from emissions failure in other sectors.
11.The Energy Efficiency Infrastructure Group (EEIG), a collaboration of leading industry and trade bodies, said that the Government’s ambition needed to be increased. They suggested that bringing the target date forward by five years would increase the associated benefits to the economy, jobs and health from delivery of the policy. Policy Connect argued that, if underpinned by appropriate levels of public investment, accelerated energy efficiency targets had the potential to create much needed new jobs, vital infrastructure and resilience to help tackle the expected unemployment crisis. The Department for Business, Energy and Industrial Strategy (BEIS) told us that “in light of the introduction of the net zero target [in 2019], we are considering, as part of the development of a Heat and Buildings Strategy, whether implementation needs to go further and faster”. The Government has since launched a consultation to upgrade the energy efficiency of private rented sector homes in England and Wales.
12.In 2018, 85 per cent of homes in England had full double glazing, up from 71 per cent of homes in 2008. Almost half (49 per cent) had cavity or solid wall insulation and 38 per cent had 200mm or more of loft insulation. Many of the energy improvement measures that are easier to install with lower levels of disruption (e.g. loft insulation, condensing boilers) have already been achieved. To make the necessary significant impact, much deeper retrofits will be required, and the scale, cost and challenge of deployment should not be underestimated.
13.Katie Black, director of policy at the National Infrastructure Commission, told us that the retrofitting of energy efficiency measures was difficult in the UK, because it had one of the oldest and least efficient housing stocks. Jenny Hill, from the Climate Change Committee, said that the most challenging and expensive properties to insulate were those built before 1919, as they had solid walls as opposed to cavity walls. Solid walls are less energy efficient than cavity walls and are more expensive to insulate. There are around eight million solid wall properties in the UK. They are more likely to be located in rural areas, and if so, they are less likely to be connected to the gas grid and may be more difficult to access and more reliant on heating oil or LPG fuel systems.
14.Jonathan Ducker, from the insulation firm Kingspan, told us that “there will always be something that can be done to improve the overall energy performance” of a property. As every home is different, there needs to be a plan and package of measures for each specific building. Dr Joanne Wade, from the Association for Decentralised Energy cautioned about blanket exemptions from retrofit requirements, and advised the Government to prepare policies to encourage innovative approaches to properties which appear hard to upgrade:
… it is important that we do not leave these homes behind. All our homes need to be fit for the future. We cannot leave some households behind just because of the sort of house they live in.
15.The National Infrastructure Commission has found that driving widespread improvements in energy efficiency is notoriously difficult. The Climate Assembly UK provided us with an insight into what the public see as the challenges to implementing energy efficiency measures in their homes (box 1).
Box 1: Climate Assembly UK findings
Commissioned by six select committees, Climate Assembly UK examined how the UK should meet its target of net zero greenhouse gas emissions by 2050. The assembly’s 108 members were representative of the UK population in terms of: age, gender, ethnicity, educational level, where in the UK they live, whether they live in an urban or a rural area, and their level of concern about climate change. Its views were sought on energy efficiency and taken together their votes and comments painted a nuanced picture of their views on retrofits. Assembly members saw three areas as particularly important:
Disruption. Many assembly members were keen to minimise disruption in people’s homes. They had different views on whether it would be better to have less disruption more often, or one much more major disruption. However, it was clear that anything that could be done to minimise disruption and stress for people during retrofits would be welcome.
Cost, who’s paying and how. Assembly members talked about costs in relation to both ‘upgrading homes all in one go’ and ‘upgrading homes gradually’, but felt they were particularly important in relation to the all-in-one retrofits. Assembly members had a range of suggestions for steps that might help, including spreading out payments, ways of bringing down the initial cost, and government funding. Some assembly members noted concerns around how to make retrofits affordable for all income groups and housing types.
Flexibility and choice. The idea that householders should be able to choose the solutions best suited to them featured prominently in assembly members’ discussions and comments, although slightly less so than the two areas mentioned above. Assembly members also raised points around impacts on CO2 emissions, work quality, and the availability of improved technology, among other issues.
16.BEIS has acknowledged that “the built environment will need to be almost completely decarbonised by 2050, and that achieving this must be through a mix of energy efficiency and a transition to low carbon heat”. Estimates of the investment needed to bring all homes up to EPC C vary. BEIS’s preliminary estimate is that it will require mobilising between £35 and £65 billion across the UK to 2035: the range is dependent on the number of homes, the degree to which they are practical, cost-effective and affordable to renovate, and the heat decarbonisation pathway. It is difficult to extrapolate the average cost per home given the various assumptions, but if all 19 million were included it would vary between £1800 and £3400 per property. Ministers confirmed to us that this cost estimate does not include the transition to low carbon heating in homes, i.e. installation of heat pumps.
17.The Climate Change Committee analysed the investment needed in its Sixth Carbon Budget advice to Government. Its “balanced net zero pathway” entails £55bn of investment in home energy efficiency to 2050 across the UK. This corresponds to a similar level of ambition as the Government’s EPC C targets and envisages the insulation of 3.1 million cavity walls, 11 million lofts and 3.4 million solid walls (with a priority on homes occupied by fuel poor households, which make up 1.2 million of these), together with floor insulation, heating controls and other measures. The total investment costs are estimated to be less than £10,000 per household on average and 63 per cent of homes need spend no more than £1,000 on retrofitting energy efficiency measures. Crucial to its calculation, the CCC excluded just over half of solid wall properties (4.6 million) and all houses in conservation areas (one million) from its estimates, significantly reducing the overall estimated costs. The CCC has also estimated that to upgrade energy efficiency of existing properties and to install low carbon heating methods would cost £250 billion to 2050 (see figure 2). Under this scenario, not all of the funding needs to come from central Government, but from a range of measures such as information and advice, minimum standards, financial incentives, low cost loans and preferential mortgage rates could be used. These are explored further in chapter four.
Figure 2: Sixth carbon budget modelling: existing homes. Household investment and operating costs, Balanced Pathway
18.The Energy Efficiency Infrastructure Group, a trade body, estimated that to improve all UK homes to an energy performance rating of C by 2030 would require £73 billion investment in total, (equivalent to an average of around £3800 per property), with at least £18 billion from public investment in addition to the Energy Company Obligation and Devolved Nation programmes, bringing the policy support total to £25 billion over ten years. This is somewhat higher than the BEIS estimate, and represents investment over a shorter timeframe.
19.We heard from two housing providers that costs could be significantly higher. Estimates developed for Leeds City Council and BEIS had calculated that it would require an investment of approximately £7bn to upgrade all homes in Leeds (340,000) to Building Regulations Part L standard (equivalent to EPC level high C/ low B) to 2035. The average cost to upgrade a home in Leeds to Part L building regulations is presently £17,700, and with an air source heat pump this figure rises to £23,900. Karen Brown from the Northern Housing Consortium said that the Consortium’s “modest estimate” was an average of £19,300 per property, plus £5,000 for a heat pump. These estimates are significantly higher than the CCC and BEIS estimates for individual homes, but include both easy and hard to treat homes and represent retrofitting to a higher EPC standard (a high C/ low B).
20.In the BEIS calculation, an affordability limit was set at £5,000 plus a percentage of property value which was varied between two and four per cent. Given the high average cost estimates for retrofitting properties in Leeds and elsewhere in the North of England, the homes reckoned in the estimates we describe above would not meet the Government’s affordability and cost effective criteria. We are concerned that, under the Government’s assumptions, this is a significant number of households who will be left behind without energy efficient homes and we are concerned about the impact this could have on their wellbeing and the value of their homes.
21.In its manifesto for the 2019 general election, the Conservative Party pledged that it would commit £9.2bn to energy efficiency measures, as follows:
22.On 8th July 2020, the Chancellor of the Exchequer announced a package of energy efficiency measures, including £2 billion of funding for a Green Homes Grant, which we discuss in greater detail below. The outcome of the Spending Review 2020, announced in November 2020 and covering the financial year 2021/22, was to allocate a further £475 million to “make public buildings greener”, £150 million to “help some of the poorest homes become more energy efficient and cheaper to heat with low-carbon energy”, and a further £60 million to retrofit social housing. It also extended the Green Homes Grant with £320 million of funding in 2021–22. To date the Government has announced just over £4 billion of the £9.2 billion for energy efficiency measures pledged before the 2019 election (table 1) on top of Energy Company Obligation funding of £640 million a year. These schemes will be analysed in chapters three and four. In the Energy White Paper, the Government suggested that additional funding could be announced in a forthcoming Heat and Buildings strategy. Table 2 provides a summary of the number of properties requiring an upgrade and the support available by tenure type.
23.Households are typically grouped into three broad categories, depending on the type of tenure of the property: owner occupiers, social renters and private renters. In 2018 there were an estimated 24.2 million dwellings in England, including both occupied and vacant homes. Of these, 15.3 million (63 per cent) were owner occupied, 4.8 million (20 per cent) were privately rented, 1.6 million (seven per cent) were rented from a local authority and 2.5 million (10 per cent) were socially rented housing association homes (figure 3). Government policy has tended to be devised by type of tenure: properties in each type have their own challenges and possible solutions to the organising and financing of energy efficiency retrofits.
Figure 3: Dwellings by tenure in England, 2018
24.‘Owner occupiers’ are those that are outright owners or those that have a mortgage or are part of a shared ownership scheme. In 2018–19, 34 per cent of households were outright owners and 29 per cent owned their property with a mortgage. There are over 10 million owner occupier households in England in properties with EPC bands below C (poorer performers). Owner occupiers are often called the ‘able to pay’ sector: but since they also comprise the highest proportion of fuel poverty households across the three tenures, this is clearly a misnomer and an unhelpful generalisation.
25.Energy efficiency has been improving in this sector, owing to the improved efficiency of boilers (e.g. from the rollout of condensing boilers) and the installation of insulation in easy-to-reach spaces in many homes, such as lofts and cavity walls. Yet uptake of these measures has stalled, as Government support and incentives for energy saving have been reduced. We heard that Government policy and investment could play an important role in incentivising innovation, either through funding to support financial product innovation or through guaranteeing schemes to mitigate the risk of investment by the privately owned sector.
26.The private rented sector has a number of older properties which continue to be in the lowest energy efficiency bands. In 2018–19, the private rented sector had the highest proportion of homes which did not meet the Decent Homes Standard (25 per cent) compared to the social rented sector (12 per cent) and owner occupied homes (17 per cent). In the North of England, 67 per cent of the private rented sector at EPC band D or below, with 63,000 properties in the worst bands of F and G. It appears that progress in the rental market has been constrained by “split incentives”, where landlords meet the costs of energy efficiency upgrades while tenants are perceived to reap the benefit from lower heating costs. Minimum energy efficiency standards were introduced in 2018 for those wishing to rent their homes privately, making it illegal to enter a new tenancy agreement without an EPC rating of E or above unless specified exemptions apply, but we have heard that enforcement of such standards has been an issue. Minimum standards are discussed in chapter four.
27.The social rented sector is performing better than the private sector on energy efficiency, in part due to wider use of cavity wall insulation given the age profile of the estate, but also because it contains a higher proportion of flats, which have less exposed surface area (external walls and roofs) through which heat can be lost than detached or semi-detached houses. Social landlords own these properties in perpetuity, so they have the opportunity to make more long-term decisions. We heard that, since the introduction of the ‘right to buy’, no housing estates are wholly owned by a local authority. All such housing is now mixed tenure, meaning that area-based schemes that address all tenures are needed.
28.There is little that social tenants can do on their own to improve the energy efficiency of their homes, as they are reliant on the social landlord to implement changes. We heard that housing associations can deliver effective energy efficiency programmes at scale due to their expert knowledge of stock, understanding of customer behaviour and established partnerships with industry, government and service providers. Local authorities with housing responsibilities are able to identify vulnerable households and draw together partnerships to lever in funding and align activity at a local level. We also heard how they have a limited budget and have a limit on the rental income that can be charged. Rental income is usually spent on maintenance, so when it comes to some of the more expensive measures, where there is a longer payback, these authorities have to build a business case to gain access to funding. Leeds City Council told us it had used a range of funding for energy efficiency projects including from the Energy Company Obligation, European Union funds such as the European Regional Development Fund, the feed-in tariff and the Renewable Heat Incentive. The preparation of business cases of this complexity requires local authorities to have project staff and many do not have adequate resources to allow this.
29.The scale of the challenge to retrofit existing homes to tackle the climate crisis is enormous. Energy efficiency is a precursor to the transition to low carbon heat, so action must be taken in the 2020s to set homes on a decarbonisation trajectory to meet our net zero targets. The Government’s current targets for domestic energy efficiency are set for an 80 per cent reduction in emissions by 2050 and not the net zero target established in law. Yet the Government is not on track to meet even this.
30.There is a wide variation in the costs for bringing all homes in the UK up to an EPC grade C. We have heard of costs averaging £18,000 to retrofit a property, before addition of a heat pump. Given that there are around 19 million properties in the UK in need of some energy efficiency upgrade, we consider that the overall cost to meet net zero from domestic buildings could be far more costly than the Government’s estimate of between £35 billion and £65 billion.
31.We recommend that the Government review the feasibility of its aspiration to achieve a minimum of EPC band C by 2035, given current progress on improving energy efficiency. As well as setting out how it plans to meet existing targets, it should set out a strategy to increase ambition in line with its commitment to net zero through its Heat and Buildings Strategy.
32.We recommend that BEIS review its cost projections on energy efficiency and includes the cost of low carbon heating. The Department should consult the building and retrofit sector to ensure that its top-down modelling reflects real-world costs. It should also set out the proportion of efficiency improvements it expects to be paid for from the public purse, and how many homes it considers out of scope for energy efficiency improvements under its definition of “cost effective, practical and affordable”. There is a danger that these homes will be left behind, and this could impact on wellbeing and create permanent blight. The Government should explain in response to this report what its strategy is for those homes that will not achieve its energy efficiency aspirations.
11 Climate Change Committee. 2019.
12 E3G ()
13 Climate Change Committee. 2019. ; Climate Change Committee. Progress Report to Parliament , , , and .
14 National Infrastructure Commission. 2018.
15 Climate Change Committee. 2020. . Using the CCC’s balanced pathway. This energy efficiency programme is also underpinned by a timetable of standards – rented homes achieve EPC C by 2028 in line with new Government proposals, with social homes aligned to the same timetable.
16 BEIS. 2020. , p100
17 Not every home has an EPC and national housing surveys are based on samples. BEIS Committee, 2019. . HC1730
18 HM Government. 2017.
19 Climate Change Committee. 2019.
20 E3G () See also Energy Saving Trust ()
22 Energy Efficiency Infrastructure Group. 2020.
23 Policy Connect
24 Department for Business, Energy and Industrial Strategy ()
26 MHCLG.2020. , Headline Report
27 Department of Architecture and the Built Environment, Faculty of Environment and Technology, University of the West of England ()
29 [Simon Bittlestone]
30 ; The English Housing Survey estimated that 22% of the total housing stock in England was built before 1919. MHCLG.2020. , Headline Report
31 Historic England ()
34 National Infrastructure Commission. 2018.
35 The six Select Committees were Business, Energy and Industrial Strategy; Environmental Audit; Housing, Communities and Local Government; Science and Technology; Transport; and Treasury.
36 BEIS Committee. 2019. Energy efficiency: building towards net zero: . 30 October 2019. Department for Business, Energy and Industrial Strategy ()
37 BEIS Committee. 2019. Energy efficiency: building towards net zero: . 30 October 2019.
39 Climate Change Committee. 2020.
40 Climate Change Committee ()
41 Climate Change Committee. 2020. , p 120
42 Climate Change Committee ()
43 Climate Change Committee () and CCC. 2016.
44 Climate Change Committee. 2020. , p 121 Element Energy for the CCC (2020) Development of trajectories for residential heat decarbonisation to inform the sixth carbon budget; CCC analysis.
45 Energy Efficiency Infrastructure Group. 2020. , see also UKGBC () Energy Saving Trust ()
46 £15,800 for a Victorian back-to-back, £21,400 for homes in affluent areas and £9,500 for tower blocks.
47 £21,600 for a Victorian back-to-back, £27,400 for homes in affluent areas and £17,700 for tower blocks. Economies of scale and process improvements are not taken into account. ; Arup report for Leeds City Council and Department for Business, Energy and Industrial Strategy City Decarbonisation Delivery Plan, Leeds Intervention 1 Domestic Property Upgrades. July 2020.
49 BEIS Committee. 2019. Energy efficiency: building towards net zero: . 30 October 2019.
50 Conservative and Unionist Party
51 Confirmed in the fuel poverty strategy to be spent on Home Upgrade Grants
54 Ministry of Housing and Local Government. 2020. , Headline Report
55 Ministry of Housing and Local Government. 2020. , Headline Report, p25
56 MHCLG.2020. , Headline Report
57 40% of homes nationwide do not have an EPC certificate. )
58 Committee on Fuel Poverty (). There are 2.4 million households in fuel poverty representing 10.3% of all households in England: 51% of the fuel poor are owner occupied; 34% are in the private rented sector; and 15% are in social housing.
59 Committee on Climate Change, (Feb 2019): Page 11; Professor Nick Eyre, University of Oxford, , UK Climate Assembly (Feb 2020)
60 Coalition for the Energy Efficiency of Buildings , E3G ()
61 National Residential Landlords Association ()
62 MHCLG.2020. , Headline Report
63 Northern Housing Consortium ()
64 BEIS Committee. 2019. . HC1730
65 Chartered Institute of Environmental Health ();
66 MHCLG.2020. , Headline Report
67 [Russell Smith]
68 [George Munson]
69 National Housing Federation (); [Karen Brown]
70 [Karen Brown]; Local Government Association (); see also ; Greater Manchester Combined Authority (); Leeds City Council, Leeds City Council, Greater Manchester Combined Authority, Nottingham City Council (); UKGBC ()
71 [Russell Smith]
72 [George Munson]; see also [Karen Brown]