A net zero target for greenhouse gas emissions provides wonderful clarity. No wondering about the ‘last 20% of emissions’: it’s simple and clear. Everything – all buildings, cars, and industries – must be zero carbon in aggregate by 2050. But we currently burn a lot of natural gas to heat buildings, causing plenty of carbon emissions. And current policies push up electricity prices – deterring anyone from switching to low carbon electrical heating. So how can we make the UK’s gloriously varied building stock zero carbon by 2050? Rather than bossing things from the centre, it makes sense to shape solutions that people and places actually want. And maybe we should shift the balance over time to favour low carbon choices. The value chains for energy in buildings are huge; worth £billions every year. So we need policies to drive restructuring and innovation on a grand scale in everything from building products through to smart controls and home energy apps. Here are six potential steps to build markets to deliver these variegated solutions by 2050:
Step 1: Fund a new wave of place-based low carbon programmes to drive early deployment
Creating demand for early deployment is vital to build up immature low carbon supply chains. A new wave of place-based energy programmes can now start to play a bigger role here. Regions could invest strategically and upskill heating and cooling technicians and installers for the digitalised, low carbon future, with support from the UK Shared Prosperity Fund or Local Growth Deals. Regions can be encouraged to develop innovative programmes targeted on local priorities such as tackling pockets of fuel poverty or improving run-down neighbourhoods, but within UK government and national guidelines.
Step 2: Roll out Local Area Energy Planning
Zero carbon energy solutions will vary depending on local factors, like the state of the building stock, local built environment and local resources such as industrial waste heat. Localities also increasingly want to take charge, in line with local housing and social priorities. The Catapult has shown how local area energy planning, can use robust data and analysis to create integrated energy plans to guide choices and plan collective investment priorities to include energy. This new style of local energy planning is ready to be rolled out.
Step 3: Make energy networks invest to achieve net zero carbon
Investment by gas, electricity and (potentially) new heat network companies will be crucial in creating a new smart mix of flexible zero carbon energy. The precise shape of ‘right’ answers will take time to emerge as we learn from early deployment and innovation. Local energy plans can help to clarify early choices. Network companies now need to start acting and investing with the whole energy system in mind. The plans they give to Ofgem must have net zero at their heart. Ofgem can re-engineer its RIIO processes and guidance to reinforce incentives for this behaviour.
Step 4: Phase in new carbon performance requirements for all buildings
As citizens we all have a responsibility to help deliver and advance net zero. So it makes sense to go beyond the construction industry and ask building owners to improve their carbon performance, similar to the MOT test required of car owners. This could be phased in with plenty of notice before carbon requirements become mandatory, allowing people time to adjust and invest. Such long-dated regulation has been very effective in decarbonising vehicles and, with the example of the closure of coal, the power sector. The market for innovative building upgrades would grow – also stimulated by funding from place-based programmes and schemes like RHI. Property owners would have more incentive to engage with local energy plans and support collective action in hard to treat areas. The current EPC rating system could be replaced with more accurate Carbon Performance Certification based on real data.
Step 5: Reward low carbon choices through energy bills
Low carbon choices and innovation are not currently rewarded through energy bills. We need to shift the balance of energy consumption over time so that low carbon demands become cheaper and mainstream. A new revenue neutral carbon credits scheme linked to carbon performance measured at property level (through smart meters) could do this. The scheme could be operated by energy suppliers and reward consumers with lower emissions. Those whose emissions remain high would need to purchase more carbon credits through their energy bills.
Step 6: Building markets for new finance products for low carbon solutions
Helping people to afford the upfront cost of low carbon solutions will be key. The Green Finance Taskforce showed how new long-term low carbon finance products can help, through green mortgage-style products or an adapted Green Deal style regime. These approaches can reduce lender risk without distorting competition. They can also be bundled with added value and services, as new energy as a service or subscription propositions. These six steps can create a policy environment that stimulates markets AND enables coordinated investment in energy efficient networks to deliver zero carbon buildings. George Day & Arianna Griffa Markets, Policy & Regulation Team – Energy System Catapult
