The Climate Change Committee report — are we on track to decarbonise buildings?
The Climate Change Committee (CCC) recently gave its annual verdict on the UK’s progress towards Net Zero, and the news was not encouraging. According to the Committee, the UK has credible plans in place for only 39% of the emissions we need to reduce up to 2037. So for the majority of what we need to do to fight climate change in the next 15 years, we don’t yet have a credible plan. That is not good.
The message gets even starker when we break down the different aspects of net zero. For electricity and surface transport, most of the UK’s plans are credible (see the CCC’s Figure 5 below). But for everything else — agriculture, manufacturing and buildings — almost none of the plans are considered credible by the CCC. Given that Nesta’s sustainable future mission mainly focuses on decarbonising heat in buildings, that is extremely worrying.
In this piece, I’ll delve into the Committee’s chapter on decarbonising buildings in more detail to try and understand what’s going on.
Energy efficiency and heat pumps — different speeds
The Climate Change Committee’s media lines led on the UK’s failure to insulate enough homes, an example of one of the policy areas that is off track for meeting net zero. The chart below, Figure 4.6, shows just how off track the CCC think we are on insulation. Last year, fewer than 100,000 loft and wall insulations were carried out in the UK’s homes. The Committee suggests we need to increase this rapidly over the coming years, to nearly 2.5 million in 2028. Under current policies, there is almost no chance of achieving that.
One striking thing about the CCC’s Balanced Pathway, though, is how much it emphasises energy efficiency measures over the next decade. This is drawn from the UK government’s ambition for most homes to reach EPC rating C over the next 10–15 years. In the chart below, I’ve compared the number of energy efficiency measures (loft and wall insulation) to the number of heat pumps the CCC suggests should be installed each year. Up to 2028, the CCC envisages a much faster take off in energy efficiency, before heat pump installations take over after 2030. The logic is conventional: insulate homes to reduce energy demand in the short term, then roll out heat pumps and other green heating technologies once the market has matured.
However, the market seems to be behaving quite differently to the CCC’s pathway. Heat pump installations rose by 46% in 2021, and have taken off even faster all over Europe. Energy efficiency installations were up only 12% in 2021, and that’s after years of falling. This partly reflects policy failures on energy efficiency, but may also reflect people’s preferences. Nesta’s recent research has shown that demand for heat pumps is bigger than most people assume, especially once financial incentives are added.
I don’t have firm evidence on this, but it’s possible that people don’t feel so enthusiastic about energy efficiency measures. If that’s true, governments will either need a much firmer policy approach to increase their adoption, or might need to consider going faster on heat pumps, with all of the implications for the electricity grid that entails.
The costs of buying and running a heat pump
The CCC report also contains some analysis on the cost of heat pumps. The chart below shows their analysis of upfront costs, drawn from a Eunomia report for the UK Government which is not yet available to view. The key points are that heat pumps currently cost around £12,000 (according to Eunomia’s analysis), and that the UK Government expects them to fall to under £7,000 by 2030.
This differs significantly from Nesta’s own analysis in our paper, How to Reduce the Cost of Heat Pumps, in which we analysed MCS data on heat pump installations. We found that the median cost of installing an air-to-water heat pump was around £10,500, and that this had increased since 2018 (even after adjusting for inflation). The CCC chart shows the opposite. It is possible that the £12,000 figure includes ground source as well as air source heat pumps (which would be an unusual approach), but without seeing the analysis it is impossible to say.
Perhaps more importantly, we are also much less optimistic than the Uk Government about the prospects for reducing heat pump costs this decade. Most of the cost comes from the installation process, not the heat pump unit itself, which means heat pump installations cannot be mass produced. Homes are all different and require different systems — comparisons between heat pumps and electric vehicles or wind turbines are not appropriate. In our analysis, the most optimistic scenario was for a 27% reduction in upfront heat pump costs by 2030. The UK Government’s target reduction is nearly double that, at 50%. Obviously we hope to be proven wrong on this point, but we would urge everyone involved in making heat pumps succeed to be realistic about costs.
The CCC also includes an excellent chart (Figure 4.12) on running costs for heat pumps, which shows the “sweet spot” for electricity and gas prices to make heat pumps competitive. When electricity is three to four times more expensive than gas, heat pumps have similar running costs to gas boilers (because they are about three to four times more efficient). When the ratio is above four, as it was before the energy crisis, heat pumps generally cost more to run.
Lowering the running costs of heat pumps is critically important — running costs are typically higher than upfront costs over a heat pump’s lifetime. Of course, there is scope to make electricity even cheaper relative to gas, by removing the levies on electricity and by reforming electricity markets to enable cheap renewable electricity to be reflected in household bills. The cheaper electricity gets, the more attractive heat pumps become.
The low carbon buildings workforce
Another interesting chart (Figure 4.14) in the CCC report shows the workforce that will be required to upgrade our buildings, including heat pump installers and skilled retrofit workers. This is based on a report from CITB, the Construction Industry Training Board, and suggests this workforce will need to grow to over 200,000 by 2028, from under 50,000 today. Heat pump installers, the orange block in the chart, will be the biggest job among these in the long term, with the CCC calling for over 70,000 heat pump engineers by 2030 (by which time we’ll be installing over a million heat pumps a year on the CCC pathway).
This analysis is very helpful in showing the scale of retraining and upskilling that’s needed for green homes, but there is something in the numbers which feels awry to me. According to the CCC numbers, each heat pump installer will install between 15 and 20 heat pumps per year, and this won’t substantially increase over time. This seems unusually low to me — unless installers are also working on other jobs, including solar panels, gas boilers and so on.
But even more striking, surely you should aim to increase that figure over time, by gradually raising productivity among installers? If you’re aiming to halve the cost by 2030, surely you do that by cutting the installation time — and so you can install more heat pumps? If you factor installer productivity into these figures, you may need slightly fewer newly trained staff than the CCC suggests.
Homeowner readiness to install a heat pump
Finally, the CCC shares the following graph about how willing homeowners are to install a heat pump. According to a BEIS survey, around 25% of homeowners would switch to a heat pump when their boiler needs replacing, but only 1–2% are actually doing so. That will need to increase to over 20% by 2028, and over 90% by 2035.
Nesta and the Behavioural Insights Team have done our own research on this, which is more precise about the costs people will face in choosing between a boiler and heat pump. In our representative sample of over 8,000 homeowners, we found that when you tell people they have to pay the full price (£10,500 on average) upfront, only 12% choose a heat pump. However, when you introduce incentives, this increases substantially. Adding a £5,000 subsidy increases the heat pump choice by 10 percentage points, while combining lower running costs and a heat pump loan (a cheaper option for governments!) increases it by 24 percentage points. It is clear from our research that demand for heat pumps can be high if the incentives are right, and if a heat pump is an easy choice to make. If the UK Government wants to move up that orange curve, it needs to be more precise about the circumstances when people will and won’t choose a heat pump.
Conclusion: policy needs an upgrade, but so does our analysis
The CCC is right to conclude that the UK Government (and the Scottish and Welsh governments) don’t yet have a credible plan to decarbonise our homes and buildings, even if the approach is broadly right. But there are also some aspects of the CCC’s analysis — the frontloading of insulation measures, the expectation that heat pump costs will fall rapidly, assuming static installer productivity — which also probably merit some more debate. The home heating landscape is developing rapidly, with heat pumps to the fore, and the policy world needs to ensure it keeps pace with it.
