OFTEC: What could be coming down the road?

To drive through the changes needed to reach its carbon reduction targets, the government will need to shake up the current way that things are done in the heating industry. OFTEC has dusted off its crystal ball and here considers a few of the most likely policy options the government may consider.

The last decade has seen little policy success for the government when it comes to reducing emissions. The abject failure of the Green Deal means little progress was made with energy efficiency improvements. Similarly, the RHI, which was scheduled to end in 2021 and now extended for another year, was designed to encourage the deployment of some low carbon technologies yet has completely failed to achieve its objectives. Both schemes have been widely criticized and, with more ambitious carbon targets looming, the government urgently needs to come up with something better.

The successor of the RHI, the Clean Heat Grant Scheme (CHGS) was announced by government on April 28 this year. The CHGS is due to commence from 2022, offering upfront funding of up to £4000 for each household or business purchasing a heat pump or, in limited cases, biomass technologies.

While the CHGS will help, much more is needed, so, what can we expect? It’s likely that a mix of carrots and sticks will form the basis of future heat policy so here’s our review of some of the most likely options:

Cash incentives, scrappage schemes and carbon intensity targets
Probability: Medium. The funds committed to the CHGS are quite limited and the scheme only lasts for two years, so other policy options will be needed. Tax reductions on renewable products or scrappage schemes to support the elimination of fossil fuel systems are all possible. However, in the longer term, driving down the cost of renewables is essential. One way to do this would be to set carbon intensity targets but adopt a technology neutral approach to encourage competition and innovation.

Green mortgages and low interest loans
Probability: Very high. The government has already set up a green finance initiative and is very likely to involve the private sector as a provider of investment and funding opportunities, at both large-scale infrastructure and domestic level. For example, this could include mortgages and loans with preferential interest rates linked to energy efficiency or low carbon retrofit improvements as part of a new government-supported home improvement scheme.

Tighter standards for homes
Probability: High. A Part L consultation for new build recently ended and will tighten energy efficiency standards. Similar changes are likely to be forthcoming for existing buildings. However, policies that force change at key intervention points are also likely. The Scottish government has already proposed that existing homes will not be allowed to be sold unless they achieve EPC band C, and similar ideas will be considered for the rest of the UK too. Such approaches could have far-reaching implications, affecting house values and potentially disrupting the housing market.

Carbon taxes
Probability: Medium. Government may use the tax system to make the cost of fossil fuels such as oil and gas higher as a way of pushing consumers towards renewables. However, taxation is regressive and politically sensitive because it disproportionally impacts on poorer households – who will in any case be least able to afford to switch. Consequently, any changes will need very careful consideration.

Technology bans

Probability: Medium/high. An outright ban on the installation of fossil fuel appliances is certainly possible and is already being considered for new build. Bans on oil have already been imposed in some parts of Europe. However, this approach may lead to problems, particularly if new low carbon fuels such as hydrogen and renewable liquid fuels become available. It is more likely that government will seek to impose progressively tougher carbon emission limits that all technologies much achieve to remain in the market.