Buildings and the 5th Carbon Budget

Transcription

1 Westgate House 2a Prebend Street London N1 8PT pedro@ukace.org Buildings and the 5th Carbon Budget Research report prepared by Pedro Guertler (ACE Research Director) and Dr Jan Rosenow (RAP Senior Associate) with support from the European Climate Foundation Acknowledgements We are grateful to the European Climate Foundation for supporting this project. We extend particular thanks to the Committee on Climate Change s David Joffe and Emma Vause for their feedback on our work, and to its Chairman, Lord Deben, for his inspiring address to the policy roundtable on this project hosted by Dr Alan Whitehead MP and held on September 14 at Portcullis House. We would also like to thank the roundtable s other participants for their valuable contributions, which helped us improve this report and our policy recommendations: Sam Hall Bright Blue Andrew Warren British Energy Efficiency Federation Tom Randall Demand Logic Matthew Webb Department for Business Energy and Industrial Strategy Gavin Killip Environmental Change Institute, University of Oxford Erica Hope European Climate Foundation Andy Deacon Future Climate David Harrison Greenstone Finance Lucy Shadbolt InstaGroup Katie Black National Infrastructure Commission Liz Warren SE 2 Richard Lupo Sustainable Homes Mike Fell University College London

2 Executive summary The last 18 months have seen a lot of change in the policy landscape affecting carbon emissions from buildings. The trajectory to zero carbon new build has been paused ; Government support for Green Deal finance was withdrawn with no alternative mechanisms in place to encourage and enable investment by able-to-pay households; and a review of business energy efficiency taxes has led to proposals for a new tax structure but, as yet, no coherent supporting framework to encourage energy efficiency action. In July of this year, the 5 th Carbon Budget was passed into legislation, set at the level recommended by the Committee on Climate Change (CCC). The budget has been set at a total of 1,725 MtCO 2e that can be emitted over the period from 228 to 232. In 215, buildings accounted for one third of total UK greenhouse gas emissions, comprising: 56% of power sector CO 2 emissions, 32% of direct CO 2 emissions, and 3% of other greenhouse gas emissions. The CCC s cost-effective abatement scenario in which efficiency measures, low carbon heat and heat networks are deployed sees direct emissions from residential, public and commercial buildings together to be 32% below their 199 levels in 23, and 24% below the baseline, or business as usual, emissions for that year. Power sector emissions abatement is of course largely driven by the decarbonisation of electricity supply. However, the deployment of efficiency and heating technologies in the CCC s scenario results in electricity savings of 62TWh in 23 compared to the baseline (a saving of 22%) an amount 3% greater than the electricity generated by onshore wind in that scenario and not far short of the amount generated by offshore wind. Hence, demand side action is also an important contributor to power sector emissions abatement. The Government s projections for abatement do not meet the 5 th Carbon Budget in buildings. Abatement gap The majority of the abatement gap between the Government s projection and the CCC s recommended pathway results from direct emissions. This is because of the dominant effect of supply decarbonisation on electricity emissions and the similarity between the CCC and Government projections for this decarbonisation. Taken together, policies as they currently stand are projected by the Department of Business, Energy & Industrial Strategy (BEIS) to achieve a 21% cut in direct emissions from buildings by 23 (the midpoint of the 5 th Carbon Budget period) compared to 199, just 12% below the business as usual emissions for 23. In this scenario, emissions exceed those recommended by the CCC for the 5 th Carbon Budget, in 23, by 18%. There are two very important caveats to note. First, these data do not take account of Governmentprojected abatement considered by the CCC to be at-risk which in 23 includes 85% of direct abatement from policies for buildings. In other words, the majority of projected emissions abatement from buildings is seen as uncertain and may not be achieved. Examples of this include compliance with building regulations and the abatement effects of the smart meter rollout. Second, the Government s projections for abatement do not yet include the possible effects of any new policies, or of extending existing policies beyond the early to mid-22s (the date beyond which numerous policies have not yet been renewed). One might reasonably expect to see such developments set out in the forthcoming Carbon Plan in response to the adoption of the 5 th Carbon Budget. Figure 1, below, breaks down the abatement shortfall in 23 on the optimistic assumption that current(ly planned) policies achieve the abatement they are projected to, but (less optimistically) are Executive summary 2

3 not extended at the same level of ambition beyond the mid-22s. Given the first caveat noted, we believe that this presents a very conservative estimate of the gap that must be filled in Total buildings abatement shortfall Electricty emissions, of which Public Commercial Residential Direct emissions, of which Public Commercial Residential Figure 1: Government emissions abatement shortfall compared to 5th Carbon Budget trajectory in 23 [MtCO 2e] As mentioned above, the majority of the abatement gap lies in direct emissions, and the largest sectoral abatement gap in 23 is in residential buildings, followed by commercial and then public sector buildings. Whilst the abatement gap for other buildings sectors is small relative to the residential sector s gap in absolute terms, in relative terms, abatement in commercial and public buildings is further off track. Under Government projections of direct emissions abatement in 23: CCC recommended emissions from residential buildings are exceeded by 12% Recommended emissions from commercial buildings are exceeded by 42% And those from public buildings are exceeded by 34% The picture for emissions from electricity use in buildings in 23 is different: Recommended emissions from residential buildings are exceeded by 24% Those from commercial buildings are exceeded by 21% And those from public buildings are exceeded by 67% Across all sectors especially taking into account the uncertainty of Government-projected abatement the present abatement gap in 23 looms large over the UK s ability to meet the 5 th Carbon Budget. More will have to be done. Alternative scenarios We investigated the impacts of a range of alternative scenarios that achieve more emissions abatement from residential, commercial and public buildings. The Government s latest projection is referred to as the UEP (Updated Energy and Emissions Projections). Our chief comparison with the CCC scenario is the effect of extending policies at the same level of ambition beyond the date they currently cease to operate. The combined impact of this for all buildings direct emissions is shown as Executive summary 3

4 MtCO 2 e Buildings and the 5th Carbon Budget October 216 the UEP extended dashed yellow line in Figure 2. The solid yellow line shows the Government s current projection. Contrasting both with the UEP savings not at risk dotted yellow line (just below the baseline, which excludes the elements of the Government s projected abatement that are deemed by the CCC to be at risk ), stresses the importance of both de-risking projected savings and extending the currently projected rate of abatement beyond that seen to the mid-22s. It is important to note also that beyond the 5 th Carbon Budget period, the pace of building emissions abatement to 25 will need to accelerate considerably. The dashed dark blue line in Figure 2 shows this: it is the 25 pathway that the CCC has put forward, reflecting the necessary contribution to abatement that the buildings sector must achieve for our overall emissions target to be met across the whole economy Baseline CCC UEP UEP extended UEP not at risk 25 goal Figure 2: Direct emissions from all buildings, projection including path to 25 and Government abatement not at risk While UEP extended gets us closer to the 5 th Carbon Budget, it is still not met. Moreover, as the growing divergence between this extended rate of abatement and the CCC s path to the 25 goal shows, the rate of abatement will need to increase significantly. Doing more of the same will not be enough to meet the 5 th Carbon Budget, let alone 25 targets. Costs and benefits of doing more There is an emerging and growing body of evidence on the multiple benefits of energy efficiency. They include a wide range of impacts, from air quality improvements to fiscal benefits and significantly add to the savings on energy costs. The multiple benefits of energy efficiency programmes can be grouped into three distinct categories, encompassing 22 separate types of benefit: Participant benefits: the benefits that accrue directly to the participating individual households, businesses and public authorities that install energy efficiency improvements. Utility system benefits: the benefits that accrue to the energy system through reduced costs in providing energy services to end-users. Societal benefits: the benefits that accrue more broadly to society the community, the region, the nation, or the planet rather than to a specific energy system. Restricting ourselves to the main benefits generally quantified for formal policy impact assessments, calculated in accordance with official guidance, all three residential buildings scenarios considered in this report result in positive benefit/cost ratios. The less ambitious scenarios (CCC and UEP extended, Executive summary 4

5 CCC UEP extended ACE bn Buildings and the 5th Carbon Budget October 216 previously shown) provide a benefit/cost ratio of around 1.5. The most ambitious scenario (ACE, developed for this research) shows a benefit/cost ratio of 1.3. These results are consistent with those of other studies, and similar to the ratios calculated for High Speed 2 and the smart meter rollout. Figure 3 below presents the main benefits and costs for all three scenarios Health benefit Comfort benefit Air quality impact Change in emissions Change in energy use Net present value Capital cost Figure 3: Residential buildings present capital costs and benefits of deployment between now and 232 ACE s scenario chiefly differs from the CCC s in deploying more insulation measures at a level commensurate with the CCC scenario s deployment of low carbon heat, which ACE s scenario matches with one eye on the abatement pathway to 25. The higher level of deployment of solid wall insulation in particular means the ACE scenario is more capital and labour-intensive in relation to the benefits quantified here, which explains the lower benefit/cost ratio of 1.3. Table 1 shows the employment impact of the residential buildings scenarios, and a selection of additional benefits not usually part of formal policy appraisal. Table 1: Present value of additional benefits of deployment between now and 232, scenarios compared to baseline CCC UEP extended ACE Employment [number of FTE jobs supported in average year] 66, 4,5 86, Electricity utility system benefits [ bn] GDP effect: Gross Value Added of capital works [ bn] GDP effect: Reduced imports of gas [ bn] Government revenue benefit from above GDP effects [ bn] The widely geographically distributed nature of the employment needed to deliver the scenarios potentially carries with it a range of additional benefits not quantified here, relating to regional and local regeneration and skills development and, nationally and to the extent that any employment would be additional, avoided welfare costs. Quantifying costs for the non-residential (commercial and public buildings) sector was not possible within the scope of this project. Instead, for the non-residential sector we present the benefits we have been able to quantify in Table 2. In the broadest sense, the ratio of benefits to costs can be expected to outperform the residential sector as the level of abatement recommended in the CCC s cost-effective path is greater. Executive summary 5

6 Table 2: Selected present values of benefits of deployment between now and 232, scenarios compared to baseline [ bn] CCC UEP extended Change in energy use Change in emissions Net air quality impact Electricity utility system benefits GDP effect: reduced imports of gas Government revenue from GDP effects Competitiveness, productivity and profitability benefits are also not quantified here. Energy cost savings directly improve businesses bottom line and save public money more usefully expended or invested in public services. More energy efficient buildings also enhance staff productivity as they are more likely to sustain comfortable working environments at lower cost through optimal indoor temperatures, better ventilation and better lighting. As such, reducing carbon emissions from buildings by improving their energy efficiency should be fully integrated into the Government s plan for boosting the UK s productivity. The benefits of meeting the 5 th Carbon Budget in buildings justify considerable public and private investment to capture them. Ensuring this happens depends on the creation of a robust and long-term policy framework that supports the development of sustainable markets for low carbon retrofit and construction. Policy options We assessed 48 major policy levers we have identified that can help ensure, sustain and increase the level of abatement currently projected by Government to the level necessary to meet the 5 th Carbon Budget. In so doing, we highlighted the scale of what these levers can achieve (but without modelling their effects). Given the present size of the abatement gap, and the large extent to which currently projected abatement is deemed to be at risk, we believe that all of these levers, and more, deserve full consideration. We organised the policy options into categories for residential buildings, non-residential buildings, and heat networks respectively: Targets Regulation Fiscal and financial incentives Access to finance Information and behaviour and considered whether these require one or more of: De-risking (e.g. by ensuring compliance) Reform (e.g. of design or means of delivery) Extending (beyond the current programme expiry date) Expansion (in abatement ambition) Introduction (of new policy instruments) Though far from exhaustive, we believe the policy options assessed here can achieve more coverage than is necessary to achieve compliance with the 5 th Carbon Budget and capture its benefits. There is a very substantial wealth of public policy options available to close the abatement gap, from which we have developed a series of priority recommendations. Executive summary 6

7 Recommendations Current and currently planned policies for carbon abatement from buildings will not achieve what is needed to meet the 5 th Carbon Budget. It may not be technically possible, and it is certainly not economical, to close this abatement gap in the power, transport and industrial sectors instead. Moreover, most of the currently projected carbon abatement from buildings is very far from certain, and with every tonne of CO 2 unabated, policies must subsequently work harder within a shorter space of time to meet our climate change targets. The benefits of compliance with the 5 th Carbon Budget are considerable, justify significant investment from both the public and private sectors, and require a step-change in abatement policy towards buildings for this investment to happen. The most strategic opportunity at which such a step-change can be signalled is in the forthcoming Carbon Plan; the Building Renovation Strategy due next spring also presents an opportunity. Set the right framework conditions the energy efficiency of, and heat supply to, our buildings are an integral part of our energy infrastructure and have a vast impact on the extent to which our energy system is low carbon, affordable and secure. They need to be formally recognised as a national infrastructure investment priority, and abatement targets for buildings need to be set, reflecting a shared vision of what successful decarbonisation of buildings means. Increase credibility much of currently projected emissions abatement from buildings is highly uncertain. Present-day policies need to be de-risked by ensuring they are implemented and complied with as intended: this means securing successful implementation of Products Policy for efficient appliances; ensuring strong compliance with the Building Regulations; and ensuring strong compliance with the Energy Performance Certificates regime. Increase effectiveness some present-day policy instruments need to be reformed so that they can support higher levels of abatement: this means fostering more attractive and more widely available finance; transforming Energy Performance Certificates into the information hub of low carbon retrofit; and levelling the regulatory and investment playing field for heat networks. Increase timescale there are a number of present-day policy instruments that need to be extended or renewed beyond their current expiry dates: this means extending the Renewable Heat Incentive to 232; extending the Supplier Obligation to 232; and continually renewing Greening Government Commitments. Increase ambition the ambition and level of support provided by some policy instruments needs to be increased: this means increasing the Minimum Energy Efficiency Standard for private-rented sector buildings; expanding the remit of the Heat Networks Delivery Unit to support project planning and delivery; and the roll out of electricity demand reduction and response incentives from the current pilot. Introduce new policy new policy instruments will be needed to tackle segments of the buildings sector left unaddressed by the present-day scope of policies: this means introducing Minimum Energy Efficiency Standards at point-of-sale; tightening new build standards towards zero carbon or nearly zero energy; and introducing long-term incentives for low carbon buildings retrofit. The policy recommendations put forward here ranging from no-brainers to inconvenient but necessary and everything in between are available and practicable, with many of them planned, tried and tested in other advanced economies. The forthcoming Carbon Plan must bite the bullet by placing at its heart a plan for proposing and consulting on a timetable for the introduction of mandatory minimum energy efficiency standards for buildings at point-of-sale and deliver a compelling vision, and credible actions and timescales for the step-change in energy efficiency and low carbon heat in buildings that our legal commitment to the 5 th Carbon Budget needs. Executive summary 7

8 Table of Contents 1 INTRODUCTION 1 2 METHODOLOGY AND STRUCTURE OF THE REPORT BASELINE EMISSIONS AND OFFICIAL ABATEMENT PROJECTIONS SCENARIOS COSTS AND BENEFITS OF SCENARIOS ASSESSMENT OF POLICY OPTIONS 13 3 CURRENT ABATEMENT GAP 14 4 SECTORAL ABATEMENT SCENARIOS FOR THE 5 TH CARBON BUDGET RESIDENTIAL BUILDINGS COMMERCIAL BUILDINGS PUBLIC BUILDINGS COMBINED IMPACT 26 5 BENEFITS OF INVESTMENT FOR 5 TH CARBON BUDGET OVERVIEW OF MULTIPLE BENEFITS CONSIDERED RESIDENTIAL BUILDINGS RESULTS NON-RESIDENTIAL BUILDINGS RESULTS 31 6 POLICY OPTIONS FOR ACHIEVING THE 5 TH CARBON BUDGET RESIDENTIAL BUILDINGS NON-RESIDENTIAL BUILDINGS HEAT NETWORKS A WEALTH OF POSSIBILITIES 43 7 CONCLUSIONS AND RECOMMENDATIONS SETTING THE RIGHT FRAMEWORK CONDITIONS INCREASED CREDIBILITY INCREASED EFFECTIVENESS INCREASED TIMESCALE INCREASED AMBITION NEW POLICY TIME TO TAKE THIS FORWARD 48 BIBLIOGRAPHY 49 APPENDIX I EMISSIONS PROJECTIONS TO APPENDIX II ASSUMPTIONS UNDERPINNING COST-BENEFIT ANALYSIS 58 APPENDIX III BENEFITS SENSITIVITY RESULTS 64 ACE & RAP research report 8

9 Abbreviations used ACE ACEEE ADE BEIS CCC CLG CWI DEC DECC ECAs ECO EDR EE EEDO EHS EPC ESCO ESOS EU EU ETS FTE GDP GHG GIB GVA HIDEEM (model) HMRC HMT HNDU HVAC IAG ICT IPCC ISO 51 kwh LCREES LED LESA LI MEES MtCO 2e NABERS NZEB Part L PEPA PRS RAP RHI SME SWI TWh UCL UEP Association for the Conservation of Energy American Council for an Energy Efficient Economy Association for Decentralised Energy Department for Business, Energy & Industrial Strategy Committee on Climate Change Department for Communities & Local Government cavity wall insulation Display Energy Certificate Department of Energy & Climate Change Enhanced Capital Allowances Energy Company Obligation electricity demand reduction energy efficiency Energy Efficiency Deployment Office English Housing Survey Energy Performance Certificate energy service company Energy Savings Opportunity Scheme European Union European Union Emissions Trading System full-time equivalent gross domestic product greenhouse gases Green Investment Bank gross value added Health Impacts of Domestic Energy Efficiency Measures HM Revenue & Customs HM Treasury Heat Networks Delivery Unit heating, ventilation and air-conditioning Interdepartmental Analysts Group information and communication technology Intergovernmental Panel on Climate Change international standard for energy management systems kilowatt hour Low Carbon and Renewable Energy Economy Survey light-emitting diode Landlords Energy Saving Allowance loft insulation Mandatory Minimum Energy Efficiency Standards million tonnes of CO 2 equivalent National Australian Built Environment Rating System Nearly Zero Energy Buildings Part of the Building Regulations governing Conservation of Fuel and Power in England and Wales; used as shorthand for all equivalent Parts across the UK Property Energy Professionals Association private-rented sector Regulatory Assistance Project Renewable Heat Incentive small to medium-sized enterprise solid wall insulation terawatt hour University College London Updated Energy and Emissions Projections ACE & RAP research report 9

10 1 Introduction The last 18 months have seen a lot of change in the policy landscape affecting emissions from buildings. The trajectory to zero carbon new build has been paused ; Government support for Green Deal finance was withdrawn with no alternative mechanisms in place to encourage and enable investment by able-to-pay households; and a review of business energy taxes has led to proposals for a new tax structure but, as yet, no coherent supporting framework to encourage energy efficiency action. In July of this year, following appraisal of a range of options by the Government 1, the 5 th Carbon Budget was passed into legislation, set at the level recommended by the Committee on Climate Change (CCC). The budget has been set at a total of 1,725 MtCO 2e that can be emitted over the period from 228 to 232. The CCC estimates that cost-effective abatement is able to reduce emissions to 1,57 MtCO 2e. Meeting the 5 th Carbon Budget represents a cut of 57% in 23 compared to 199 whilst achieving what the CCC sees as cost-effective would result in a cut of 6%. In 215, buildings accounted for one third of total UK greenhouse gas emissions, comprising: 56% of power sector CO 2 emissions, 32% of direct CO 2 emissions, and 3% of other greenhouse gas emissions. The CCC s cost-effective abatement scenario in which efficiency measures, low carbon heat and heat networks are deployed sees direct emissions from residential, public and commercial buildings together to be 32% below their 199 levels in 23, and 24% below the baseline, or business as usual, emissions for that year. Power sector emissions abatement is of course largely driven by the decarbonisation of electricity supply. However, the deployment of efficiency and heating technologies in the CCC s scenario results in electricity savings of 62TWh in 23 compared to the baseline (a saving of 22%) an amount 3% greater than the electricity generated by onshore wind in that scenario and not far short of the amount generated by offshore wind. Hence, demand side action is also an important contributor to power sector emissions abatement. This report takes a closer look at what emissions abatement current Government policy is set to achieve in the buildings sector for the 5 th Carbon Budget. It quantifies the shortfall between this and the abatement needed to deliver the CCC s optimal path, considers the potential to reform, extend and expand present and planned policies, to de-risk them, and to introduce new policies that deliver additional abatement. The report also explores the impacts and implications of going further than the CCC recommends. The shortfall must be made up for, and efforts to do so must begin soon, in order to ensure that buildings make their necessary contribution to meeting the 5 th Carbon Budget. The alternative of making up the shortfall with additional abatement in other sectors may not be technically possible and would certainly be less economical: the Government s own appraisal 1 of the least-cost path to the 5 th Carbon Budget saw buildings emissions in 23 being 1% lower than the CCC recommends. Abatement from buildings is acknowledged to deliver a broad range of persistent wider benefits, such as improved health, comfort, productivity and skilled employment. More so than with abatement in other sectors, these benefits accrue directly to people everywhere in the UK. This strengthens the imperative for buildings to deliver their share of the abatement needed for the 5 th Carbon Budget. We hope that this report provides a valuable impetus and constructive challenge to the Government: to make its forthcoming Carbon Plan for meeting the 5 th Carbon Budget due this year but possibly delayed to 217 a compelling vision and credible strategy for a step-change in carbon abatement from buildings. 1 (DECC 216d) ACE & RAP research report 1

11 2 Methodology and structure of the report 2.1 Baseline emissions and official abatement projections Throughout this report, we use the CCC s baseline direct and electricity emissions projections for residential, commercial and public buildings. Our start year is and the cut-off date is 232, when the 5 th Carbon Budget period ends. Progress in reducing emissions is shown through a snapshot of annual emissions and abatement in the year 23. The picture in a single year is easier to communicate; and 23 is the mid-point of the 5 th Carbon Budget and broadly represents the average of emissions and emissions abatement over the five-year Budget period from 228 to 232. Abatement and abatement gaps in 23 are shown in relation to the baseline emissions projection for that year. The baseline includes the abatement effects of older policies some of which have achieved abatement that persists to this day and beyond (for example insulation installed under the Energy Efficiency Commitments), and some of which are still having an active effect now (such as Part L of the 25/6 Building Regulations requiring that replacement boilers are efficient condensing models). Government-projected and CCC-recommended abatement needs to be subtracted from the same baseline in order to be comparable. The CCC s electricity baseline is identical to the Government s in the latter s latest Updated Emissions Projections (UEP) 3. For direct emissions from buildings, the baselines and the nature of abatement differ for two reasons. First, the UEP includes F-gas emissions 4 and abatement in the buildings sector; these are treated separately from buildings by the CCC, so we have excluded them. Second, the abatement effects of biomethane injection into the gas grid are included in the UEP s projected emissions for each gas-using sector of the economy, but the abatement is not shown separately for each. The CCC treats biomethane injection as a separate sector, so we do not use the UEP s sectoral emissions projections, but instead subtract its projected abatement from residential, commercial and public buildings policies from the common baseline. On this basis, Chapter 3 presents the current abatement gap between the CCC s central abatement pathway and the UEP s projected abatement. 2.2 Scenarios Table 3 below provides an overview of the scenarios used in this report. The abatement in the UEP replicated, UEP extended and ACE scenarios have been modelled for this project. The others have either been fully adopted or slightly adapted (as described above). 2 The latest year for which official (if provisional) greenhouse gas emissions statistics are available (DECC 216c), so we look at abatement which is incremental from this year. 3 The UEP includes projections of energy demand and the anticipated greenhouse gas abatement impact of all relevant policies (DECC 215c). 4 A group of greenhouse gases encompassing hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexaflouride (SF 6). ACE & RAP research report 11

12 Table 3: Scenarios included and developed Scenario name Baseline CCC UEP UEP replicated UEP extended ACE EDR Scenario details Residential Commercial Public Adopted: The CCC s baseline scenario, used as a universal baseline in this report (CCC 216a) Adopted: The CCC s central abatement scenario, or cost-effective pathway Adapted: BEIS s Updated Emissions Projections reference scenario, adjusted to account for F- gases and biomethane grid injection as mentioned above, so that it is compatible with the Baseline used here (DECC 215c) New: The UEP scenario translated: From emissions abatement from individual policies (excluding policy that abates F- gases) to technologies deployed based on official impact assessments and our best estimates Which is then modelled using the CCC s dataset to provide new estimates of abatement (now attributed to technologies instead of policies). Necessary for fuller exploratory comparison of the CCC and ACE scenarios with the government s current and planned policy projections. Needed to build UEP extended scenario (below). Not produced for non-residential buildings as CCC dataset does not include number of technology units deployed; UEP scenario used as basis for commercial and public sectors UEP extended scenario instead New: The same scenario as UEP replicated, but technologies continue to be deployed in residential buildings at the same rate beyond current and planned policies expiry dates through to 232 (the end of the 5 th Carbon Budget period). For commercial and public buildings, UEP extended continues abatement trajectories of UEP scenario New: Our scenario, intended to explore the possibilities of going further than the CCC recommends. It deploys efficiency measures at a level in relation to their technical potential which is similar to the relationship between the CCC s deployment of low carbon heat and heat networks in relation to their technical potential. Described further in section 4.1 Adapted: Scenario based on electricity savings potentials in 23 identified by McKinsey for DECC in 212 (McKinsey & Co 212). Only used in relation to commercial and public sectors. Savings have been slightly adjusted to fit the electricity baseline used here. Our model for the new scenarios is based on the CCC s Fifth Carbon Budget Dataset 5, which presents technologies deployed annually between now and 235 in each sector (buildings, power, transport etc.), along with associated emissions abatement and changes in energy use. We have analysed and 5 (CCC 216a) ACE & RAP research report 12

13 used the relationship between technologies deployed and emissions and energy savings to extrapolate the impact of our alternative scenarios on emissions and energy. We recognise the limitations of this approach, but have selected it as the best method that suited our constraints (on time and budget) and our objectives (to explore the different levels of abatement arising from the deployment of technologies at different scales and in different mixes). Chapter 4 presents the scenarios results for the residential, commercial and public sectors respectively. Throughout, the principal comparison is between the CCC and UEP extended scenarios. 2.3 Costs and benefits of scenarios A wide range of benefits are associated with energy efficiency improvements in buildings, not all of which can be quantified. We have calculated estimates of the present capital costs of the measures deployed between now and 232, and calculated the present benefits of these in accordance with Central Government s official guidance for policy appraisal 6 for energy savings, emissions abatement, air quality and comfort, using the Interdepartmental Analyst Group s (IAG) accompanying spreadsheet toolkit 7. Chapter 5 presents the results of this, quantifies a selection of further benefits outside of the usual scope of the official guidance and presents a discussion of their full range. 2.4 Assessment of policy options Without quantifying their possible impacts in our scenarios, we have prepared an assessment of policy options available to decision-makers to close the abatement gap in buildings emissions to meet the 5 th Carbon Budget. We present these for residential, non-residential (commercial and public) buildings and heat networks separately. For each of these three groups, our assessment systematically considers targets, regulation, fiscal and financial incentives, access to finance, and information and behaviour. It establishes whether the action to be taken involves de-risking (making more certain) the abatement from existing policies, reform, extension (over time), expansion (in ambition), or involves introducing new instruments. For each option, we have provided an indication of impact, technical feasibility, political acceptability, implementation speed and cost. Chapter 6 presents the assessment of policy options. Chapter 7 presents our overall conclusions and recommendations for policy-makers to close the abatement gap. 6 In particular BEIS s supplementary guidance to the Treasury s Green Book, on valuation of energy use and greenhouse gas emissions for appraisal (DECC 215a). 7 (IAG 215) ACE & RAP research report 13

14 MtCO 2 e MtCO 2 e MtCO 2 e Buildings and the 5th Carbon Budget October Current abatement gap In this Chapter we quantify the abatement gap, broken down by buildings sector (residential, commercial and public) and by emissions source (direct and power sector emissions from buildings electricity use). Figure 4, below, compares the Government s projection of emissions, given current and currently planned policies ( UEP ), with the CCC s cost-effective abatement scenario ( CCC ) and the emissions baseline. Taken together, policies as they currently stand are projected by the Department of Business, Energy & Industrial Strategy (BEIS) to achieve a 21% cut in direct emissions from buildings by 23 compared to 199, just 12% below the business as usual emissions for 23. In this scenario, emissions exceed those recommended by the CCC for the 5 th Carbon Budget, in 23, by 18%. 12 Direct emissions Baseline CCC UEP Electricity emissions CCC decarbonisation Additional CCC negawatts UEP negawatts Baseline CCC UEP All buildings emissions Baseline CCC UEP Figure 4: All buildings emissions, now to 232 The majority of the abatement gap between the Government s projection and the CCC s recommended pathway results from direct emissions. This is because of the dominant effect of supply decarbonisation on electricity emissions, and the similarity between the CCC and Government projections for this decarbonisation. There are two very important caveats to note. First, the data presented do not take account of Government-projected abatement considered by the CCC to be at-risk which in 23 includes 85% ACE & RAP research report 14

15 MtCO 2 e Buildings and the 5th Carbon Budget October 216 of direct abatement from policies for buildings 8. In other words, the majority of projected emissions abatement from buildings is seen as uncertain and may not be achieved. Examples of this include compliance with building regulations and the abatement effects of the smart meter rollout. In Figure 5 below, the projection of abatement considered to be relatively certain is shown by the dotted yellow line ( UEP not at risk ) which shows very little abatement compared to the baseline Baseline CCC UEP UEP not at risk 25 goal Figure 5: Direct emissions from all buildings, projection including path to 25 and Government abatement not at risk Second, the Government s projections for abatement do not yet include the possible effects of any new policies, or of extending existing policies beyond the early to mid-22s (where there is a clearly visible kink in the yellow line in Figure 5). One might reasonably expect to see such developments set out in the forthcoming Carbon Plan in response to the adoption of the 5 th Carbon Budget. It is important to note also that, beyond the 5 th Carbon Budget, the pace of building emissions abatement to 25 will need to accelerate considerably. The dashed dark blue line in Figure 5 shows this: it is the 25 pathway that the CCC has put forward, reflecting the necessary contribution to abatement that the buildings sector must achieve for our overall emissions target to be met across the whole economy 9. Figure 6 below breaks down the abatement shortfall in 23 on the optimistic assumption that current(ly planned) policies achieve the abatement they are projected to, but (less optimistically) are not extended at the same level of ambition beyond the mid-22s. Given the caveats described above, we believe that this presents a very conservative estimate of the gap that must be filled in (CCC 216b) 9 Derived from (CCC 215), Figure ACE & RAP research report 15

16 Total buildings abatement shortfall Electricty emissions, of which Public Commercial Residential Direct emissions, of which Public Commercial Residential Figure 6: Government emissions abatement shortfall compared to 5th Carbon Budget trajectory in 23 [MtCO 2e] As can be seen in Figure 6, majority of the abatement gap lies in direct emissions, and the largest sectoral abatement gap in 23 is in residential buildings, followed by commercial and then public sector buildings 1. Whilst the abatement gap for other buildings sectors is small relative to the residential sector s gap in absolute terms, in relative terms, abatement in commercial and public buildings is further off track. Under Government projections of direct emissions abatement in 23: CCC recommended emissions from residential buildings are exceeded by 12% Recommended emissions from commercial buildings are exceeded by 42% And those from public buildings are exceeded by 34% The picture for emissions from electricity use in buildings in 23 is different: Recommended emissions from residential buildings are exceeded by 24% Those from commercial buildings are exceeded by 21% And those from public buildings are exceeded by 67% Although public sector buildings emissions constitute a small share of total buildings emissions (1% in 215), the current projection for these buildings is startling (even assuming projected abatement will be achieved) given that the sector is supposed to show leadership. Across all sectors especially taking into account the uncertainty of Government-projected abatement and the fact that the pace of abatement will need to increase even if the 5 th Carbon Budget is met the present abatement gap in 23 looms large over the UK s ability to meet its 25 climate targets. The next sections take a closer look at each sector. 1 For an overview of emissions and abatement figures in each of the three buildings sectors, see Appendix I. ACE & RAP research report 16

17 MtCO 2 e TWh Buildings and the 5th Carbon Budget October Sectoral abatement scenarios for the 5 th Carbon Budget 4.1 Residential buildings Current Government projections show the CCC s recommended emissions from residential buildings being exceeded by 9.9 MtCO 2e in 23, with 7.4 MtCO 2e of this as a result of direct residential buildings emissions. The overall picture for direct emissions and electricity demand to 232 is shown in Figure 7. Residential buildings direct emissions Residential buildings electricity demand Baseline CCC Baseline CCC UEP extended UEP UEP extended ACE ACE UEP Figure 7: Residential buildings direct emissions and electricity demand under different scenarios Our assessment of Government direct emissions abatement (UEP, solid yellow line on left side of Figure 7) against the baseline in 23 is 5.3 MtCO 2e, 58% short of the 12.7 MtCO 2e savings recommended by the CCC. This is the largest abatement gap amongst the building sectors. Emissions will have risen again from 226, back to levels required for the 3 rd Carbon Budget (218 to 222). If current and planned government policies were to be extended pro-rata to 232 shown by the dashed yellow line on the left-hand side of Figure 7 direct emissions abatement would still fall 26% short. This makes clear that in addition to making abatement from Government policies more certain (by de-risking existing policies through (say) enforcing better compliance) and extending policies out to 232, a combination of greater ambition for existing policies and the introduction of and new instruments will be needed to meet the 5 th Carbon Budget in the residential sector. This is discussed in Chapter 6. Looking at electricity demand, on the right-hand side of Figure 7, Government policies will only keep electricity demand growth in check from 22. Pro-rata extension to 232 of the Government s current and currently planned policies for reducing electricity demand in residential buildings sees the CCC s pathway for electricity demand being matched. The dashed brown lines in Figure 7 show the impact of ACE s scenario, which matches the CCC s in terms of electricity demand but goes further in abating direct emissions. Principally, the ACE scenario tests the impact of going faster than the CCC on deploying solid wall insulation (SWI) and delivering more of the remaining loft, cavity wall and floor insulation potential. It does this to acknowledge the significant role SWI plays to 25, and the acceleration in emissions abatement the CCC envisages for buildings after the 5 th Carbon Budget period. The trade-offs involved in the ACE scenario are discussed in section 5.2. Table 4, overleaf, provides detail on the major measures for abatement deployed in the scenarios, set in the context of the technical potential in the housing stock. It includes our estimate of how the Government s abatement projection is likely to translate into measures deployment (ignoring uncertainty and at risk abatement). ACE & RAP research report 17

18 Tech. potential Tech. potential Tech. potential Tech. potential Tech. potential Buildings and the 5th Carbon Budget October 216 Table 4: Measures deployed for residential buildings between now and 232 under different scenarios; sources: (CCC 216a), (CLG 215), (BEIS 216b), (BEIS 216c), (BEIS 216a), ACE analysis Technology Details Technology Details Solid wall insulation [m dwellings] 3 7.5m 2 1 Technical potential CCC ACE UEP Technical potential is 7.5m dwellings Current UEP sees 17, solid walls done by 226 UEP extended sees an extra 12, deployed to 232 CCC deploys 1.5m more than this, and ACE 1.7m more Loft insulation [m dwellings] Technical potential ACE CCC UEP Current policy projection sees 8, lofts insulated by 226 Continuing policy to 232 sees an extra 6, insulated CCC deploys 6, more than this, and ACE 2.6m more UEP extended UEP extended Cavity wall insulation [m dwellings] Technical potential CCC ACE UEP UEP extended Current policy projection sees 1.5m cavity walls insulated from 215 by 226 Continuing policy to 232 sees an extra 1m insulated CCC deploys 2, more than this, and ACE 1.5m more Floor insulation [m dwellings] Technical potential CCC ACE UEP UEP extended ACE scenario deploys floor insulation in 1.7m more dwellings than CCC scenario There are 8.4m suspended floors that could benefit from floor insulation (indicated in chart) There are 12.3m solid floors not indicated on the chart that might be able to benefit too Windows and doors [m dwellings] Pre-22 double glazing Some single glazing CCC ACE UEP UEP extended The opportunities for replacing single-glazed windows are gradually diminishing At the same time, the market for replacing pre-22 double-glazing will grow, although carbon savings from these replacements will be lower 15 Space heating and hot water controls [m units] 1 5 No roomstat No TRVs No timer No cylinderstat CCC ACE UEP UEP extended ACE scenario deploys controls to the same level as the CCC more than twice as much as Government projections could result in Some potential might remain in 232, but may be partially obviated by the installation of alternative, low carbon heating systems ACE & RAP research report 18

19 Tech. potential tech. potential Buildings and the 5th Carbon Budget October 216 Technology Details Technology Details Hot water tank insulation [m dwellings] Current technical potential Potential with continued decline in tanks CCC ACE UEP UEP extended Based on the latest English Housing Survey data, we don t see as much potential for hot water tank insulation as the CCC In addition, the number of central heating systems with hot water tanks has been declining as combi systems become more widespread District heating deployment [TWh/a heat delivered] Technical potential UEP CCC UEP extended Our deployment does not differ from the CCC s Continuation of currently planned government heat policy to 232 could see 8% of this deployed, achieving about two thirds of its estimate of 23 potential Individual low carbon heating [m dwellings] CCC UEP UEP extended Our deployment does not differ from the CCC s Continuation of currently planned government heat policy to 232 could see 8% of this deployed, but this depend on the distribution of RHI resources between heat networks and individual systems Cold appliances [m units] Technical potential UEP CCC UEP extended Our deployment of A++ cold appliances does not differ from the CCC s Technical potential is the current total stock of these appliances, which the CCC sees almost fully met Wet appliances [m units] Technical potential CCC Our deployment of A+++ washing machines, A-rated tumble driers and A+ rated dishwashers does not differ from the CCC s Technical potential is the current total stock of these appliances, which the CCC sees almost fully met UEP UEP extended ACE & RAP research report 19

20 MtCO 2 e Buildings and the 5th Carbon Budget October 216 Figure 8 and Figure 1 provide a snapshot of abatement in 23 under the different scenarios, for direct emissions and electricity savings respectively District and low carbon heat Appliances & behaviour Fabric, heating controls, hot water 2-2 ACE CCC UEP extended UEP replicated UEP Figure 8: Residential direct emissions abatement in 23 (compared to baseline) under different scenarios 11 The majority of the difference in direct abatement between the UEP extended and CCC scenarios is in the deployment of energy efficiency measures ( Fabric, heating controls, hot water ) as opposed to low carbon heat and heat networks deployment: abatement from heating deployment is 27% higher in the CCC s scenario, but abatement from efficiency is 43% higher. The ACE scenario goes 69% further on abatement from efficiency than the UEP extended scenario. The Government s current projections (UEP) for direct abatement from energy efficiency measures are very low this is illustrated by the fact that pro-rata extension of direct abatement from efficiency policies (i.e. moving from UEP to UEP extended in Figure 8) results in minimal abatement gains. On the other hand, abatement from the Renewable Heat Incentive is on a significant growth trajectory until 222; extending this pro-rata until 232 would see significant additional abatement from low carbon heat and heat networks. The sources of savings in the UEP scenario are shown in Figure & 213 Part L, 35% CERT & CESP, -2% ECO, 27% Products Policy, % PRS regulations, % RTDs / smart meters, 16% RHI, 24% Products Policy, 77% ECO, -26% RTDs / smart meters, 41% CERT & CESP, - 9% RHI, - 1% PRS regulations, 3% 21 & 213 Part L, 14% Source of direct emissions abatement Source of electricity savings Figure 9: Source of residential buildings savings in 23 in the UEP scenario (red-edged slices / negative values indicate increases); (DECC 215d) 11 Negative emissions abatement from Appliances & behaviour is due to the heat replacement effect triggered by more efficient (less hot) appliances. ACE & RAP research report 2

21 MtCO 2 e TWh TWh Buildings and the 5th Carbon Budget October 216 Under UEP extended principally as a result of extending the projected impact of Products Policy on appliance efficiency beyond 222 electricity savings in residential buildings come close to the CCC s scenario. This is shown in Figure UEP District and low carbon heat Appliances & behaviour Fabric, heating controls, hot water 5 ACE CCC UEP extended UEP replicated UEP Figure 1: Residential electricity savings in 23 (compared to baseline) under different scenarios 12 In summary, the ACE scenario shows the additional direct abatement achievable by deploying efficiency measures at a level of effort similar to the CCC s deployment of low carbon heat and heat networks (which the ACE scenario replicates). Current Government plans show very little direct abatement through efficiency relative to the CCC and ACE scenarios, even when policies are extended. Pro-rata extension of the Renewable Heat Incentive beyond 222 would see more progress made on low carbon heat, but this would still see direct emissions abatement fall substantially short of what is needed. Carbon abatement policy in the residential sector needs to be shored up, extended, and new policy needs to be introduced to close the abatement gap. 4.2 Commercial buildings Current Government projections see the CCC s recommended emissions from commercial buildings being exceeded by 4.1 MtCO 2e in 23, with 2.4 MtCO 2e of this as a result of direct emissions. The overall picture for direct emissions and electricity demand to 232 is shown in Figure Direct emissions 14 Electricity demand EDR Baseline CCC Baseline CCC UEP extended UEP UEP extended UEP EDR Figure 11: Commercial buildings direct emissions and electricity demand under different scenarios 12 See section 2.2, Table 3, for a reminder of the difference between UEP and UEP replicated. ACE & RAP research report 21

22 Our assessment of Government direct emissions abatement (UEP on left side of Figure 11) against the baseline in 23 is 4.2 MtCO 2e, 35% short of the 6.5 MtCO 2e savings recommended by the CCC. Emissions plateau from 225. If current and planned government policies were to be extended prorata to 232 shown by the dashed yellow line on the left-hand side of Figure 11 direct emissions abatement would fall just 7% short (ignoring abatement at risk). Regarding projected electricity savings, the UEP extended scenario virtually achieves parity with the CCC scenario. Electricity demand in the commercial sector is projected to grow under all scenarios. However, the research into cost-effective electricity demand reduction (EDR) potential in 23 provided to DECC (as it was then) by McKinsey in 212 suggests this need not happen and that electricity demand could fall considerably 13 as indicated by the blue EDR point on the right-hand side of Figure 11. It would appear that the main emphasis for meeting the 5 th Carbon Budget in commercial buildings ought to be on de-risking and extending current and currently planned policy, with relatively less emphasis (compared to the residential buildings sector) on expanding the ambition of current policy or introducing new instruments. An exception to this could lie in the possibility of adopting a much higher ambition for electricity end-use efficiency as suggested in the EDR scenario. The lion s share of projected abatement in 23 under the UEP scenario (shown in Figure 12), from both direct emissions reduction and electricity savings, is projected to come from Products Policy that has been adopted but not yet implemented. This largely very successful EU-driven policy carries some inherent uncertainties, to which can be added the uncertainty over the nature and outcome of the Brexit process. Much of the additional (direct and electricity) abatement in the UEP extended scenario comes from extending the Renewable Heat Incentive (RHI, or equivalent mechanism) to keep abating, at the rate projected to 222 through to 232. The chief impetus for the rate of abatement from the RHI is currently the UK s contribution to the EU s 22 renewables target. This target and its 23 successor are now subject to considerable additional uncertainty, which highlights the desirability of establishing Carbon Budgets as the main driver of abatement in this space. ESOS 1% PRS regulations 2% CRC energy efficiency scheme 3% 21 & 213 Part L 7% RHI 3% RTDs / smart meters 5% RTDs / smart meters 9% ESOS 1% Products Policy 59% RHI 19% Products Policy 47% PRS regulations 12% 21 & 213 Part L 23% Source of direct emissions abatement Figure 12: Source of commercial buildings savings in 23 in the UEP scenario; (DECC 215d) Source of electricity savings Figure 13 and Figure 14 provide 23 snapshots of the technologies that deliver direct abatement and electricity savings under the different scenarios. 13 The EDR study s TWh savings potentials in 23 have been adjusted to the CCC s / UEP s baseline 23 electricity demand in the commercial and public buildings sectors, but it is worth noting that the EDR and CCC/UEP baselines are similar. The CCC/UEP baseline 23 demand is 143 TWh (CCC 216a; DECC 215c), and the EDR study s was 136 TWh (McKinsey & Co 212). ACE & RAP research report 22

23 TWh MtCO 2 e Buildings and the 5th Carbon Budget October Other District and low carbon heat Fabric HVAC controls & behaviour HVAC efficiency 1 CCC UEP UEP extended Figure 13: Commercial buildings direct emissions abatement in 23 (compared to baseline) under different scenarios As can be seen above, the difference between the UEP and CCC scenarios is largely due to the difference in abatement from the deployment of low carbon heat and, chiefly, heat networks. In contrast to direct abatement in residential buildings, the UEP extended scenario gets closer to the CCC s by deploying relatively more efficiency measures and relatively less low carbon heat. Figure 14 shows a similar picture for the UEP extended scenario s effect on electricity savings, although the overall result is slightly to exceed the CCC s electricity savings in 23. As noted before, the EDR scenario s savings are much greater (without any savings stemming from low carbon heat deployment), particularly in ICT, lighting controls and HVAC controls. These were deemed costeffective by the EDR study in 212, which raises the question of the extent to which they might still be considered so Other District and low carbon heat ICT Refrigeration Lighting controls & behaviour Lighting Fabric HVAC controls & behaviour HVAC efficiency CCC UEP UEP extended EDR Figure 14: Commercial buildings electricity savings in 23 (compared to baseline) under different scenarios In summary for commercial buildings, the CCC scenario sees significantly more direct abatement resulting from low carbon heat deployment, principally from heat networks, than the UEP extended scenario. The latter nearly makes up for this difference by deploying more efficiency measures, on the assumption that additional cost-effective efficiency potential is available. For electricity, the EDR scenario suggests that it could be and, should its results be in doubt, it at the very least highlights the need for a more up-to-date assessment of the energy efficiency potential in the sector. UEP extended ACE & RAP research report 23

24 MtCO2e TWh Buildings and the 5th Carbon Budget October 216 sees the same level of electricity savings as the CCC s scenario, but both save significantly less than the cost-effective potential identified in the EDR study. To close the gap, carbon abatement policy in the commercial sector needs to be significantly de-risked, extended through to 232, and its ambition needs to be increased. New instruments may also be needed, and the balance of heat and efficiency abatement measures needs to be kept under review. 4.3 Public buildings Current Government projections see the CCC s recommended emissions from public buildings being exceeded by 2.6 MtCO 2e in 23, with 2 MtCO 2e of this as a result of direct emissions. The overall picture for direct emissions and electricity demand to 232 is shown in Figure 15. Direct emissions Electricity demand EDR 2 1 Baseline CCC Baseline CCC UEP extended UEP UEP extended UEP EDR Figure 15: Public buildings direct emissions and electricity demand under different scenarios Our assessment of Government direct emissions abatement (UEP on left side of Figure 15) against the baseline in 23 is 1.5 MtCO 2e, 57% short of the 3.5 MtCO 2e savings recommended by the CCC. Direct emissions start to rise from 225. If current and planned government policies were to be extended pro-rata to 232 shown by the dashed yellow line on the left-hand side of Figure 15 direct emissions abatement would fall 11% short (ignoring abatement at risk). Regarding projected electricity savings, the UEP extended scenario falls somewhat short of the CCC scenario in 23, but catches up by 232. The EDR scenario (shown by the blue dot on the right-hand side) suggests additional cost-effective electricity saving potential in the sector in 23, but not to the additional extent seen in the commercial sector. As can be seen in Figure 16, the projection for Products Policy really dominates direct abatement in the UEP scenario, with the RHI playing a proportionately far smaller role than in the commercial sector. In terms of electricity savings, Part L of the 21 Building Regulations is the main source of abatement which highlights the importance of ensuring compliance and is closely followed by Products Policy. ACE & RAP research report 24

25 MtCO 2 e Buildings and the 5th Carbon Budget October 216 PRS regulations % CRC energy efficiency scheme 5% 21 & 213 Part L 7% RHI 3% PRS regulations 3% RHI 1% Products Policy 78% 21 & 213 Part L 5% Products Policy 44% Source of direct emissions abatement Figure 16: Source of public buildings savings in 23 in the UEP scenario; (DECC 215d) Source of electricity savings Figure 17 and Figure 18 provide 23 snapshots of the technologies that are delivering direct abatement and electricity savings under the different scenarios Other District and low carbon heat Fabric HVAC controls & behaviour HVAC efficiency CCC UEP UEP extended Figure 17: Public buildings direct emissions abatement in 23 (compared to baseline) under different scenarios The nature of the result is similar to that for commercial buildings. The main difference is that the UEP extended scenario falls further behind on direct abatement from low carbon heat and heat networks, whilst gaining more ground on the CCC scenario than in the commercial sector through energy efficiency measures. Regarding electricity savings (Figure 18), the UEP extended and CCC scenarios also achieve a similar result. The cost-effective savings potential in 23 identified by the EDR study is not as far ahead of the other scenarios mark as in the commercial sector, but ICT efficiency and lighting controls again play a very large role. ACE & RAP research report 25

26 MtCO 2 e TWh Buildings and the 5th Carbon Budget October Other District and low carbon heat ICT Refrigeration Lighting controls & behaviour Lighting Fabric HVAC controls & behaviour HVAC efficiency CCC UEP UEP extended EDR Figure 18: Public buildings electricity savings in 23 (compared to baseline) under different scenarios In summary for public buildings, the UEP scenario is very far behind what the CCC scenario envisages for abatement from low carbon heat and (particularly) heat networks, much more so than in commercial buildings. On energy efficiency, the UEP scenario is not far behind and the UEP extended scenario overtakes the CCC. However, most of this rides on adopted, but not yet implemented, Products Policy, the abatement from which faces plenty of uncertainty and needs to be de-risked. Procurement standards and public sector targets could go some way to achieving this (see Chapter 6). On heat, the public sector probably is, and definitely should be, leading the commercial sector in terms of heat networks deployment. New policy instruments may be needed alongside an extended and expanded RHI. 4.4 Combined impact The combined impact of UEP extended for all buildings direct emissions is shown in Figure 19. By contrasting it with the UEP savings not at risk (also shown earlier in Figure 5), it stresses the importance of de-risking projected savings and extending the currently projected rate of abatement over time. But, as the growing divergence between this extended rate of abatement and the path to the 25 goal shows, the rate of abatement will need to increase significantly Baseline CCC UEP UEP extended UEP not at risk 25 goal Figure 19: Direct emissions from all buildings, projection including path to 25 and Government abatement not at risk ACE & RAP research report 26

27 5 Benefits of investment for 5 th Carbon Budget 5.1 Overview of multiple benefits considered There is an emerging and growing body of evidence on the multiple benefits of energy efficiency 14. They include a wide range of impacts from air quality improvements to fiscal benefits and significantly add to the savings on energy costs. The multiple benefits of energy efficiency programmes can be grouped into three distinct categories 15 : Participant benefits: the benefits that accrue directly to the participating individual households, businesses and pubic authorities that install energy efficiency improvements. Utility system benefits: the benefits that accrue to the energy system through reduced costs in providing energy services to end-users. Societal benefits: the benefits that accrue more broadly to society the community, the region, the nation, or the planet rather than to a specific energy system. We have quantified a selection of these benefits where data allowed for this to happen. Our assumptions are set out in Appendix II. Whilst the capital costs for each scenario could be calculated for the residential sector, a comparable approach to quantifying the capital costs for the nonresidential sector was not possible within the project s scope. The tables below list all of the benefits we identified and indicates whether we have been able to quantify them. Participant benefits Energy cost savings: Participants benefit directly from energy efficiency improvements through a reduction of their energy bills. Bill savings can be estimated based on the energy savings achieved. Health: Energy efficiency measures in buildings that lead to higher indoor temperatures deliver important health benefits such as reduced respiratory illness symptoms and lower rates of excess winter mortality. The Impact Assessment of the last phase of ECO and the currently proposed ECO transition year estimate the monetary value of health impacts but do not include this in the net present value calculations due to the unknown extent of overlap with comfort benefits 16. However, the Government continues to refine its HIDEEM model to quantify health benefits 17. Comfort: Closely linked to, and partially overlapping with, health benefits (although the extent of overlap is unknown), improved comfort is an important benefit of and motivator for undertaking energy efficiency improvements. Particularly where buildings are under-heated, energy efficiency improvements allow the occupants to increase indoor temperatures at no additional cost. In addition, draught-proofing reduces draughts in the building making it more comfortable to live in even if indoor temperatures are not changed. The value of increased comfort can be measured more easily than the value of health benefits. A simple approximation is to use the retail price of the energy savings that homeowners are willing to forego for improved comfort, although the true value of comfort is likely to be much greater. Asset values: Energy efficiency improvements increase the asset value of buildings and facilities. There is now evidence that suggests that properties with a higher efficiency rating achieve higher sales prices compared to other properties. A study commissioned by DECC estimates that energy efficiency improvements which improve the energy performance rating by two bands can increase the value of a property by 14% on average and up to 38% in some parts of England 18. Quantified (yes/no) yes yes (residentia l buildings only) yes (residentia l buildings only) no 14 (IEA 214a) 15 (Lazar and Colburn 213) and also (Cluett and Amann 215) 16 We have produced a sensitivity analysis for health and comfort benefits (Appendix III). 17 See (UCL Energy Institute 213), (DECC 213b), (DECC 214), (BEIS 216a), 18 (DECC 213a) ACE & RAP research report 27

28 Participant benefits Operations & Maintenance: Energy efficient buildings and technologies usually require less maintenance than less efficient options. For example, LED lighting has a much longer lifetime than incandescent and compact fluorescent light bulbs. This means that multiple lamp replacements are avoided which leads to cost savings in the commercial sector where paid staff deal with the replacements 19. Analysis by the American Council for an Energy Efficient Economy (ACEEE) provides three case studies where reduced maintenance costs have been quantified, ranging from 3% to 15% of the value of the bill savings 2. In the residential sector, recent research by Sustainable Homes demonstrated a link between higher energy efficiency and reduced building management costs for landlords 21. Staff productivity improvements: Upgrading air-conditioning systems and lighting to more efficient technologies can result in increased staff productivity due to a healthier work environment. Lawrence Berkeley Laboratory has collated the results of studies which have estimated the monetary value of staff productivity gains resulting from more comfortable temperatures and better ventilation 22. This showed, for example, that increasing the temperature of a cold office by 1 C can deliver performance improvements with a value to an employer of between 25 and 1, per worker per year. Resource savings: In some cases, energy efficiency improvements also lead to savings of other, non-energy resources. For example, low-flow showerheads reduce both the amount of energy used for hot water provision and water use for showering. Similarly, energy efficient technologies used in industrial processes often reduce resource use and waste. Quantified (yes/no) no no no Utility system benefits Avoided generation: End-use energy efficiency programmes deliver significant benefits in the form of avoided generation costs, including avoided energy costs (the reduction in the amount of energy that must be purchased by suppliers to meet end-user demand) and where applicable, avoided capacity costs. Avoided line losses and deferred or avoided investments in network infrastructure: End-use energy efficiency programmes can defer the need for investment in transmission and distribution systems and reduce congestion on existing lines, which reduces line losses. Minimizing reserve requirements: Reserve requirements in an electricity system represent a percentage of resources above demand, which is necessary to ensure reliable supply in emergencies (for example, when a large power plant suddenly goes offline). For thermal systems, reserve requirements typically amount to 13 to 15 percent of demand at any given time. Power systems are built around the need to secure this reserve margin at system peak. End-use electricity savings save energy in all time frames, including (for many measures) during times of peak demand. To the extent that end-use savings reduce this demand, they also reduce the total volume of reserves required to ensure system security. Note also that peak-time energy savings result in more kwh savings of generation than kwh savings at other times: during peak hours power generators must produce more power to deliver a kwh of energy to the end-user than at off-peak times, due to congestion and resulting increases in inefficiencies in power lines. Hence the value of end-use energy savings at peak times is increased. Risk mitigation: Energy efficiency diversifies the supply of energy services by supplementing the resource mix with negawatt hours. Also, by lowering total consumption, often for many years, it reduces exposure to future fuel price volatility. Avoided CO 2 permit costs: In the EU, electricity generators are mandated to participate in the EU Emission Trading System (ETS). Since 213, sites covered by the EU ETS in the power sector are required to buy all their CO 2 permits rather than receiving them through free allocation. The amount of permits required is linked to volume of electricity generated and its carbon intensity. Hence, an alternative for generators is to lower their emissions through a) investing in energy efficiency and/ or b) switching to lower-carbon fuels. Where investment in energy efficiency is cheaper than purchase of an equivalent number of permits, this will result in reduced costs for generators. Quantified (yes/no) yes yes yes no no 19 (Lazar and Colburn 213) 2 (Cluett and Amann 215) 21 (Sustainable Homes 216) 22 (LBNL Indoor Environment Group 216) ACE & RAP research report 28

29 Utility system benefits Other avoided costs of environmental regulations: Increased end-use efficiency reduces the volume of electricity generated, which reduces air pollutant emissions, water discharges, and solid waste from fossil fuel extraction and generation. Avoiding those emissions may reduce environmental compliance costs for generators. Reduced credit and collection costs: For low-income customers, reduced energy bills are likely to increase their ability to pay, thus reducing the credit and collection costs accruing to energy companies. Improved customer retention: Providing efficiency services in addition to energy supply can improve customer satisfaction and, in turn, customer retention 23. Reduced prices in wholesale markets: Lower demand for energy exerts downward pressure on wholesale prices for energy commodities, and does the same for retail prices of energy. Quantified (yes/no) no no no no Societal benefits Greenhouse gas emission reduction: The IEA s 25 mitigation scenarios 24 indicate that energy efficiency is the most important carbon reduction measure. Energy efficiency and reducing energy demand are the most cost-effective means to reduce carbon emissions. The most recent report from the Intergovernmental Panel on Climate Change (IPCC) 25 also allocates a key role to energy efficiency in all of their mitigation pathways. Air quality: Energy efficiency measures delivered in buildings provide air quality benefits. This is a result of fewer air pollutants being emitted both at the energy generation stage and through the direct combustion of fuels in buildings. Jobs: Investing in energy efficiency compares very favourably with investing in other energy sectors in terms of local job creation impacts. Analysis by Pollin, Heintz, and Garrett-Peltier (29) evaluating different economic stimulus options, has shown that the employment creation from investing in energy efficiency is 2.5 times to 4 times larger than that for oil and natural gas. A similar study by Wei, Patadia, and Kammen (21) has shown that the energy efficiency industry is about twice as labour-intensive compared to the fossil fuel-based energy supply sector per unit of energy saved/produced. A recent review of more than 2 studies concluded that for every 1m spent on energy efficiency about 23 person-years of employment are directly supported in the energy efficiency industry 26. GDP: In addition to the direct impact on jobs there are macroeconomic benefits in the form of GDP growth and indirect and induced jobs. In addition, consumers have more disposable income as a result of energy bill savings, which they invest in goods and services creating additional jobs. These ripple effects of capital expenditure can be estimated using multipliers. Multipliers are measures of the way in which an increase in activity by one firm will lead to an increase in activity by other related firms. For example, the contractor for a new building buys concrete, the concrete subcontractor buys new tyres for its lorries, all the firms workers spend their wages on food or consumer goods, and so on. An illustration of this can be found in a recent paper assessing investment in building fabric insulation. 27 Energy security: Energy efficiency reduces the amount of energy consumed within an economy and therefore limits energy import volumes and dependence. Fiscal benefits: Investments in energy efficiency deliver positive net-benefits to the public budget. Positive fiscal impacts result from: Value Added Tax paid by households taking up energy efficiency measures; income tax paid by employees working along the supply chain; additional corporate tax paid by the companies indirectly benefiting from the subsidies through reduced relative cost of the technologies they supply/ install; and the avoided cost of paying unemployment benefits to workers who were not working previously. Most of the fiscal benefits are a result of increased employment. Those benefits outweigh forgone tax receipts from reduced energy consumption by far 28. Quantified (yes/no) yes yes yes partial partial partial 23 See for example (David Willis (Electric Ireland) 215). 24 (IEA 214b) 25 (IPCC 214) 26 (Janssen and Staniaszek 212) 27 (Rosenow, Platt, and Demurtas 214) 28 (Rosenow, Platt, and Demurtas 214) ACE & RAP research report 29

30 CCC UEP extended ACE bn Buildings and the 5th Carbon Budget October Residential buildings results Restricting ourselves to benefits generally quantified for policy impact assessments, calculated in accordance with official guidance, all three residential sector scenarios result in positive benefit/cost ratios. The less ambitious scenarios (CCC and UEP extended) provide a benefit/cost ratio of around 1.5 and the most ambitious scenario (ACE) shows a benefit/cost ratio of 1.3. Figure 2 below presents the main benefits and costs for all three scenarios. We acknowledge that there is an unknown degree of overlap between the health and comfort benefits shown, and have the results of a partial sensitivity analysis in Appendix II. Our findings are consistent with those of other studies. Frontier Economics calculated a benefit/cost ratio for a building retrofit programme of This is similar to that calculated for High Speed 2 and the smart meter rollout Health benefit Comfort benefit Air quality impact Change in emissions Change in energy use Net present value Capital cost Figure 2: Residential buildings present capital costs and benefits of deployment between now and 232 As discussed in section 4.1, ACE s scenario chiefly differs from the CCC s in deploying more insulation measures, with one eye on the abatement pathway to 25. The higher level of deployment of solid wall insulation in particular means the ACE scenario is more capital and labour-intensive in relation to the benefits quantified here, which explains the lower benefit-cost ratio of 1.3. In addition to the benefits presented above, we have calculated the impact on employment, electricity utility systems, and some GDP effects, as well as partial public revenue impacts of the three scenarios. These are presented in Table 5. We have not added those to the benefits above partly because there is overlap between them, but primarily because they are not routinely quantified in formal policy impact assessments. Comparing Table 5 with the results shown in Figure 2 illustrates how government revenues resulting from the (only partially estimated) increase in GDP relate to the capital costs they amount to about a quarter of the installed cost across the three scenarios. Depending on the policy mix chosen to deliver, the ratio of government to private investment differs as each instrument has a different leverage ratio. Research shows that loan schemes and regulation tend to mobilise more private investment than direct grants, although a combination will be necessary to fund energy efficiency 29 (Frontier Economics 215) ACE & RAP research report 3

31 improvements and district heating systems across all income segments from fuel poor to able-topay. Table 5: Present value of additional benefits of deployment between now and 232, scenarios compared to baseline CCC UEP extended ACE Employment [number of FTE jobs supported in average year] 66, 4,5 86, Electricity utility system benefits [ bn] GDP effect: Gross Value Added of capital works [ bn] GDP effect: Reduced imports of gas 31 [ bn] Government revenue benefit from above GDP effects [ bn] The results for employment show that the ACE scenario is more labour-intensive than the CCC and UEP extended scenarios in relation to costs. The widely geographically distributed nature of the employment needed to deliver the scenarios potentially carries with it a range of additional benefits not quantified here, relating to regional and local regeneration and skills development and, nationally and to the extent that any employment would be additional, avoided welfare costs. 5.3 Non-residential buildings results Whilst the capital costs for each scenario could be calculated for the residential sector, quantifying these for the non-residential sector was not possible within the scope of this project. Capital costs are far more variable as the deployment of technology in the non-residential building stock is much more bespoke than in the residential sector. Instead, for the non-residential sector we present in Table 6 the benefits we have been able to quantify. In the broadest sense, the ratio of benefits to costs can be expected to outperform the residential sector as the level of abatement recommended in the CCC s cost-effective path is greater. Assuming the same benefit/cost ratio as for the residential sector in Figure 2 would see a net present benefit of about 2bn in the CCC s scenario. Table 6: Selected present values of benefits of deployment between now and 232, scenarios compared to baseline [ bn] CCC UEP extended Change in energy use Change in emissions Net air quality impact Electricity utility system benefits GDP effect: reduced imports of gas Government revenue from GDP effects Competitiveness, productivity and profitability benefits are also not quantified here. Energy cost savings directly improve businesses bottom line and save public money more usefully expended or invested in public services. More energy efficient buildings also enhance staff productivity as they are more likely to sustain comfortable working environments at lower cost through optimal indoor temperatures, better ventilation and better lighting 32. As such, reducing carbon emissions from buildings by improving their energy efficiency should be fully integrated into the Government s plan for boosting the UK s productivity. Ensuring that the required investment happens will depend on the creation of a robust and long-term policy framework that supports the development of sustainable markets for low carbon retrofit and construction. Chapter 6 explores the potential elements of this framework in detail. 3 For a breakdown of utility system benefits in the residential and non-residential buildings sectors, see Appendix II. 31 To 232 only (i.e. not over the lifetime of the technologies deployed). Does not include reduced imports that result from reduced power generation needs. 32 (LBNL Indoor Environment Group 216) ACE & RAP research report 31

32 6 Policy options for achieving the 5 th Carbon Budget In this Chapter we provide an overview of major policy levers we have identified that can help ensure, sustain and increase the level of abatement currently projected by Government to the level necessary to meet the 5 th Carbon Budget. We highlight the scale of what these levers can achieve but have not modelled their effects. Given the present size of the abatement gap, and the large extent to which currently projected abatement is deemed to be at risk, we believe that all of these levers, and more, deserve full consideration. The three tables below organise the policy options into categories: Targets Regulation Fiscal and financial incentives Access to finance Information and behaviour and consider whether these require one or more of: De-risking (e.g. by ensuring compliance) Reform (e.g. of design or means of delivery) Extending (beyond the current programme expiry date) Expansion (in abatement ambition) Introduction (of new policy instruments) Though the list presented here is non-exhaustive 33, we believe the policy options included can achieve more coverage than is necessary to achieve compliance with the 5 th Carbon Budget and capture the benefits presented in Chapter 5. The list does not constitute a set of recommendations; we offer our priority recommendations based on the options in this section in Chapter 7. Each option brings its own challenges and opportunities; we have used a simple traffic light system (green/amber/red) to provide an indication of each policy option s technical feasibility, political acceptability, implementation speed and cost. On the following pages, we present our assessment of policy options in three tables, covering residential buildings, non-residential buildings and heat networks. 33 E.g. we have focused on UK and GB-wide mechanisms and have not included devolved nation programmes. ACE & RAP research report 32

33 6.1 Residential buildings Category Programme Action Type of action Highlights Technical feasibility Political acceptability Implementation speed Cost Targets Residential sector target Set and communicate a series of carbon abatement milestones for the residential sector in five-year intervals and review policy performance against these milestones. Introduce A clear target for the residential sector is needed to enable meaningful monitoring of progress and to provide policy credibility and coherence. Regulation Products Policy There are good economic reasons (for both industry and consumers) for EU-originated Products Policy to remain in place, regardless of the direction of Brexit negotiations and outcome. But Government needs to reassure industry that compliance remains desirable, whilst consumer support for Products Policy needs to be ensured more carefully. De-risk Most of the electricity savings across the scenarios in the residential sector rely on successful Products Policy. The CCC s scenario sees virtually the whole stock of appliances as best in (current) class by 23. (CCC 216a; BEIS 216b) Energy Performance Certificates Private Rented Sector Minimum Energy Efficiency Standard Nearly Zero Energy Buildings While compliance with the EPC requirement for property sales is believed to be better than for non-residential buildings, the level of compliance is likely to be poor for rentals. Ensure spending requirement / cost cap is robust and EPC underpinnings are retained. Produce roadmap for initially increasing minimum standard to EPC D, and beyond to 25. Based on robust cost-optimality review, implement NZEB standard from 221 and restore allowable solutions to deploy funds into local housing energy efficiency improvement and heat networks investment. De-risk De-risk and expand De-risk / introduce It has been estimated that 6% of estate agents property advertisements do not include an EPC. (PEPA 215) Around 45, private rental properties in the UK are rated F or G; less than 2% of the total housing stock. Over 1 million (nearly 4% of the stock) are rated EPC E. (CLG 215) Over 3 million new homes could be built between now and 232. (CLG 213) Boilers Plus Update Part L to mandate minimum heating and cooling controls standard when systems are renewed. Introduce The CCC s scenario sees 3.5m upgraded heating system controls installed between now and 232. (CCC 216a) ACE & RAP research report 33

34 Category Programme Action Type of action Highlights Technical feasibility Political acceptability Implementation speed Cost Fiscal and financial incentives Retrofit standards Point-of-sale Minimum Energy Efficiency Standards Value-Added Tax In 212 the UK Government considered requiring homeowners to carry out consequential energy efficiency improvements to the rest of their property when they replace their boiler or a proportion of windows, when they add an extension or when they convert a loft or integral garage into living space (CLG 212). Those plans were subsequently abolished (Daily Mail 212) even though they had the potential to establish a driver for energy efficiency. Similar requirements already exist for buildings larger than 1m 2. Extend PRS approach to point-of-sale to include owner-occupiers, lay out long-term roadmap of tightening minimum standards to 25. The European Court of Justice announced a ruling in the summer of 215 that the reduced 5% rate of VAT which is currently applicable for the supply and installation of energy saving materials can no longer be upheld as it failed to comply with the EU s VAT Directive (ECJ 215). The UK Government is currently considering reform options following a consultation that ended in February 216 (HMRC 215). The clear signal is needed that the incentive will be retained in the medium to long term Introduce Introduce De-risk Over one in 1 UK homeowners invested in additions or extensions to their home in 214 (Houzz 215). Requiring those homeowners to implement energy efficiency upgrades to other parts of the property could potentially affect 2 million homes each year. International example: In France, the sale of F and G-rated homes is to be outlawed from 225, with staged tightening of standards towards an A or B rating by 25.(MEEM 215) The Scottish Government is deliberating on the introduction of a similar system (Scottish Government 215). In the UK, an initial F or G minimum standard could see 72, properties affected at point-ofsale each year. An E standard would see an additional 26, properties affected annually. (HMRC 216; CLG 215) (ACE analysis) Scrapping the VAT incentive would result in professionally installed cost to consumer of eligible technologies increasing by 14% overnight. The vote to exit the EU lessens the risk from the European Commission. ACE & RAP research report 34

35 Category Programme Action Type of action Highlights Technical feasibility Political acceptability Implementation speed Cost Access to finance Renewable Heat Incentive Supplier obligation Council Tax incentive Stamp Duty incentive Low energy mortgages The Renewable Heat Incentive is the main mechanism for renewable heat technologies in the residential sector. A recent report by the Energy and Climate Change Committee concluded that without upscaling this instrument or putting in place other policies the UK is likely to miss its 22 renewable heat targets (let alone 5 th Carbon Budget). (Energy and Climate Change Committee 216) Increase the targets of the Supplier Obligation in future years to cover a wider range of households both in the fuel poverty and able-topay segment. Introduce long-term structural incentive for energy efficiency improvement, linked to EPC rating and structured revenue-neutrally as a bonus-malus variation on current Council Tax structure, or as a rebate upon taking energy efficiency action. Introduce long-term structural incentive for energy efficiency improvement, linked to EPC rating and structured revenue-neutrally as a bonus-malus variation on current Stamp Duty structure, or as a rebate upon taking energy efficiency action. A number of building societies offer mortgages and/or additional borrowing for energy efficient new homes as well as retrofits. The UK Government should work with financial institutions to ensure that current offerings are kept and new ones introduced offering consumers an increased choice of green Extend and reform Extend and expand Introduce Introduce De-risk and expand The CCC s scenario sees 2.2m homes with heat pumps and 3, with biomass boilers by 23. To date, the RHI supports 3, heat pump and 12, biomass installations (installed since April 214), a rate of adoption which would need to increase more than 1-fold for heat pumps and 4-fold for biomass. (BEIS 216d; CCC 216a) Supplier Obligations have been scaled back since 213 and there is scope to extend and expand the policy. Earlier analysis by DECC has shown that Supplier Obligations can reduce energy bills by 11% in the longer term. (DECC 214b) 23 million homes are liable for Council Tax. The total amount of Council Tax collected in Britain is about 28bn per year, which means that a significant financial incentive for energy efficiency improvements could be introduced within the regime. (CLG 216; The Scottish Government 216; Welsh Government 216) With 1.2m residential property transactions per year, a 25% rebate could see 22, property owners facing financial gain from the rebate through undertaking major insulation measures each year. At 2% take-up, 44, significant energy efficiency improvements would occur each year. (RAP analysis) Accounting for the reduced energy bill for more efficient homes when considering affordability has benefits both for banks and consumers. Analysis by UCL and UKGBC shows that these estimates could significantly improve upon those currently used in mortgage affordability calculations, potentially allowing banks to better manage the risks associated with their lending, ACE & RAP research report 35

36 Category Programme Action Type of action Highlights Technical feasibility Political acceptability Implementation speed Cost Information and behaviour Able-to-pay finance offering Energy efficiency ISA Smart meter rollout Energy Performance Certificates mortgages. (Nationwide 216; Ecology Building Society 216) Introduce a new finance offering for the able-topay market in form of a low-interest loan scheme underwritten by the UK Government. Introduce sister policy to Help to Buy ISA, with government topping up savings for downpayment, ear-marked to enable energy efficiency improvements to new home. (Hall and Caldecott 216) The rollout has been delayed and targets now look difficult to meet. Greater emphasis needs to be placed on ensuring the rollout and the new infrastructure itself links to energy efficiency advice and is community-based. (Energy and Climate Change Committee 215) The advice provided on EPCs has much scope for improvement. Retrofit roadmaps detailing steps to take to move a home towards a very high standard of comfort, running costs and energy performance over time (as a staged deep retrofit) while avoiding technological lockin would dovetail well with other policy mechanisms (particularly point-of-sale standards) and 25 targets for the housing stock. Reform and introduce Introduce De-risk and reform Reform while also helping prospective purchasers to better understand the real costs of the property they are about to purchase. (Griffiths, Hamilton, and Huebner 215) Loan schemes underwritten by Government achieve the highest leverage rates of all financial instruments available. The positive fiscal impacts of such a scheme can offset and even exceed the cost. (KfW Research 211; Platt et al. 213; Cambridge Econometrics and Verco 214; Rosenow, Platt, and Demurtas 214) Latest statistics report 1,5 property purchases have been supported by the Help to Buy ISA to date (December 215 to March 216). No Impact Assessment was published. (HMT 216) The government wants every home to be offered a smart meter by the end of 22. That requires meters to be fitted in over 27 million homes by then. The Energy Consumption Analysis project undertaken by DECC revealed that smart meters deliver 2.3% savings which is less than initially anticipated. (DECC 215b) International examples: The State of Baden- Württemberg in Germany has replaced EPCs with comprehensive retrofit roadmaps (MUKE- BW 215), and the Federal Government is investigating a national rollout (BMWE 214). Switzerland s Minergie labelling framework emphasises comfort and prestige over energy performance and is driving asset value increases and favourable mortgage lending. (MINERGIE 216) ACE & RAP research report 36

37 6.2 Non-residential buildings Category Programme Action Type of action Highlights Technical feasibility Political acceptability Implementation speed Cost Targets Greening Government Commitment Renew the commitment until 22 and sketch out further renewals for 225 and 23; extend GGC to whole public sector encompassing local government buildings. By showing leadership and through its purchasing power and supply chains, the public sector can drive change in procurement for, and renovation standards of, commercial buildings. Extend and expand The public sector accounts for 41% of direct and 21% of electricity-related emissions from nonresidential buildings. (DECC 216b) Commercial sector target Set and communicate a series of carbon abatement milestones for the commercial sector in five-year intervals and review policy performance against these milestones Introduce A clear target for the commercial sector is needed to enable meaningful monitoring of progress and to provide policy credibility and coherence. Regulation Energy Performance Certificates Properly enforce EPC requirement and introduce strong penalties for non-compliance. De-risk 52% of sales and 61% of rentals in 212 were missing an EPC. (Rowney 215) Display Energy Certificates and wider reporting requirements Retain as annual regulatory requirement for displayed energy performance. Use forthcoming BEIS simplified reporting consultation to consider using DECs to streamline carbon and energy reporting requirements and using reporting requirements to drive DECs production. 35, DECs were lodged in 215, covering 12million m 2 (CLG 216c). This was the first annual fall in the number of lodgements; it must be properly enforced. De-risk 8,5 buildings with continual DECs over three years and larger than 1,m2 achieved 3% annual energy savings in 211 compared to 29. (Hong and Steadman 213) ACE & RAP research report 37

38 Category Programme Action Nearly Zero Energy Buildings Products Policy Government Buying Standards Private Rented Sector Minimum Energy Efficiency Standard Reaffirm commitment to NZEB standards for new commercial buildings by 221 and public buildings by 219. Acknowledge this will require updates to 213 Part L. Extend to cover lighting controls and additional savings potentials in HVAC (latter overlaps with Boilers Plus above). Making the case for extending coverage will prove difficult due to Brexit. Make GBS on new-build and major refurbishment and buildings equipment mandatory for the whole of the public sector, not just central government. Introduce roadmaps for: initially increasing minimum standard to EPC D and extending it (initially at lower standard) to owner-occupied premises. Type of action De-risk / introduce De-risk, expand Expand Expand / introduce Highlights 7.4 million m2 of new non-domestic floorspace was added to the stock in England and Wales in 214. Upwards of 1% of the stock in 232 will have been built between now and then. (CLG 213) (ACE analysis) A large share of electricity savings across the scenarios rely on successful Products Policy. Lighting controls achieve 3.3TWh electricity savings in the CCC s central scenario in 23, over 1% of the electricity savings in the sector and equivalent to over 6% of the UK s current hydro-electric power production. (CCC 216a) The public sector accounts for 41% of direct and 21% of electricity-related emissions from nonresidential buildings. (DECC 216b) 61% of non-residential premises are leased; 18% of all certified premises have an EPC of F or G and 34% have an EPC of less than D. (CLG 216b) Technical feasibility Political acceptability Implementation speed Cost Boilers Plus Update Part L to mandate minimum heating and cooling controls standard when systems are renewed. Introduce Proper heating controls account for one fifth of direct emissions abatement in 23 in the CCC s scenario. (CCC 216a) Fiscal and financial incentives Point-of-sale Minimum Energy Efficiency Standards Business Energy Tax Review / Climate Change Levy Extend PRS approach to point-of-sale to include owner-occupiers, lay out long-term roadmap of tightening minimum standards to 25. Do more to incentivise energy efficiency takeup than rebalancing Climate Change Levy rates for gas and electricity to favour gas reduction more strongly. Ensure that this move ties in Introduce De-risk The Scottish Government is deliberating on the introduction of such standards (Scottish Government 215). The mechanism with the widest coverage: business and public sector apart from small businesses (low energy users) and charities. ACE & RAP research report 38

39 Category Programme Action Enhanced Capital Allowances closely with any reforms or introduction of other incentives. Simplify ECAs regime by linking them to reduced energy consumption outcomes. Could also be linked to equipment purchases made to implement ESOS audit recommendations. Type of action Reform Highlights International example: In the United States, ECAs are granted for equipment which leads to 5% or greater reduction in electricity consumption). (US DOE 212) Technical feasibility Political acceptability Implementation speed Cost Renewable Heat Incentive Post-222, evolve RHI rates to be set on the basis of carbon displaced, resulting in greater abatement cost-efficiency. Could be implemented in a phased manner, moving RHI from its current function as a technology subsidy towards an abatement subsidy. (ADE 216) Extend and reform The CCC s scenario sees 5.2 MtCO 2e of direct abatement from district and low carbon heat in 23 (CCC 216a). Current Government projection sees.9 MtCO 2e (DECC 215d) and extending policy would see 2.4 MtCO 2e direct abatement (ACE analysis). The CCC s difference is principally due to greater deployment of heat networks. Electricity Demand Reduction and Response incentives Business Rates Grant equal access to and conditions (contract length) for Capacity Payments for demand response and reduction in the public and commercial sectors. Pilot electricity efficiency feed-in tariff auctions. (Mount and Benton 215) As part of local government Business Rates retention proposals (CLG 216a), disallow retention from premises with the worst EPC ratings (e.g. F or G), to act as a driver for local authorities to encourage (not only) SMEs to undertake energy improvements and improve local productivity and competitiveness. Nonretained business rates can be used by central government for top-ups and redistribution. Consider testing this in the 1% retention pilots in Manchester and Liverpool. In addition, extend empty premises business rates relief to Expand and introduce Introduce This could form the foundation for incentivising electricity savings in connection with the Climate Change Levy 18% of all certified premises have an EPC of F or G. Over 5% of non-domestic floor space has never been certified. (ACE analysis) ACE & RAP research report 39

40 Category Programme Action Access to finance Salix Finance Third-party financing / Energy Service Companies / Energy Performance Contracting Green Investment Bank SME finance offering 12 months conditional on energy efficiency improvements (resulting in better EPC) being undertaken during that time (WSBF and Carbon Connect 213). 295m for zero interest loans to the public sector for energy efficiency over the course of this Parliament (HMT 215) is a drop in the ocean compared to the investment needed. This needs to be increased. Also, consider extending Salix loans to ESCOs for technologies on its approved list; this is done by the European Energy Efficiency Fund. In addition, access to relevant EU funds (JESSICA, EEEF) is now at risk: 357m were committed to the UK by the JESSICA fund in 211 (Inforegio 211). Remove regulatory bottlenecks to faster growth of the ESCO market. For example, public sector energy performance contracts should not be accounted for as government expenditure, and the length of service contracts must be allowed to go beyond 3 years (COGEN Europe 216). Establish a national procurement framework for ESCO services (RE:FIT style). GIB has committed 1m to non-residential energy efficiency funds. McKinsey estimated 2.6bn investment required to capture full commercial sector energy efficiency potential (McKinsey & Co 212). GIB is being privatised, so Government needs to make the climate for, and increase the volume of, energy efficiency lending (especially to include ESCOs) more attractive in other ways. Revisit business case for non-domestic Green Deal-style finance, with a focus on financing relatively capital-intensive improvements with the shortest payback times. Type of action De-risk, reform, expand Reform Reform Introduce Highlights The net marginal abatement benefit has been 14/tCO 2. (Salix 216a) International example: France s and Germany s ESCO markets were estimated by the JRC in 213 to have 35 and 5-55 players respectively; the UK s was estimated to have 3-5. (Bertoldi et al. 214) International example: Germany s KfW loaned 3.5bn at below-market interest rates (currently 1%) to commercial energy efficiency projects in 212 alone (WSBF and Carbon Connect 213). Loans are also provided to ESCOs. 6% of SMEs say energy efficiency is important but don t have cash required for investment. (npower 213) Technical feasibility Political acceptability Implementation speed Cost ACE & RAP research report 4

41 Category Programme Action Information & behaviour Smart meter rollout Reporting requirements Non-Domestic National Energy Efficiency Database ESOS Provide favourable conditions to make smart meter data actionable, in particular through agreeing an open source approach that can drive the market for third party energy efficiency services. Reduce and simplify reporting requirements so that there is ultimately just one set of figures (or at least consistent sets of figures) for each organisation regarding energy and carbon consumption and mitigation options; this will increase ability to unlock capital internally for EE investment and avoid the fractured landscape for the skills needed in turn enhancing the benefit of maintaining in-house energy management teams key to unlocking internal investment. Accelerate progress on ND-NEED to begin to inform non-residential energy efficiency policy at a similar resolution as data available for domestic buildings allows. Mandatory energy audits for large users intended to bring energy efficiency information and improvement recommendations to the fore. No requirement to act, but some of the prerequisites for action fulfilled. Explore how to raise proportion taking action and depth of action (by linking to other programmes); and whether to extend ESOS to smaller businesses; publish ESOS audits; ESOS reports required to obtain board sign-off? Type of action Reform Reform - Expand Expand Highlights The government wants every business to be offered a smart meter by the end of 22. That requires meters to be fitted in over 3 million premises over the next four years. The last comprehensive (albeit electricity only) look at non-residential efficiency across the building stock was the EDR project in 212 (McKinsey & Co 212). The CCC s own assessment is still based on that used in its original 28 report (CCC 28). 9% of 4,6 commercial and public sector organisations under ESOS report that a board member or manager has reviewed the ESOS recommendations, although just 2% of boards are reported to have discussed the ESOS audit results. Fewer than 1% have reported that they have energy efficiency targets (among these are more than half of the companies whose boards have discussed results). Just 5 of the 4,2 that didn t said that they would adopt targets as a result of ESOS. Just 7 report they have published ESOS related information. (Environment Agency 216) Technical feasibility Political acceptability Implementation speed Cost ISO51 Use other programmes to facilitate/accelerate its adoption (as is done through ESOS) Expand Fewer than 1% of commercial and public sector organisations within scope of ESOS have at ACE & RAP research report 41

42 Category Programme Action Type of action Highlights least some of their energy consumption covered by ISO 51. (Environment Agency 216) Technical feasibility Political acceptability Implementation speed Cost Display Energy Certificates for commercial buildings Facilitate and encourage industry-led development of a voluntary prestige-driven annual display certificate system for the commercial sector. Introduce International example: 79% of Australia s office space is energy-rated using its NABERS voluntary annual rating scheme. The average carbon abatement from offices increases steadily with each annual rating, averaging 4% by the 9 th rating. (NABERS 216) One-stop shop EEDO was to set up a one-stop shop for business energy efficiency information (what the Carbon Trust used to do and informally still offers), but was abandoned. Current advice to the commercial and public sectors is dispersed and piecemeal. A single, coherent one-stop shop for energy efficiency information and the support available is needed. This should encompass different and persistent strands for sub-sectors (such as the former Retail Energy Efficiency Taskforce), each of which work closely with the relevant trade associations (e.g. British Retail Consortium, British Council of Offices, Sporta). Introduce International example: The US Energy Department s Building Technologies Office provides a central point of reference for information, standards, and innovation in energy efficiency. (US DOE 216) ACE & RAP research report 42

43 6.4 Heat networks Category Programme Action 34 Type of action Highlights 34 Technical feasibility Political acceptability Implementation speed Cost Regulation Fiscal and financial incentives Information and behaviour Capital guarantee Business rates Renewable Heat Incentive Heat Networks Delivery Unit Provide same regulatory protections to underwrite bankability of heat demand as are provided to underwrite bankability of gas and electricity demand to secure investment in heat infrastructure leading to lower financing costs, greater investment and more and larger, better value schemes. Adjust business rates for heat networks down to equal rates for gas and electricity networks or exempt heat networks entirely. Include district from waste heat in RHI, and ultimately base RHI payment levels not on achieving the same return for all technologies, but based on carbon abatement. Base it on the carbon emissions displaced by the RHIsupported heat, and on heat delivered to ensure heat network is efficient, and have customer pay per unit of heat (no flat rates). Move HNDU assistance onwards from feasibility support towards planning and delivery support to develop a fuller pipeline of investor-ready projects. De-risk / reform / introduce De-risk / reform Extend and reform Expand - The current pipeline of heat network projects would constitute 2bn of capital investment over the next 1 years. The rateable value of 1km of heat pipeline is more than 4 times higher than it is for 1km of gas pipeline. The cost of abatement through the RHI for single-dwelling heating systems in on-gas grid homes is between 22 and 879/tCO 2, depending on the technology installed. By contrast, abatement through heat networks supplying recovered waste heat can deliver at a net benefit of 2-11/tCO A wealth of possibilities Our assessment is far from exhaustive. We have not looked at vital wider enabling factors such as quality, skills and training (some of which are being addressed by the Bonfield Review), nor at highly valuable experiences from policies and programmes being implemented in Northern Ireland, Scotland and Wales. There is a very substantial wealth of public policy options available to close the abatement gap. The next Chapter sets out our priority recommendations. 34 The source throughout is (ADE 216). ACE & RAP research report 43

44 7 Conclusions and recommendations Current and currently planned policies for carbon abatement from buildings will not achieve what is needed to meet the 5 th Carbon Budget. It may not be technically possible, and it is certainly not economical, to close this abatement gap in the power, transport and industrial sectors instead: the Government s own appraisal of the least-cost path to meeting the 5 th Carbon Budget saw emissions from buildings being 1% lower than the CCC has put forward 35. Moreover, most of the currently projected carbon abatement from buildings is very far from certain, and with every tonne of CO 2 unabated, policies must subsequently work harder within a shorter space of time to meet our climate change targets. The worst case scenario is that direct emissions barely reduce at all from today s levels. The benefits of compliance with the 5 th Carbon Budget, partially assessed here, are considerable and justify significant investment from both the public and private sectors for them to materialise. Carbon abatement from buildings is acknowledged to bring a wide range of persistent wider benefits, such as improved health, comfort, productivity, skilled employment and electricity system benefits all are hallmarks of a modern, low carbon infrastructure and all serve numerous other public policy objectives. More so than abatement in other sectors, these benefits from investing in our buildings accrue directly to people everywhere in the UK. In order to leverage the necessary private investment for them to be captured, there needs to be significant policy change and public investment. The most strategic opportunity at which such a step-change can be signalled is in the forthcoming Carbon Plan; the Building Renovation Strategy due next spring also presents an opportunity. Our recommendations are set out in the following sections. 7.1 Set the right framework conditions Buildings are the very essence of the infrastructure through which we live and work our everyday lives. Specifically, the energy efficiency of, and heat supply to, our buildings are an integral part of our energy infrastructure and have a vast impact on the extent to which our energy system is low carbon, affordable and secure. The National Infrastructure Commission is preparing its first formal Assessment of the UK s infrastructure investment needs. Managing energy demand in buildings has got to be an integral part of this process, and must be elevated to the status of a national infrastructure investment priority. Doing so would clearly signal to public and private investors that the Government is committed to improving the energy efficiency and heat supply of our buildings over the next 25 years, not just the next five. In practical terms, rules and standards will need to be set at the level at which a true market for low carbon building construction and renovation must perform for our climate targets to be met. In tandem with this, goals for reducing emissions from our residential, commercial and public buildings must be set and clearly communicated. Given the overall Carbon Budgets framework, such targets do not need to be binding (with the exception of the public sector; see 7.4). Targets are needed for stakeholders to be able to converge on a common objective, to define what constitutes success and by when, and to enable accountability. The following sections put forward our priority policy recommendations for meeting the 5 th Carbon Budget from our assessment of policy options in Chapter (DECC 216d) ACE & RAP research report 44

45 7.2 Increase credibility Much of currently projected emissions abatement from buildings is highly uncertain. Present-day policies need to be de-risked by ensuring they are implemented and complied with as intended. We consider the following to be the top three priorities: Secure successful Products Policy: a very large share of projected electricity savings in all buildings, and projected direct abatement in commercial and public buildings, hinges on Products Policy s success. The majority of these savings come from Products Policy that has not yet been implemented. Government needs to send a clear signal that it remains committed to Products Policy regardless of the outcome of the Brexit process, and set out a strategy for ensuring its savings materialise. Ensure strong compliance with Building Regulations: a few studies now quite old have shown that compliance with Part L of the Building Regulations is low. Government needs to get serious about monitoring and enforcing compliance there has not been one penalty issued for failure to comply with Part L. This is unacceptable to building users, and unacceptable for a policy which makes the second-largest contribution to emissions abatement in the Government s current projections. Ensure strong compliance with the Energy Performance Certificates regime: EPCs stem from the EU s Energy Performance of Buildings Directives which puts them at risk and form the basis for the targeting of many current (non-eu) policies and programmes: England s Fuel Poverty Strategy, Private-Rented Sector Minimum Energy Efficiency Standards, the Energy Company Obligation and numerous fuel poverty assistance schemes in Scotland and Wales. They need to be retained, made more robust, and the EPC requirement needs to be complied with: 6% of estate agents do not display them on residential sales and lettings ads, and more than half of non-residential sales and lettings were missing an EPC in 212. A robust EPC regime, as well as a robust Display Energy Certificates regime in public buildings, is a pre-requisite for the success of current, reformed and new policy and markets for emissions abatement in buildings. 7.3 Increase effectiveness Some present-day policy instruments need to be reformed so that they can support higher levels of abatement. In our view, the top three priorities are: Foster more attractive and more widely available finance: following the withdrawal of Government support for the Green Deal Finance Company last year, in some respects this could be considered as introducing new instruments. In practice, the facilities for finance offerings are in place: the Green Deal finance framework is still being maintained; a handful of preferential mortgage deals for energy efficient residential new build and retrofit exist. The availability of appropriate financial products for a wide range of market segments is a necessity in any policy landscape that has political and public acceptance to drive demand for low carbon buildings through regulation especially if mandatory minimum energy efficiency standards are to be more widely introduced. The most powerful steps the Government can take are to underwrite lending under the Green Deal framework and scrap the Golden Rule. This is a first step in signalling to providers that lending for energy efficiency is fundamentally financially sound, and it would bolster efforts to increase banks and building societies understanding of, and confidence in, energy efficiency lending. Transform Energy Performance Certificates into the information hub of low carbon retrofit: in the residential sector in particular, EPCs should be the information hub that connects energy performance to asset values, mandatory standards to available retrofit support, and today s individual retrofit to the long-term national goal for building energy and carbon performance. EPCs need to become richer, more sophisticated and longer-term in their recommendations. They should evolve ACE & RAP research report 45

46 into a guide to (staged) deep retrofit of properties, tying in explicitly with current and future mandatory minimum standards, how to achieve them, and what support is available to get there. Level the playing field for heat networks: heat networks play a major role in the CCC s scenario for meeting the 5 th Carbon Budget. To unlock more investment, they must be afforded at least the same status as gas and electricity network infrastructure by providing capital guarantees to underwrite the bankability of heat demand and by reducing the Business Rates heat networks face to a similar level or exempting heat networks from Business Rates altogether for a time-limited period. 7.4 Increase timescale There are a number of present-day policy instruments that need to be extended or renewed beyond their current expiry dates. Our top three recommendations are: Extend the Renewable Heat Incentive to 232: the RHI has been principally driven by the UK s EU target to increase the share of its heat from renewables to 12% by 22. The UK s participation in the EU s 23 target is in doubt. The Climate Change Act will be the principal driver of renewable heat and the RHI will need to contribute to supporting very significant deployment of low carbon heat and heat networks beyond 22 if the UK is serious about meeting the 5 th Carbon Budget. It will need to be extended, encompass waste heat networks, and eventually make the transition from ensuring a given rate of return on low carbon heat investments to providing support to the least-cost low carbon heat options that need it. Extended the Supplier Obligation to 232: we welcome the fact that the Energy Company Obligation is to run until 222. If it were to be the only game in town it would need to be larger. Provided it is part of a more credible, effective, ambitious and long-term policy landscape for carbon abatement from buildings, it will primarily need to run for longer, for at least 1 years. In the absence of a state-funded fuel poverty programme in England (those in Northern Ireland, Scotland and Wales are preferable), we think it is right that its primary focus is on fuel poor households. However, we believe it should retain a minimum level of solid wall insulation delivery, as well as maintain a carbon abatement element which emphasises low cost abatement which is innovatively and cost-effectively delivered at scale. Continually renew the Greening Government Commitments: the targets for sustainability, including for carbon abatement from the central government estate, have expired and have not been renewed despite the Cabinet Office stating that it remains a priority for It should thus be a priority to renew the GGC to 22, and for subsequent five-year periods through to at least 23. In parallel, the GGC and Government Buying Standards governing new-build, major refurbishment and the purchase of efficient buildings equipment should be extended to the entire public sector estate. 7.5 Increase ambition The ambition and level of support provided by some policy instruments needs to be increased. Our priority recommendations are: Expand the Minimum Energy Efficiency Standard for private-rented sector buildings: The PRS minimum standards outlawing the rental of F and G-rated residential and non-residential properties needs to be robustly implemented and enforced. On this basis, the Government should propose a timetable for tightening the standard in the long-term, to encourage retrofit beyond the minimum standard of an E- rating now, and implement it. Expand the remit of the Heat Networks Delivery Unit: BEIS s HNDU is widely regarded as a successful component of the Government s approach to driving the deployment of low carbon heat. It should build on its success and expand its remit from supporting heat network feasibility assessments to ACE & RAP research report 46

47 supporting planning and delivery. This would help mature the heat networks projects in the pipeline and see more come to fruition. Roll out Electricity Demand Reduction and Response incentives: A timetable for the longer-term future of the Government s Electricity Demand Reduction pilot needs to be set out. This should aim to convert the pilot of demand resources providers participation in the Capacity Payments mechanism into the mainstream while matching the length of contracts and payments they can bid for to the length afforded to supply side resources. In addition, a new pilot should be set up to test the viability of an energy efficiency feed-in tariff paid out to the non-residential sector, drawing on lessons from projects supported by the Low Carbon Networks Fund. 7.6 Introduce new policy New policy instruments will be needed to tackle segments of the buildings sector left unaddressed by the present-day scope of policies. Our top priority recommendations are: Introduce Minimum Energy Efficiency Standards at point-of-sale: In order to achieve the level of abatement needed from buildings, demand for low carbon retrofit will need to be driven at scale. Widely available attractive finance does not drive demand; fiscal and financial incentives do, but are too costly to create demand at the scale required; compelling, high quality information and advice competes with countless other effective marketing efforts to attract investment in other forms of housing retrofit and commercial sector capital, and on its own can only unlock latent demand. However, all three are prerequisites for introducing what we consider to be the cornerstone of demand at sufficient scale and the development of a competitive market for high-quality low carbon retrofit: mandatory minimum energy performance standards at point-of-sale for all buildings. Following proper consultation, a long-term timetable, with a schedule for tightening standards over time, needs to be set out well in advance of their introduction. Even if the number of buildings affected each year initially (e.g. F & G-rated properties) was small, the effect of a clear, fixed timetable on the property and retrofit markets would be transformative. There are political challenges, but it is workable France is doing this with a timetable to 25, Germany and Scotland are considering it. If we are serious about meeting our climate targets and low carbon existing buildings becoming the new normal, we believe them to be necessary. Tighten new build standards: Zero Carbon Buildings policy was placed on indefinite hold last year, potentially denying the UK s construction industry a huge competitive advantage. Stakeholders have since turned more attention to EU requirements to introduce Nearly Zero Energy Building (NZEB) standards by 221 (and 219 for public sector buildings). Irrespective of the EU referendum result and outcome of the Brexit process, the prospects for tightened new-build standards are highly uncertain. Upwards of 3 million new homes and 1% of the non-residential stock could have been built between now and 232, the end of the 5 th Carbon Budget. It is not rational to entrench in a generation s worth of new-build higher-than-necessary carbon emissions and running costs. A trajectory towards new-build standards in keeping with long-term climate targets needs urgently to be reinstated. Introduce long-term incentives: as highlighted above, mandatory minimum standards require an ecosystem in which they can be complied with. Access to finance and high quality advice form a part of this, and so do fiscal and financial incentives that match minimum standards long-term outlook and are in place well in advance. Carbon taxes and Enhanced Capital Allowances have been the principal long-term incentives in the non-residential buildings sector. It remains to be seen whether the Government s consolidation of the business energy tax regime will increase the impetus to invest without additional incentives. In the residential sector, incentives have been short-term (Boiler ACE & RAP research report 47

48 Scrappage Scheme, Green Deal Cashback and Home Improvement Fund) or unpredictable in terms of value or accessibility (Energy Company Obligation). Residential landlords for a long time had access to the Landlords Energy Saving Allowance which, without compulsion, had very low take-up. It has now been scrapped, just as mandatory minimum standards for the private-rented sector are expected to take effect. Long-term incentives need to be introduced which are embedded into the fabric of decision-making around buildings, such as: sale and purchase (e.g. a Stamp Duty incentive linked to energy performance rating); vacancy (e.g. Business Rate or Council Tax holidays granted if improvements are carried out), and tenancy (e.g. social landlords allowed to charge additional rent for cost of energy improvements; disallowing Business Rates retention by local authorities on F and G- rated premises). 7.7 Time to take this forward The policy recommendations put forward here ranging from no-brainers to inconvenient but necessary and everything in between are available and practicable, with many of them planned, tried and tested in other advanced economies. The forthcoming Carbon Plan must bite the bullet by placing at its heart a plan for proposing and consulting on a timetable for the introduction of mandatory minimum energy efficiency standards at point-of-sale and deliver a compelling vision, and credible actions and timescales for the step-change in energy efficiency and low carbon heat in buildings that our legal commitment to the 5 th Carbon Budget needs. ACE & RAP research report 48

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52 _spreadsheet_toolkit_for_valuing_changes_in_greenhouse_gas_emissions.xlsm. IEA. 214a. Capturing the Multiple Benefits of Energy Efficiency. Paris: Renouf. gyeficiency.pdf.. 214b. Global Energy Efficiency Market an Invisible Powerhouse Worth at Least USD 31 Billion per Year. International Energy Agency. August 1. IPCC Climate Change 214: Mitigation of Climate Change Technical Summary. Geneva: Intergovernmental Panel on Climate Change. Janssen, Rod, and Dan Staniaszek How Many Jobs? A Survey of the Employment Effects of Investment in Energy Efficiency of Buildings. Brussels: Energy Efficiency Industrial Forum. KfW Research Impact on Public Budgets of KfW Promotional Programmes in the Field of Energy-Efficient Building and Rehabilitation. Frankfurt am Main: KfW Bankengruppe. Group/Research/PDF-Files/Energy-efficient-building-and-rehabilitation.pdf. Lazar, Jim, and Ken Colburn Recognizing the Full Value of Energy Efficiency (What s Under the Feel-Good Frosting of the World s Most Valuable Layer Cake of Benefits). Vermont: Regulatory Assistance Project. LBNL Indoor Environment Group Cost Effectiveness of Improving Indoor Environments to Increase Productivity Indoor Air Quality (IAQ) Scientific Findings Resource Bank (IAQ-SFRB). Lawrence Berkeley National Laboratory. McKinsey & Co Capturing the Full Electricity Efficiency Potential of the UK. London: Department of Energy & Climate Change. -capturing-full-elec-eff-potential-edr.pdf. MINERGIE Minergie - Home. Minergie. September MUKE-BW Sanierungsfahrplan Baden-Württemberg. Ministerium Für Umwelt, Klima Und Energiewirtschaft Baden-Württemberg. npower Npower Business Energy Index 213. Swindon: RWE npower plc. s/nbei9.pdf. Ofgem Energy Company Obligation (ECO2): Measures Table. Office of Gas & Electricity Markets. OGA UKCS Oil and Gas Production Projections. Oil & Gas Authority. A_production_projections_-_February_216.pdf. ONS UK Environmental Goods and Services Sector (EGSS). Office for National Statistics. April / ACE & RAP research report 52

53 Low Carbon and Renewable Energy Economy, Final Estimates. Office for National Statistics. May Platt, Reg, Jimmy Aldridge, Pratima Washan, and Duncan Price Help to Heat: A Solution to the Affordability Crisis in Energy. London: Institute for Public Policy Research. Pollin, Robert, James Heintz, and Heidi Garrett-Peltier. 29. The Economic Benefits of Investing in Clean Energy. Amherst: University of Massachusetts. mic_benefits/economic_benefits.pdf. Rosenow, Jan, Reg Platt, and Andrea Demurtas Fiscal Impacts of Energy Efficiency programmes The Example of Solid Wall Insulation Investment in the UK. Energy Policy 74 (November): doi:1.116/j.enpol Rowney, Mark Money to Burn? Driving Energy Efficiency in the Commercial Sector. London: TUC. Salix. 216a. About Us. Salix Finance Ltd b. Salix Technology List and Persistence Factors Used (17th March 216). Salix Finance. sed_17th_march_216_.pdf. Scottish Government Regulation of Energy Efficiency in Private Sector Houses Working Group. Scottish Government. Sustainable Homes Touching the Voids: The Impact of Energy Efficiency on Social Landlord Income and Business Plans. Kingston-upon-Thames: Sustainable Homes. UCL Energy Institute Health Impact of Domestic Energy Efficiency Measures (HIDEEM) Model. University College London. US DOE Building Technologies Office: 179D DOE Calculator. U.S. Department of Energy. March Building Technologies Office. U.S. Department of Energy. Wei, Max, Shana Patadia, and Daniel M. Kammen. 21. Putting Renewables and Energy Efficiency to Work: How Many Jobs Can the Clean Energy Industry Generate in the US? Energy Policy 38 (2): doi:1.116/j.enpol ACE & RAP research report 53

54 Appendix I Emissions projections to 232 This Appendix provides the emissions projections to 232 encompassing the CCC and UEP scenarios. The Baseline direct emissions scenario is provided for each buildings sub-sector on the following pages as well. Table 7: Emissions in 23 from buildings; CCC vs UEP scenarios 36 [MtCO 2e] All emissions Direct emissions Electricity emissions Emissions avoided due to demand change Emissions savings due to power decarbonisation All buildings CCC UEP Difference Residential CCC UEP Difference Commercial CCC UEP Difference Public CCC UEP Difference Figures may not add up due to rounding ACE & RAP research report 54

55 MtCO 2 e MtCO 2 e MtCO 2 e Buildings and the 5th Carbon Budget October Residential buildings direct emissions Baseline UEP CCC Residential buildings electricity emissions Total residential buildings emissions Additional CCC negawatts CCC decarbonisation UEP negawatts 2 Baseline CCC UEP Baseline CCC UEP Figure 21: Residential buildings emissions, now to 232 ACE & RAP research report 55

56 MtCO 2 e MtCO 2 e MtCO 2 e Buildings and the 5th Carbon Budget October Commercial buildings direct emissions Baseline CCC UEP Commercial buildings electricity emissions Total commercial buildings emissions Additional CCC negawatts CCC decarbonisation UEP negawatts 1 Baseline CCC UEP Baseline CCC UEP Figure 22: Commercial buildings emissions, now to 232 ACE & RAP research report 56

57 MtCO 2 e MtCO 2 e MtCO 2 e Buildings and the 5th Carbon Budget October Public buildings direct emissions Baseline CCC UEP Public buildings electricity emissions Total public buildings emissions Additional CCC negawatts CCC decarbonisation UEP negawatts 2 Baseline CCC UEP Baseline CCC UEP Figure 23: Public buildings emissions, now to 232 ACE & RAP research report 57

58 Appendix II Assumptions underpinning cost-benefit analysis Capital costs (residential buildings sector only) All scenarios share the same costs. There are four groups of technologies in the residential buildings sector model: energy efficiency; efficient appliances; heat networks; and low carbon individual heating systems. Energy efficiency encompasses building fabric, heating controls and hot water efficiency. The costs from (CCC 215), (CCC 216b), (BEIS 216a) and ACE s own data (ACE 216) have been used. Starting values are shown in Table 8. Solid wall and floor insulation costs are assumed to fall by the at the rates set out in (Guertler 214) 37, but deferred by five years. Table 8: Residential energy efficiency costs Efficiency measure Installed cost per dwelling [ ] SWI - External 8,5 SWI - Internal 8,5 CWI - Easy to treat 5 CWI - Hard to treat 1,3 CWI - Treat with SWI 8,5 Loft insulation 5-125mm 4 Loft insulation 125-2mm 4 Suspended timber floor 2, Solid floor 3, Single to double glazing 5, Pre 22 double to double glazing 5, Insulated doors 5 Reduced infiltration 1 Heating controls - Full 25 Heating controls - timer + TRV 25 Heating controls - TRV only 2 HW cylinder thermostat 5 Hot water tank insulation from none 5 Hot water tank insulation from jacket 5 Hot water tank insulation from foam 5 No costs were assumed for efficient appliances, as we have not assumed early replacement or marginal additional costs compared to less efficient replacement options. Capital costs for heat networks were derived from Element Energy s recent study for the CCC 38, using the central plant and network capex components from the levelised costs of energy used in their research. Table 9: Heat network costs Heat network technology Low temperature waste heat from industry/power sector+ heat pump Levelised capex / MWh of heat delivered [ ] Which uses data from a variety of studies, including DECC and AEA 38 (Foster, Love, and Walker 215) ACE & RAP research report 58

59 Heat network technology Levelised capex / MWh of heat delivered [ ] High temperature waste heat from industry/power sector 3. River source heat pump 46.5 Sewage source heat pump 42. Gas combined heat & power (CHP) 41.5 Biomass boilers 33. Energy from waste 3. Gas peak load boilers 41.5 For individual low carbon heating systems, we adopted costs from (CCC 215) and (CCC 216b). We have assumed the costs to fall by 2% by 23. Table 1: Individual low carbon heating system costs Individual low carbon heating system Installed cost per dwelling [ ] ASHP ATW no storage 7, ASHP ATW storage 8, GSHP ATW no storage 14, GSHP ATW storage 16, Biomass boilers on biomass wood/biomass pellets 5,52 Heat pump no storage from 225 1,5 Heat pump with storage from , Lifetimes of technologies The lifetimes of measures were used to calculate lifetime energy consumption savings and increases from the different technologies, year on year (for electricity, gas, oil, solid fuels and biomass). These figures were then used in the IAG s spreadsheet toolkit (IAG 215) to calculate the monetary values for Change in energy use, Change in emissions, Net air quality impact and Comfort benefit 39. Our main source for residential sector technology lifetimes was the ECO2 measures table 4. The lifetimes of each measure, and the pattern of their energy consumption change for gas and electricity are shown in Table 11 for the CCC scenario. Our main source for non-residential technology lifetimes were Salix Finance s persistence factors 41. Table 12 is the non-residential equivalent to Table We assumed a comfort factor of 15% for the fuel savings from energy efficiency measures. 4 (Ofgem 215) 41 (Salix 216b) ACE & RAP research report 59

60 Table 11: Residential measures installed between now and 232, lifetimes, and lifetime pattern of gas and electricity consumption change (downward dip indicates saving) Sub-sector Measure Life Gas Elec ACE & RAP research report 6

61 Table 12: Non-residential measures installed between now and 232, lifetimes, and lifetime pattern of gas and electricity consumption change (downward dip indicates saving) Sub-sector Measure Life Gas Elec ACE & RAP research report 61