10 policy steps to drive a low carbon heat market
27 Mar 2019
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Researcher, Energy Policy Group, University of Exeter
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As a natural optimist, I seriously hope that much of the UK’s heat decarbonisation problem can be solved by technological and social innovation. I also hope (and expect) that there will be major beneficial spill-over from the major advances made in renewable electricity, storage and transport electrification.
However, emissions from heat in the UK are up two years in a row (Committee on Climate Change, 2018) and the deployment of low carbon heat has been and continues to be extremely limited. Much of the UK gas industry, a major part of the UK heating market, is focused on solutions which maintain, or even increase the role for gas while ignoring known low carbon heat technologies (Lowes et al., 2018). Since 2012 the installation of energy efficiency measures has drastically fallen (Committee on Climate Change, 2016). The scale of the Renewable Heat Incentive means that the policy which is the current key driver to transform the UK heat generation system, is barely scratching the surface. Meanwhile, tens of thousands of new and existing homes are connected to the gas grid each year.
Yet, total heat decarbonisation is required by 2050 under the UK’s Climate Change Act in light of the need for some emissions elsewhere (industry and aviation). The Paris Agreement’s implied goal of net zero reinforces the need for total and rapid heat decarbonisation with some suggesting (taking equity issues into account) that fossil fuel combustion in the EU needs to be eradicated by 2035 (Anderson and Broderick, 2017); this implies that heating in GB needs to be decarbonised in 16 years.
So, as much of an optimist as I may be, hoping that the UK’s heat sector will decarbonise itself is a high risk approach. The CCC carbon budget timelines also imply the need for rapid change and because of this, it increasingly appears to me that without significant policy interventions soon, heat will not be decarbonised by 2050.
UK heat policy needs to be overhauled.
Breaking the vicious policy circle
Catherine Mitchell recently argued that GB is in the grip of vicious policy circle and this vicious circle is plainly visible in the UK heat policy/governance debate. Things that were ‘normal’ in policy debate a decade ago about heat now appear to be unacceptable. The scrapping of zero carbon homes policy which would have effectively banned fossil fuel heating in new homes feels like a distant memory. The recent suggestion from the Committee on Climate Change (CCC) that new homes shouldn’t connect to the gas grid is a total no-brainer. Yet the CCC has received criticism from both industry and trade unions on what is both a sensible and easy market intervention.
Explaining the necessary timescale for heat decarbonisation implied by the Paris agreement is now routinely met with laughter and grimaces at meetings.
The vicious policy circle sometimes feels like a vicious policy war with a quite public anti electrification drive from the gas industry (Lowes et al., 2018). The reality is, if the UK is to meet its climate change targets, we need to eradicate the burning of fossil fuels for heat, and do this quickly.
Despite what some see as uncertainty, the fundamental issue of heat decarbonisation is the same as it has been for over a decade. A rapid heat market transformation is required which needs rapid deployment of energy efficiency, district heating, heat pumps and low carbon gases.
Yet these discussions have barely left Whitehall or academia. So my overarching high level policy suggestion is that:
1. We need a national conversation about heat which cannot be hijacked by the incumbents.
A heat networking project led by 10:10 Climate Action and myself is making some first steps but we are clearly not even at the start line yet. The FutureGas project which Catherine Mitchell and myself have been working on in Denmark may provide a good model and includes industry (much of which is municipally/state owned (important)), government and academia. The project, driven by the Danish Government, and overseen by the Danish Energy Agency, brings a comprehensive set of stakeholders together for a frank and objective discussion about the future of gas/heat in Denmark. The idea of removing the gas grid is a serious option and is openly discussed.
But a discussion is not enough, policy needs to rapidly deploy the things which can decarbonise heat now because there are so many low or no regret options.
Potential policy framework
Below is a potential policy framework for getting low carbon heat moving. Many of these ideas are not new but this is one of the first times that many of these ideas have been pulled together. All of this is subsidiary to the high level requirement of a national conversation:
2. Ban gas and oil from new builds. This will have clear benefits for the low carbon heat sector and could rapidly deploy heat pumps and district heat. In turn this would grow the low carbon heat market and drive innovation in and normalisation of low carbon heat. A minor change to Part L of building regulations could deliver this. Passivhaus standard may be a sensible eventual step.
3. Do state led energy efficiency properly and make it commensurate with heat decarbonisation timescales. Fund it through a carbon tax on gas (see below) or through Government bonds. As well as providing healthier homes, this is a pre-requisite for many low-carbon heat technologies.
4. Ban oil and LPG in off grid areas. Ban the installation of new (including replacement) oil and LPG appliances as soon as possible through building regulations and squeeze out oil and LPG through carbon taxes. While the oil and LPG sectors have been promoting drop-in bio-energy replacements which may have niche roles, mass electrification and demand reduction of rural heating is a sensible end goal.
5. Let the electricity networks invest. Speculative network investment is not Ofgem’s preferred approach but, if heat and transport is to be electrified at scale, it currently looks like bigger wires will be needed. While technology (smart, digital, storage) may reduce the need for peak power capacity, we can’t allow a lack of capacity to hold things back. Further still, if electricity replacement work is taking place this should be future-proofed. This should all be part of an integrated, coordinated energy system transformation strategy and as part of this, Ofgem should have a new duty to meet CCC targets. A new ‘Energy Transformation Committee’ could support this coordinated approach to the energy transformation.
6. We need to have a serious discussion about a carbon tax on gas. This is not just a carbon issue and needs to be linked to the UK’s wider economy. Importing lots of gas (currently 60% and likely to go up) has implications for both tax take and trade balance/inward investment issues. As well as providing an efficient market friendly approach, this tax could also help rebalance the cost differential between gas (no carbon price) and electricity (carbon price). This tax should be hypothecated to energy efficiency and low carbon heating and support the poorest.
7. Drive the gas networks to decarbonise using a tax/regulatory incentive linked to the carbon content of the gas they transport. The gas industry have been talking a good game on low carbon gas. If they can walk the walk, then they should have no problem with this. If they struggle, then that is their chickens coming home to roost. This incentive/tax could also be linked to/part of a carbon tax on gas which must be part of the discussion although as we (The Energy Policy Group) have suggested in our recent Ofgem RIIO response, this mechanism could be designed to be cost neutral, rewarding the GDNs doing well and penalising the ones dropping behind.
8. Empower local authorities. Some have declared climate emergencies, some have net zero goals. National policy and the national discussion needs to let those at the forefront deliver. Mandate local plans for heat and energy saving. Regulate to allow LAs to deliver and finance district heat and energy efficiency if they want to.
9. Prepare the electricity sector. Rapid and sustained investment in low carbon electricity generation will be needed at an unprecedented rate for heat decarbonisation as will smart system optimisation (see IGov project).
10. Provide a heat decarbonisation innovation space. Policy makers need to actively engage with and encourage new entrants into the UK heat market. Many of these new entrants with the best ideas do not have the capacity to engage that some of the competing incumbents do. A funded national heat innovation competition could be a good first step.
This list is just a start and more measures and changes may be required. However, I believe the measures outlined here represent some of the required national strategic policy and regulatory changes which can in part drive the legally required changes to the UK heat system and allow the market to deliver.
Let the conversation commence.