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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
Andrew Warren
Tom Randall
Matthew Webb
Gavin Killip
Erica Hope
Andy Deacon
David Harrison
Lucy Shadbolt
Katie Black
Liz Warren
Richard Lupo
Mike Fell
Bright Blue
British Energy Efficiency Federation
Demand Logic
Department for Business Energy and Industrial Strategy
Environmental Change Institute, University of Oxford
European Climate Foundation
Future Climate
Greenstone Finance
InstaGroup
National Infrastructure Commission
SE2
Sustainable Homes
University College London
Buildings and the 5th Carbon Budget
October 2016
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Green Deal finance was withdrawn with no alternative mechanisms in place to encourage and enable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 5th 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 2028 to 2032.
In 2015, buildings accounted for one third of total UK greenhouse gas emissions, comprising: 56% of
power sector CO2 emissions, 32% of direct CO2 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 1990 levels in 2030, 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 2030 compared to the
baseline (a saving of 22%) – an amount 30% 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 5th 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 2030 (the midpoint of the 5th Carbon Budget period) compared to 1990, just 12% below the ‘business as usual’
emissions for 2030. In this scenario, emissions exceed those recommended by the CCC for the 5th
Carbon Budget, in 2030, 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 2030 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-2020s (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 2030 on the optimistic assumption that
current(ly planned) policies achieve the abatement they are projected to, but (less optimistically) are
Executive summary | 2
Buildings and the 5th Carbon Budget
October 2016
not extended at the same level of ambition beyond the mid-2020s. Given the first caveat noted, we
believe that this presents a very conservative estimate of the gap that must be filled in 2030.
0.6
1.8
4.7
2.4
2
2.4
16.5
11.8
7.4
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 2030 [MtCO2e]
As mentioned above, the majority of the abatement gap lies in direct emissions, and the largest
sectoral abatement gap in 2030 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 2030:



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 2030 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 2030 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
Buildings and the 5th Carbon Budget
October 2016
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-2020s.
It is important to note also that beyond the 5 th Carbon Budget period, the pace of building emissions
abatement to 2050 will need to accelerate considerably. The dashed dark blue line in Figure 2 shows
this: it is the 2050 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.
120
100
MtCO2e
80
60
40
20
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
0
Baseline
CCC
UEP
UEP extended
UEP not at risk
2050 goal
Figure 2: Direct emissions from all buildings, projection including path to 2050 and Government abatement not at risk
While ‘UEP extended’ gets us closer to the 5th 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 2050 goal
shows, the rate of abatement will need to increase significantly.
Doing more of the same will not be enough to meet the 5th Carbon Budget, let alone 2050 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
Buildings and the 5th Carbon Budget
October 2016
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.
100
80
8.2
6.4
2.9
3.5
21.0
60
4.2
2.4
1.7
40
51.4
23.2
1.5
14.3
Health benefit
21.4
19.7
Air quality impact
Change in emissions
-57.8
-40.5
UEP extended
-20
ACE
0
-40
Comfort benefit
54.3
40.9
26.3
CCC
£bn
20
2.8
Change in energy use
Net present value
-73.0
Capital cost
-60
-80
-100
Figure 3: Residential buildings – present capital costs and benefits of deployment between now and 2032
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 2050. 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 2032, scenarios compared to baseline
CCC
Employment [number of FTE jobs supported in average
year]
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]
UEP extended
ACE
66,000
40,500
86,000
8.0
25.3
6.1
8.2
17.9
4.8
7.1
31.4
6.7
14.5
10.5
17.5
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
Buildings and the 5th Carbon Budget
October 2016
Table 2: Selected present values of benefits of deployment between now and 2032, scenarios compared to baseline [£bn]
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
CCC
38.5
17.8
1.1
6.8
10.0
4.6
UEP extended
31.9
8.5
0.9
7.2
7.8
3.6
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 5th 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
Buildings and the 5th Carbon Budget
October 2016
Recommendations
Current and currently planned policies for carbon abatement from buildings will not achieve what is
needed to meet the 5th 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 CO2 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
2032; extending the Supplier Obligation to 2032; 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 5th
Carbon Budget needs.
Executive summary | 7
Buildings and the 5th Carbon Budget
October 2016
Table of Contents
1
INTRODUCTION
10
2
METHODOLOGY AND STRUCTURE OF THE REPORT
11
2.1
2.2
2.3
2.4
BASELINE EMISSIONS AND OFFICIAL ABATEMENT PROJECTIONS
SCENARIOS
COSTS AND BENEFITS OF SCENARIOS
ASSESSMENT OF POLICY OPTIONS
11
11
13
13
3
CURRENT ABATEMENT GAP
14
4
SECTORAL ABATEMENT SCENARIOS FOR THE 5TH CARBON BUDGET
17
4.1
4.2
4.3
4.4
5
5.1
5.2
5.3
6
6.1
6.2
6.4
6.5
7
7.1
7.2
7.3
7.4
7.5
7.6
7.7
RESIDENTIAL BUILDINGS
COMMERCIAL BUILDINGS
PUBLIC BUILDINGS
COMBINED IMPACT
17
21
24
26
BENEFITS OF INVESTMENT FOR 5TH CARBON BUDGET
27
OVERVIEW OF MULTIPLE BENEFITS CONSIDERED
RESIDENTIAL BUILDINGS RESULTS
NON-RESIDENTIAL BUILDINGS RESULTS
27
30
31
POLICY OPTIONS FOR ACHIEVING THE 5TH CARBON BUDGET
32
RESIDENTIAL BUILDINGS
NON-RESIDENTIAL BUILDINGS
HEAT NETWORKS
A WEALTH OF POSSIBILITIES
33
37
43
43
CONCLUSIONS AND RECOMMENDATIONS
44
SETTING THE RIGHT FRAMEWORK CONDITIONS
INCREASED CREDIBILITY
INCREASED EFFECTIVENESS
INCREASED TIMESCALE
INCREASED AMBITION
NEW POLICY
TIME TO TAKE THIS FORWARD
44
45
45
46
46
47
48
BIBLIOGRAPHY
49
APPENDIX I – EMISSIONS PROJECTIONS TO 2032
54
APPENDIX II – ASSUMPTIONS UNDERPINNING COST-BENEFIT ANALYSIS
58
APPENDIX III – BENEFITS SENSITIVITY RESULTS
64
ACE & RAP research report | 8
Buildings and the 5th Carbon Budget
October 2016
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 50001
kWh
LCREES
LED
LESA
LI
MEES
MtCO2e
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 CO2 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
Buildings and the 5th Carbon Budget
October 2016
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 Government1, the 5th 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 MtCO2e that can be emitted over the
period from 2028 to 2032. The CCC estimates that cost-effective abatement is able to reduce
emissions to 1,570 MtCO2e. Meeting the 5th Carbon Budget represents a cut of 57% in 2030
compared to 1990 whilst achieving what the CCC sees as cost-effective would result in a cut of 60%.
In 2015, buildings accounted for one third of total UK greenhouse gas emissions, comprising: 56% of
power sector CO2 emissions, 32% of direct CO2 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 1990 levels in 2030, 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 2030 compared to the
baseline (a saving of 22%) – an amount 30% 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 5th 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 5th 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 appraisal1 of the least-cost path to the
5th Carbon Budget saw buildings emissions in 2030 being 10% 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 5th 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 5th Carbon Budget – due this year but possibly
delayed to 2017 – a compelling vision and credible strategy for a step-change in carbon abatement
from buildings.
1
(DECC 2016d)
ACE & RAP research report | 10
Buildings and the 5th Carbon Budget
October 2016
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 20152 and the cut-off date is 2032,
when the 5th Carbon Budget period ends. Progress in reducing emissions is shown through a
snapshot of annual emissions and abatement in the year 2030. The picture in a single year is easier
to communicate; and 2030 is the mid-point of the 5th Carbon Budget and broadly represents the
average of emissions and emissions abatement over the five-year Budget period from 2028 to 2032.
Abatement and abatement gaps in 2030 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 2005/6 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
emissions4 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).
The latest year for which official (if provisional) greenhouse gas emissions statistics are available (DECC 2016c), 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 2015c).
4 A group of greenhouse gases encompassing hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur
hexaflouride (SF6).
2
ACE & RAP research report | 11
Buildings and the 5th Carbon Budget
October 2016
Table 3: Scenarios included and developed
Scenario
name
Baseline
CCC
UEP
UEP
replicated
UEP
extended
ACE
EDR
Scenario details
Adopted: The CCC’s baseline scenario, used as a
universal baseline in this report (CCC 2016a)
Adopted: The CCC’s central abatement scenario,
or ‘cost-effective pathway’
Adapted: BEIS’s Updated Emissions Projections
reference scenario, adjusted to account for Fgases and biomethane grid injection as mentioned
above, so that it is compatible with the Baseline
used here (DECC 2015c)
New: The UEP scenario translated:
 From emissions abatement from individual
policies (excluding policy that abates Fgases)…
 …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 2032 (the
end of the 5th 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 2030 identified by McKinsey for
DECC in 2012 (McKinsey & Co 2012). Only used in
relation to commercial and public sectors. Savings
have been slightly adjusted to fit the electricity
baseline used here.
Residential
Commercial
Public
















Our model for the new scenarios is based on the CCC’s Fifth Carbon Budget Dataset5, which presents
technologies deployed annually between now and 2035 in each sector (buildings, power, transport
etc.), along with associated emissions abatement and changes in energy use. We have analysed and
5
(CCC 2016a)
ACE & RAP research report | 12
Buildings and the 5th Carbon Budget
October 2016
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 2032, and calculated the present benefits of these in accordance with
Central Government’s official guidance for policy appraisal6 for energy savings, emissions abatement,
air quality and comfort, using the Interdepartmental Analyst Group’s (IAG) accompanying
spreadsheet toolkit7. 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 5th 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.
In particular BEIS’s supplementary guidance to the Treasury’s Green Book, on ‘valuation of energy use and greenhouse gas
emissions for appraisal’ (DECC 2015a).
7 (IAG 2015)
6
ACE & RAP research report | 13
Buildings and the 5th Carbon Budget
October 2016
3 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 2030
compared to 1990, just 12% below the business as usual emissions for 2030. In this scenario,
emissions exceed those recommended by the CCC for the 5th Carbon Budget, in 2030, by 18%.
Direct emissions
120
100
MtCO2e
80
60
40
20
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Baseline
CCC
UEP
Electricity emissions
All buildings emissions
100
200
180
160
60
140
20
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
0
CCC decarbonisation
Additional CCC negawatts
Baseline
UEP negawatts
CCC
UEP
120
100
80
60
40
20
0
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
40
MtCO2e
MtCO2e
80
Baseline
CCC
UEP
Figure 4: All buildings emissions, now to 2032
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 2030 includes 85%
ACE & RAP research report | 14
Buildings and the 5th Carbon Budget
October 2016
of direct abatement from policies for buildings8. 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.
120
100
MtCO2e
80
60
40
20
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
0
Baseline
CCC
UEP
UEP not at risk
2050 goal
Figure 5: Direct emissions from all buildings, projection including path to 2050 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-2020s (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 5th Carbon Budget, the pace of building emissions abatement
to 2050 will need to accelerate considerably. The dashed dark blue line in Figure 5 shows this: it is the
2050 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
economy9.
Figure 6 below breaks down the abatement shortfall in 2030 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-2020s. Given the caveats described
above, we believe that this presents a very conservative estimate of the gap that must be filled in
2030.
8
9
(CCC 2016b)
Derived from (CCC 2015), Figure 1.14.
ACE & RAP research report | 15
Buildings and the 5th Carbon Budget
October 2016
0.6
1.8
4.7
2.4
2
2.4
16.5
11.8
7.4
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 2030 [MtCO2e]
As can be seen in Figure 6, majority of the abatement gap lies in direct emissions, and the largest
sectoral abatement gap in 2030 is in residential buildings, followed by commercial and then public
sector buildings10. 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 2030:



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 2030 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 (10%
in 2015), 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 5th Carbon Budget is met – the present abatement gap in
2030 looms large over the UK’s ability to meet its 2050 climate targets. The next sections take a
closer look at each sector.
10
For an overview of emissions and abatement figures in each of the three buildings sectors, see Appendix I.
ACE & RAP research report | 16
Buildings and the 5th Carbon Budget
October 2016
4 Sectoral abatement scenarios for the 5th Carbon Budget
4.1 Residential buildings
Current Government projections show the CCC’s recommended emissions from residential buildings
being exceeded by 9.9 MtCO2e in 2030, with 7.4 MtCO2e of this as a result of direct residential
buildings emissions. The overall picture for direct emissions and electricity demand to 2032 is shown
in Figure 7.
Residential buildings electricity demand
75
160
70
140
65
120
100
60
TWh
55
80
60
50
40
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
0
2016
20
40
2015
45
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
MtCO2e
Residential buildings direct emissions
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 2030 is 5.3 MtCO2e, 58% short of the 12.7 MtCO2e savings
recommended by the CCC. This is the largest abatement gap amongst the building sectors.
Emissions will have risen again from 2026, back to levels required for the 3rd Carbon Budget (2018 to
2022). If current and planned government policies were to be extended pro-rata to 2032 – 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 2032, a combination of greater ambition for existing policies and the introduction of
and new instruments will be needed to meet the 5th 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 2020. Pro-rata extension to 2032 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 2050, and the acceleration in emissions abatement the CCC envisages
for buildings after the 5th 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
Buildings and the 5th Carbon Budget
October 2016
Table 4: Measures deployed for residential buildings between now and 2032 under different scenarios; sources: (CCC 2016a), (CLG 2015), (BEIS 2016b), (BEIS 2016c), (BEIS 2016a), ACE
analysis
ACE
UEP

UEP extended
ACE
UEP
UEP extended
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
Technical potential
CCC
ACE
UEP
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
0
2019
2032
2031


2
Tech. potential
CCC
Tech. potential
Technical potential
2030
2029
2028
2027
2026
2025
2024
2023

UEP extended
Pre-2002 double glazing
Some single glazing
CCC
ACE
UEP
UEP extended
No roomstat
No TRVs
No timer
No cylinderstat
CCC
ACE
UEP
UEP extended
Tech. potential
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
0
0
2021

5
5
2020
10

10
2018
15
Space heating and hot water controls [m units]
15
2017
20
The opportunities for
replacing single-glazed
windows are gradually
diminishing
At the same time, the market
for replacing pre-2002
double-glazing will grow,
although carbon savings
from these replacements will
be lower
2016

2015
Windows and doors [m dwellings]
2019
2022
2021
2020
2019
2018
3

4
2018

4
2017
UEP
6
2017
5
2016
ACE

8
2016
6
Current policy projection
sees 1.5m cavity walls
insulated from 2015 by 2026
Continuing policy to 2032
sees an extra 1m insulated
CCC deploys 200,000 more
than this, and ACE 1.5m
more
2015

7
2015
CCC
Floor insulation [m dwellings]
10
8
25
Technical potential
Current policy projection
sees 800,000 lofts insulated
by 2026
Continuing policy to 2032
sees an extra 600,000
insulated
CCC deploys 600,000 more
than this, and ACE 2.6m
more
UEP extended
Cavity wall insulation [m dwellings]
9
2022

2021
2032
2031

Tech. potential
CCC
Tech. potential
Technical potential
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018

2017
0
2016

2015
1
Technical potential is 7.5m
dwellings
Current UEP sees 170,000
solid walls done by 2026
UEP extended sees an extra
120,000 deployed to 2032
CCC deploys 1.5m more than
this, and ACE 1.7m more
2020

2019
2
Details
Loft insulation [m dwellings]
14
13
12
11
10
9
8
7
6
2018
7.5m
2017
Solid wall insulation [m dwellings]
3
Technology
2016
Details
2015
Technology

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
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 2032, but may be partially
obviated by the installation of
alternative, low carbon
heating systems
ACE & RAP research report | 18
Buildings and the 5th Carbon Budget
CCC
UEP
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
UEP extended
2032
2050 tech. potential
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019

30
25
20
15

10
5
2032
2031
2030
2029
2028
2027
0
2026
0
35
2025
1
Cold appliances [m units]
2024
2
Our deployment does not
differ from the CCC’s
Continuation of currently
planned government heat
policy to 2032 could see 80%
of this deployed, achieving
about two thirds of its
estimate of 2030 potential
40
2023

45
UEP extended
2022
3
Our deployment does not
differ from the CCC’s
Continuation of currently
planned government heat
policy to 2032 could see 80%
of this deployed, but this
depend on the distribution of
RHI resources between heat
networks and individual
systems
CCC
UEP
2021

Technical potential
2020
Individual low carbon heating [m dwellings]
4


2018
2032
Current technical potential
Potential with continued decline in tanks
CCC
ACE
UEP
UEP extended
Tech. potential
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
0
2019
1

2017
2
Details
District heating deployment [TWh/a heat delivered]
2018
3
45
40
35
30
25
20
15
10
5
0
2016
4
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
2017

5
2015
Hot water tank insulation [m dwellings]
6
Technology
2016
Details
2015
Technology
October 2016
Technical potential
CCC
UEP
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]
50
45
40
35
30
25
20
15
10
5
0

2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015

Technical potential
CCC
UEP
UEP extended
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
ACE & RAP research report | 19
Buildings and the 5th Carbon Budget
October 2016
Figure 8 and Figure 10 provide a snapshot of abatement in 2030 under the different scenarios, for
direct emissions and electricity savings respectively.
16
14
12
MtCO2e
10
District and low carbon heat
8
Appliances & behaviour
6
Fabric, heating controls, hot water
4
2
0
-2
ACE
CCC
UEP
extended
UEP
replicated
UEP
Figure 8: Residential direct emissions abatement in 2030 (compared to baseline) under different scenarios11
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 2022; extending this pro-rata until 2032 would see significant additional abatement from low
carbon heat and heat networks. The sources of savings in the UEP scenario are shown in Figure 9.
CERT &
CESP, -2%
2010 & 2013
Part L, 35%
Products
Policy, 0%
PRS
regulations,
0%
ECO, -26%
RTDs / smart
meters, 16%
CERT &
CESP, 9%
RHI, 1%
PRS
regulations,
3%
Products
Policy, 77%
RHI, 24%
ECO, 27%
Source of direct emissions abatement
RTDs / smart
meters, 41%
2010 & 2013
Part L, 14%
Source of electricity savings
Figure 9: Source of residential buildings savings in 2030 in the UEP scenario (red-edged slices / negative values indicate
increases); (DECC 2015d)
Negative emissions abatement from ‘Appliances & behaviour’ is due to the heat replacement effect triggered by more
efficient (less hot) appliances.
11
ACE & RAP research report | 20
Buildings and the 5th Carbon Budget
October 2016
Under UEP extended – principally as a result of extending the projected impact of Products Policy on
appliance efficiency beyond 2022 – electricity savings in residential buildings come close to the
CCC’s scenario. This is shown in Figure 10.
35
30
TWh
25
UEP
20
District and low carbon heat
15
Appliances & behaviour
Fabric, heating controls, hot water
10
5
0
ACE
CCC
UEP
extended
UEP
replicated
UEP
Figure 10: Residential electricity savings in 2030 (compared to baseline) under different scenarios12
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 2022 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 MtCO2e in 2030, with 2.4 MtCO2e of this as a result of direct emissions. The
overall picture for direct emissions and electricity demand to 2032 is shown in Figure 11.
Electricity demand
16
140
14
120
12
100
10
80
8
60
6
40
4
20
2
0
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
0
EDR
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
TWh
MtCO2e
Direct emissions
Baseline
CCC
UEP
Baseline
CCC
UEP extended
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
Buildings and the 5th Carbon Budget
October 2016
Our assessment of Government direct emissions abatement (UEP on left side of Figure 11) against
the baseline in 2030 is 4.2 MtCO2e, 35% short of the 6.5 MtCO2e savings recommended by the CCC.
Emissions plateau from 2025. If current and planned government policies were to be extended prorata to 2032 – 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 2030 provided to DECC (as it was then)
by McKinsey in 2012 suggests this need not happen and that electricity demand could fall
considerably13 – 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 5th 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 2030 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 2022 through to 2032. The chief impetus for the rate of
abatement from the RHI is currently the UK’s contribution to the EU’s 2020 renewables target. This
target and its 2030 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
CRC energy
regulations efficiency
2%
scheme
3%
2010 & 2013
Part L
7%
RTDs / smart
meters
5%
RHI
3%
RTDs / smart
meters
9%
Products
Policy
59%
RHI
19%
Source of direct emissions abatement
ESOS
10%
PRS
regulations
12%
Products
Policy
47%
2010 & 2013
Part L
23%
Source of electricity savings
Figure 12: Source of commercial buildings savings in 2030 in the UEP scenario; (DECC 2015d)
Figure 13 and Figure 14 provide 2030 snapshots of the technologies that deliver direct abatement
and electricity savings under the different scenarios.
The EDR study’s TWh savings potentials in 2030 have been adjusted to the CCC’s / UEP’s baseline 2030 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 2030 demand is 143 TWh (CCC 2016a; DECC 2015c), and the EDR study’s was 136 TWh
(McKinsey & Co 2012).
13
ACE & RAP research report | 22
Buildings and the 5th Carbon Budget
October 2016
7
6
5
MtCO2e
Other
4
District and low carbon heat
Fabric
3
HVAC controls & behaviour
2
HVAC efficiency
1
0
CCC
UEP
UEP extended
Figure 13: Commercial buildings direct emissions abatement in 2030 (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 2030. 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 2012, which raises the question of the extent to which they might still be
considered so.
45
40
Other
TWh
35
District and low carbon heat
30
ICT
25
Refrigeration
20
Lighting controls & behaviour
Lighting
15
Fabric
10
HVAC controls & behaviour
5
HVAC efficiency
0
CCC
UEP
UEP extended
EDR
Figure 14: Commercial buildings electricity savings in 2030 (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
Buildings and the 5th Carbon Budget
October 2016
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 2032, 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 MtCO2e in 2030, with 2 MtCO2e of this as a result of direct emissions. The overall
picture for direct emissions and electricity demand to 2032 is shown in Figure 15.
Direct emissions
Electricity demand
10
25
9
20
8
6
TWh
5
15
10
4
EDR
5
3
2
Baseline
CCC
UEP
Baseline
CCC
UEP extended
UEP extended
UEP
EDR
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
0
2016
0
1
2015
MtCO2e
7
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 2030 is 1.5 MtCO2e, 57% short of the 3.5 MtCO2e savings recommended by the CCC.
Direct emissions start to rise from 2025. If current and planned government policies were to be
extended pro-rata to 2032 – 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 2030, but
catches up by 2032. The EDR scenario (shown by the blue dot on the right-hand side) suggests
additional cost-effective electricity saving potential in the sector in 2030, 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 2010 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
Buildings and the 5th Carbon Budget
CRC energy
PRS
regulations efficiency
scheme
0%
5%
October 2016
RHI
3%
2010 & 2013
Part L
7%
PRS
regulations
3%
RHI
10%
2010 & 2013
Part L
50%
Products
Policy
78%
Source of direct emissions abatement
Products
Policy
44%
Source of electricity savings
Figure 16: Source of public buildings savings in 2030 in the UEP scenario; (DECC 2015d)
Figure 17 and Figure 18 provide 2030 snapshots of the technologies that are delivering direct
abatement and electricity savings under the different scenarios.
4
3
MtCO2e
Other
District and low carbon heat
2
Fabric
HVAC controls & behaviour
HVAC efficiency
1
0
CCC
UEP
UEP extended
Figure 17: Public buildings direct emissions abatement in 2030 (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 2030 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
Buildings and the 5th Carbon Budget
October 2016
8
7
Other
6
District and low carbon heat
ICT
TWh
5
Refrigeration
4
Lighting controls & behaviour
Lighting
3
Fabric
2
HVAC controls & behaviour
1
HVAC efficiency
0
CCC
UEP
UEP extended
EDR
Figure 18: Public buildings electricity savings in 2030 (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 2050 goal shows, the rate of abatement will need to increase significantly.
120
100
MtCO2e
80
60
40
20
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
0
Baseline
CCC
UEP
UEP extended
UEP not at risk
2050 goal
Figure 19: Direct emissions from all buildings, projection including path to 2050 and Government abatement not at risk
ACE & RAP research report | 26
Buildings and the 5th Carbon Budget
October 2016
5 Benefits of investment for 5th Carbon Budget
5.1 Overview of multiple benefits considered
There is an emerging and growing body of evidence on the multiple benefits of energy efficiency14.
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
categories15:



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.
Quantified
(yes/no)
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
benefits16. However, the Government continues to refine its HIDEEM model to quantify health
benefits17.
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
England18.
yes
yes
(residentia
l buildings
only)
yes
(residentia
l buildings
only)
no
(IEA 2014a)
(Lazar and Colburn 2013) and also (Cluett and Amann 2015)
16 We have produced a sensitivity analysis for health and comfort benefits (Appendix III).
17 See (UCL Energy Institute 2013), (DECC 2013b), (DECC 2014), (BEIS 2016a),
18 (DECC 2013a)
14
15
ACE & RAP research report | 27
Buildings and the 5th Carbon Budget
October 2016
Quantified
(yes/no)
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 replacements19. 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 150% of the value of the bill savings 20. 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 ventilation22. 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 £250 and £1,000 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.
no
no
no
Quantified
(yes/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 CO2 permit costs: In the EU, electricity generators are mandated to participate in the EU
Emission Trading System (ETS). Since 2013, sites covered by the EU ETS in the power sector are
required to buy all their CO2 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.
yes
yes
yes
no
no
(Lazar and Colburn 2013)
(Cluett and Amann 2015)
21 (Sustainable Homes 2016)
22 (LBNL Indoor Environment Group 2016)
19
20
ACE & RAP research report | 28
Buildings and the 5th Carbon Budget
October 2016
Quantified
(yes/no)
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.
no
no
no
no
Quantified
(yes/no)
Societal benefits
Greenhouse gas emission reduction: The IEA’s 2050 mitigation scenarios24 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
(2009) 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 (2010) 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 20 studies concluded
that for every £1m spent on energy efficiency about 23 person-years of employment are directly
supported in the energy efficiency industry26.
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.
yes
yes
yes
partial
partial
partial
See for example (David Willis (Electric Ireland) 2015).
(IEA 2014b)
25 (IPCC 2014)
26 (Janssen and Staniaszek 2012)
27 (Rosenow, Platt, and Demurtas 2014)
28 (Rosenow, Platt, and Demurtas 2014)
23
24
ACE & RAP research report | 29
Buildings and the 5th Carbon Budget
October 2016
5.2 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 20 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 1.529. This is similar to that calculated for High Speed 2 and
the smart meter rollout.
100
80
8.2
6.4
3.5
21.0
60
4.2
2.4
2.9
1.7
40
51.4
23.2
1.5
14.3
Health benefit
Comfort benefit
54.3
40.9
26.3
21.4
19.7
Air quality impact
-20
-57.8
-40
-40.5
ACE
Change in emissions
UEP extended
0
CCC
£bn
20
2.8
-73.0
Change in energy use
Net present value
Capital cost
-60
-80
-100
Figure 20: Residential buildings – present capital costs and benefits of deployment between now and 2032
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 2050. 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 20 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 2015)
ACE & RAP research report | 30
Buildings and the 5th Carbon Budget
October 2016
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 2032, scenarios compared to baseline
CCC
Employment [number of FTE jobs supported in average
year]
Electricity utility system benefits [£bn]30
GDP effect: Gross Value Added of capital works [£bn]
GDP effect: Reduced imports of gas31 [£bn]
Government revenue benefit from above GDP effects
[£bn]
UEP extended
ACE
66,000
40,500
86,000
8.0
25.3
6.1
8.2
17.9
4.8
7.1
31.4
6.7
14.5
10.5
17.5
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 20 would see a net present benefit of about £20bn in the CCC’s scenario.
Table 6: Selected present values of benefits of deployment between now and 2032, scenarios compared to baseline [£bn]
Change in energy use
Change in emissions
Net air quality impact
Electricity utility system benefits30
GDP effect: reduced imports of gas31
Government revenue from GDP effects
CCC
38.5
17.8
1.1
6.8
10.0
4.6
UEP extended
31.9
8.5
0.9
7.2
7.8
3.6
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 lighting32. 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.
For a breakdown of utility system benefits in the residential and non-residential buildings sectors, see Appendix II.
To 2032 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 2016)
30
31
ACE & RAP research report | 31
Buildings and the 5th Carbon Budget
October 2016
6 Policy options for achieving the 5th 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-exhaustive33, we believe the policy options included can achieve more coverage than is necessary to achieve
compliance with the 5th 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
Buildings and the 5th Carbon Budget
October 2016
Type of
action
Highlights
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.
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 2030. (CCC 2016a;
BEIS 2016b)
Energy
Performance
Certificates
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.
De-risk
It has been estimated that 60% of estate agents’
property advertisements do not include an EPC.
(PEPA 2015)
Private
Rented
Sector
Minimum
Energy
Efficiency
Standard
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
2050.
De-risk and
expand
Around 450,000 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 2015)
Nearly Zero
Energy
Buildings
Based on robust cost-optimality review,
implement NZEB standard from 2021 and
restore allowable solutions to deploy funds into
local housing energy efficiency improvement
and heat networks investment.
De-risk /
introduce
Over 3 million new homes could be built
between now and 2032. (CLG 2013)
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
2032. (CCC 2016a)
Regulation
Cost
Action
Implementation
speed
Programme
Political
acceptability
Category
Technical
feasibility
6.1 Residential buildings
ACE & RAP research report | 33
Fiscal and
financial
incentives
Retrofit
standards
In 2012 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
2012). Those plans were subsequently
abolished (Daily Mail 2012) even though they
had the potential to establish a driver for energy
efficiency. Similar requirements already exist for
buildings larger than 1000m2.
Point-of-sale
Minimum
Energy
Efficiency
Standards
Extend PRS approach to point-of-sale to include
owner-occupiers, lay out long-term roadmap of
tightening minimum standards to 2050.
Value-Added
Tax
The European Court of Justice announced a
ruling in the summer of 2015 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 2015).
The UK Government is currently considering
reform options following a consultation that
ended in February 2016 (HMRC 2015). The clear
signal is needed that the incentive will be
retained in the medium to long term
Type of
action
Highlights
Introduce
Over one in 10 UK homeowners invested in
additions or extensions to their home in 2014
(Houzz 2015). Requiring those homeowners to
implement energy efficiency upgrades to other
parts of the property could potentially affect 2
million homes each year.
Introduce
Cost
Action
Implementation
speed
Programme
Political
acceptability
Category
October 2016
Technical
feasibility
Buildings and the 5th Carbon Budget
International example: In France, the sale of F
and G-rated homes is to be outlawed from 2025,
with staged tightening of standards towards an
A or B rating by 2050 .(MEEM 2015) The
Scottish Government is deliberating on the
introduction of a similar system (Scottish
Government 2015).
In the UK, an initial F or G minimum standard
could see 72,000 properties affected at point-ofsale each year. An E standard would see an
additional 260,000 properties affected annually.
(HMRC 2016; CLG 2015) (ACE analysis)
De-risk
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
Access to
finance
Extend and
reform
The CCC’s scenario sees 2.2m homes with heat
pumps and 300,000 with biomass boilers by
2030. To date, the RHI supports 30,000 heat
pump and 12,000 biomass installations
(installed since April 2014), a rate of adoption
which would need to increase more than 10-fold
for heat pumps and 4-fold for biomass. (BEIS
2016d; CCC 2016a)
Renewable
Heat
Incentive
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 2020 renewable heat
targets (let alone 5th Carbon Budget). (Energy
and Climate Change Committee 2016)
Supplier
obligation
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.
Extend and
expand
Council Tax
incentive
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
Stamp Duty
incentive
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.
Introduce
Low energy
mortgages
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
De-risk and
expand
Cost
Highlights
Action
Implementation
speed
Type of
action
Programme
Political
acceptability
Category
October 2016
Technical
feasibility
Buildings and the 5th Carbon Budget
Supplier Obligations have been scaled back
since 2013 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
2014b)
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 2016; The Scottish
Government 2016; Welsh Government 2016)
With 1.2m residential property transactions per
year, a 25% rebate could see 220,000 property
owners facing financial gain from the rebate
through undertaking major insulation measures
each year. At 20% take-up, 44,000 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
Type of
action
mortgages. (Nationwide 2016; Ecology Building
Society 2016)
Information
and
behaviour
Able-to-pay
finance
offering
Introduce a new finance offering for the able-topay market in form of a low-interest loan
scheme underwritten by the UK Government.
Energy
efficiency ISA
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 2016)
Smart meter
rollout
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 2015)
De-risk and
reform
Energy
Performance
Certificates
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 2050 targets for the housing
stock.
Reform
Reform and
introduce
Introduce
Highlights
Cost
Action
Implementation
speed
Programme
Political
acceptability
Category
October 2016
Technical
feasibility
Buildings and the 5th Carbon Budget
while also helping prospective purchasers to
better understand the real costs of the property
they are about to purchase. (Griffiths, Hamilton,
and Huebner 2015)
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 2011; Platt et al.
2013; Cambridge Econometrics and Verco 2014;
Rosenow, Platt, and Demurtas 2014)
Latest statistics report 1,500 property purchases
have been supported by the ‘Help to Buy’ ISA to
date (December 2015 to March 2016). No
Impact Assessment was published. (HMT 2016)
The government wants every home to be offered
a smart meter by the end of 2020. 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 2015b)
International examples: The State of BadenWürttemberg in Germany has replaced EPCs
with comprehensive retrofit roadmaps (MUKEBW 2015), and the Federal Government is
investigating a national rollout (BMWE 2014).
Switzerland’s Minergie labelling framework
emphasises comfort and prestige over energy
performance and is driving asset value increases
and favourable mortgage lending. (MINERGIE
2016)
ACE & RAP research report | 36
Buildings and the 5th Carbon Budget
October 2016
Targets
Regulation
Type of
action
Highlights
Greening
Government
Commitment
Renew the commitment until 2020 and sketch
out further renewals for 2025 and 2030; 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 2016b)
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.
Energy
Performance
Certificates
Properly enforce EPC requirement and
introduce strong penalties for non-compliance.
De-risk
52% of sales and 61% of rentals in 2012 were
missing an EPC. (Rowney 2015)
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. 35,000 DECs were
lodged in 2015, covering 120million m2 (CLG
2016c). This was the first annual fall in the
number of lodgements; it must be properly
enforced.
De-risk
8,500 buildings with continual DECs over three
years and larger than 1,000m2 achieved 3%
annual energy savings in 2011 compared to
2009. (Hong and Steadman 2013)
Cost
Action
Implementation
speed
Programme
Political
acceptability
Category
Technical
feasibility
6.2 Non-residential buildings
ACE & RAP research report | 37
Fiscal and
financial
incentives
Nearly Zero
Energy
Buildings
Reaffirm commitment to NZEB standards for
new commercial buildings by 2021 and public
buildings by 2019. Acknowledge this will
require updates to 2013 Part L.
De-risk /
introduce
Products
Policy
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.
De-risk,
expand
Government
Buying
Standards
Make GBS on ‘new-build and major
refurbishment’ and buildings equipment
mandatory for the whole of the public sector,
not just central government.
Expand
The public sector accounts for 41% of direct and
21% of electricity-related emissions from nonresidential buildings. (DECC 2016b)
Private Rented
Sector
Minimum
Energy
Efficiency
Standard
Introduce roadmaps for: initially increasing
minimum standard to EPC D and extending it
(initially at lower standard) to owner-occupied
premises.
Expand /
introduce
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
2016b)
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 2030 in the CCC’s
scenario. (CCC 2016a)
Extend PRS approach to point-of-sale to
include owner-occupiers, lay out long-term
roadmap of tightening minimum standards to
2050.
Introduce
The Scottish Government is deliberating on the
introduction of such standards (Scottish
Government 2015).
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
De-risk
The mechanism with the widest coverage:
business and public sector apart from small
businesses (low energy users) and charities.
Point-of-sale
Minimum
Energy
Efficiency
Standards
Business
Energy Tax
Review /
Climate
Change Levy
Highlights
Cost
Action
Implementation
speed
Type of
action
Programme
Political
acceptability
Category
October 2016
Technical
feasibility
Buildings and the 5th Carbon Budget
7.4 million m2 of new non-domestic floorspace
was added to the stock in England and Wales in
2014. Upwards of 10% of the stock in 2032 will
have been built between now and then. (CLG
2013) (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 2030,
over 10% of the electricity savings in the sector
and equivalent to over 60% of the UK’s current
hydro-electric power production. (CCC 2016a)
ACE & RAP research report | 38
Enhanced
Capital
Allowances
Renewable
Heat Incentive
Electricity
Demand
Reduction and
Response
incentives
Business
Rates
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.
Post-2022, 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
2016)
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
2015)
As part of local government Business Rates
retention proposals (CLG 2016a), 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 100% retention
pilots in Manchester and Liverpool. In addition,
extend empty premises business rates relief to
Type of
action
Highlights
Reform
International example: In the United States, ECAs
are granted for equipment which leads to 50% or
greater reduction in electricity consumption).
(US DOE 2012)
Extend and
reform
The CCC’s scenario sees 5.2 MtCO2e of direct
abatement from district and low carbon heat in
2030 (CCC 2016a). Current Government
projection sees 0.9 MtCO2e (DECC 2015d) and
extending policy would see 2.4 MtCO2e direct
abatement (ACE analysis). The CCC’s difference
is principally due to greater deployment of heat
networks.
Expand and
introduce
This could form the foundation for incentivising
electricity savings in connection with the Climate
Change Levy
Introduce
18% of all certified premises have an EPC of F or
G. Over 50% of non-domestic floor space has
never been certified. (ACE analysis)
Cost
Action
Implementation
speed
Programme
Political
acceptability
Category
October 2016
Technical
feasibility
Buildings and the 5th Carbon Budget
ACE & RAP research report | 39
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 2013).
£295m for zero interest loans to the public
sector for energy efficiency over the course of
this Parliament (HMT 2015) 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 2011 (Inforegio
2011).
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 2016). Establish a national
procurement framework for ESCO services
(RE:FIT style).
GIB has committed £100m to non-residential
energy efficiency funds. McKinsey estimated
£20.6bn investment required to capture full
commercial sector energy efficiency potential
(McKinsey & Co 2012). 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
Highlights
De-risk,
reform,
expand
The net marginal abatement benefit has been
£140/tCO2. (Salix 2016a)
Reform
International example: France’s and Germany’s
ESCO markets were estimated by the JRC in
2013 to have 350 and 500-550 players
respectively; the UK’s was estimated to have 3050. (Bertoldi et al. 2014)
Reform
International example: Germany’s KfW loaned
€3.5bn at below-market interest rates (currently
1%) to commercial energy efficiency projects in
2012 alone (WSBF and Carbon Connect 2013).
Loans are also provided to ESCOs.
Introduce
60% of SMEs say energy efficiency is important
but don’t have cash required for investment.
(npower 2013)
Cost
Action
Implementation
speed
Programme
Political
acceptability
Category
October 2016
Technical
feasibility
Buildings and the 5th Carbon Budget
ACE & RAP research report | 40
Information
& behaviour
Smart meter
rollout
Reporting
requirements
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.
Type of
action
Highlights
Reform
The government wants every business to be
offered a smart meter by the end of 2020. That
requires meters to be fitted in over 3 million
premises over the next four years.
Reform
-
Non-Domestic
National
Energy
Efficiency
Database
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.
Expand
ESOS
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?
Expand
ISO50001
Use other programmes to facilitate/accelerate
its adoption (as is done through ESOS)
Expand
Cost
Action
Implementation
speed
Programme
Political
acceptability
Category
October 2016
Technical
feasibility
Buildings and the 5th Carbon Budget
The last comprehensive (albeit electricity only)
look at non-residential efficiency across the
building stock was the EDR project in 2012
(McKinsey & Co 2012). The CCC’s own
assessment is still based on that used in its
original 2008 report (CCC 2008).
90% of 4,600 commercial and public sector
organisations under ESOS report that a board
member or manager has reviewed the ESOS
recommendations, although just 20% of boards
are reported to have discussed the ESOS audit
results. Fewer than 10% have reported that they
have energy efficiency targets (among these are
more than half of the companies whose boards
have discussed results). Just 500 of the 4,200
that didn’t said that they would adopt targets as
a result of ESOS. Just 70 report they have
published ESOS related information.
(Environment Agency 2016)
Fewer than 10% of commercial and public sector
organisations within scope of ESOS have at
ACE & RAP research report | 41
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.
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).
Type of
action
Introduce
Introduce
Highlights
Cost
Action
Implementation
speed
Programme
Political
acceptability
Category
October 2016
Technical
feasibility
Buildings and the 5th Carbon Budget
least some of their energy consumption covered
by ISO 50001. (Environment Agency 2016)
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 40%
by the 9th rating. (NABERS 2016)
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 2016)
ACE & RAP research report | 42
Buildings and the 5th Carbon Budget
October 2016
Regulation
Capital
guarantee
Fiscal and
financial
incentives
Business
rates
Renewable
Heat
Incentive
Information
and
behaviour
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.
Type of
action
Highlights34
De-risk /
reform /
introduce
The current pipeline of heat network projects
would constitute £2bn of capital investment
over the next 10 years.
De-risk /
reform
The rateable value of 1km of heat pipeline is
more than 4 times higher than it is for 1km of
gas pipeline.
Extend and
reform
The cost of abatement through the RHI for
single-dwelling heating systems in on-gas grid
homes is between £202 and £879/tCO2,
depending on the technology installed. By
contrast, abatement through heat networks
supplying recovered waste heat can deliver at
a net benefit of £20-£110/tCO2
Expand
-
Cost
Action34
Implementation
speed
Programme
Political
acceptability
Category
Technical
feasibility
6.4 Heat networks
6.5 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 2016).
ACE & RAP research report | 43
Buildings and the 5th Carbon Budget
October 2016
7 Conclusions and recommendations
Current and currently planned policies for carbon abatement from buildings will not achieve what is
needed to meet the 5th 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 5th Carbon Budget saw emissions
from buildings being 10% lower than the CCC has put forward35. Moreover, most of the currently
projected carbon abatement from buildings is very far from certain, and with every tonne of CO2
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 5th 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 6.
35
(DECC 2016d)
ACE & RAP research report | 44
Buildings and the 5th Carbon Budget
October 2016
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: 60% 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 2012. 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
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Buildings and the 5th Carbon Budget
October 2016
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 5th 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 2032: the RHI has been principally driven by the UK’s EU target
to increase the share of its heat from renewables to 12% by 2020. The UK’s participation in the EU’s
2030 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 2020 if the UK is serious about meeting the 5th 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 2032: we welcome the fact that the Energy Company Obligation is
to run until 2022. 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 10 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 2015-2020. It should thus be a priority
to renew the GGC to 2020, and for subsequent five-year periods through to at least 2030. 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 Erating 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
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Buildings and the 5th Carbon Budget
October 2016
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 2050, 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 2021 (and 2019 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 10% of the non-residential stock could have been
built between now and 2032, the end of the 5th 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
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Buildings and the 5th Carbon Budget
October 2016
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 Grated 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 5th Carbon Budget needs.
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Buildings and the 5th Carbon Budget
October 2016
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Appendix I – Emissions projections to 2032
This Appendix provides the emissions projections to 2032 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 2030 from buildings; CCC vs UEP scenarios36 [MtCO2e]
All
emissions
All buildings
Residential
Commercial
Public
36
CCC
UEP
Difference
CCC
UEP
Difference
CCC
UEP
Difference
CCC
UEP
Difference
91.6
108.1
16.5
70.6
80.5
9.9
14.2
18.3
4.1
6.7
9.3
2.6
Direct
emissions
Electricity
emissions
71.6
83.4
11.8
60.1
67.5
7.4
5.7
8.1
2.4
5.8
7.8
2.0
20.0
24.7
4.7
10.5
13.0
2.5
8.5
10.3
1.8
0.9
1.5
0.6
Emissions
avoided due
to demand
change
-16.1
-10.6
5.5
-8.6
-4.9
3.7
-5.6
-4.8
0.8
-1.8
-1.0
0.8
Emissions
savings due to
power
decarbonisation
-43.2
-43.9
-0.7
-22.1
-23.3
-1.2
-19.0
-18.2
0.8
-2.1
-2.4
-0.3
Figures may not add up due to rounding
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Residential buildings direct emissions
80
70
60
MtCO2e
50
40
30
20
10
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Baseline 67.2 72.7 72.3 71.9 71.7 71.5 71.5 71.4 71.4 71.3 71.2 71.5 71.8 72.2 72.6 72.8 73.1 73.3
UEP
67.2 71.9 70.6 69.4 68.4 67.5 67.0 66.6 66.1 65.6 65.2 65.3 65.9 66.4 67.0 67.5 67.9 68.2
CCC
67.2 69.0 68.0 67.4 67.0 66.4 66.0 65.4 64.9 64.3 63.2 62.6 62.0 61.6 61.0 60.1 58.9 57.6
Total residential buildings emissions
50
140
40
120
30
100
10
CCC decarbonisation
Additional CCC negawatts
Baseline
UEP negawatts
CCC
UEP
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
0
80
60
40
20
0
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
20
MtCO2e
MtCO2e
Residential buildings electricity emissions
Baseline
CCC
UEP
Figure 21: Residential buildings emissions, now to 2032
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Buildings and the 5th Carbon Budget
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Commercial buildings direct emissions
16
14
12
MtCO2e
10
8
6
4
2
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Baseline 12.6 14.1 13.9 13.8 13.9 13.6 13.7 13.5 13.3 13.3 12.8 12.7 12.6 12.5 12.6 12.2 11.9 12.0
CCC
12.6 12.2 11.6 11.0 10.9 10.2
9.9
9.2
8.6
8.2
7.3
7.0
6.6
6.3
6.3
5.7
5.2
4.9
UEP
12.6 13.4 12.4 11.7 11.3 10.6 10.3
9.9
9.4
9.2
8.5
8.5
8.4
8.3
8.4
8.1
7.9
8.2
Total commercial buildings emissions
40
35
30
25
20
15
10
5
0
60
50
MtCO2e
40
30
UEP
Baseline
CCC
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
CCC
0
2017
Baseline
UEP negawatts
2016
Additional CCC negawatts
10
2015
CCC decarbonisation
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
20
2015
MtCO2e
Commercial buildings electricity emissions
UEP
Figure 22: Commercial buildings emissions, now to 2032
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Buildings and the 5th Carbon Budget
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Public buildings direct emissions
10
9
8
7
MtCO2e
6
5
4
3
2
1
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Baseline
8.7
8.4
8.5
8.5
8.5
8.4
8.7
8.7
8.8
8.9
8.9
9.1
9.1
9.2
9.4
9.4
9.3
9.5
CCC
8.7
7.5
7.4
7.2
7.1
6.9
6.9
6.7
6.6
6.5
6.3
6.3
6.2
6.1
6.1
5.8
5.6
5.4
UEP
8.7
8.2
8.1
7.8
7.6
7.4
7.6
7.6
7.5
7.5
7.4
7.6
7.6
7.7
7.9
7.8
7.9
8.1
Total public buildings emissions
8
7
6
5
4
3
2
1
0
18
16
14
MtCO2e
12
10
8
UEP
Baseline
CCC
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
CCC
0
2017
Baseline
UEP negawatts
2
2016
Additional CCC negawatts
4
2015
CCC decarbonisation
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
6
2015
MtCO2e
Public buildings electricity emissions
UEP
Figure 23: Public buildings emissions, now to 2032
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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 2015), (CCC 2016b), (BEIS 2016a) and ACE’s own data (ACE 2016) 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 2014)37, but deferred by five years.
Table 8: Residential energy efficiency costs
Efficiency measure
Installed cost per dwelling [£]
SWI - External
8,500
SWI - Internal
8,500
CWI - Easy to treat
500
CWI - Hard to treat
1,300
CWI - Treat with SWI
8,500
Loft insulation 50-125mm
Loft insulation 125-200mm
400
400
Suspended timber floor
2,000
Solid floor
3,000
Single to double glazing
5,000
Pre 2002 double to double glazing
5,000
Insulated doors
500
Reduced infiltration
100
Heating controls - Full
250
Heating controls - timer + TRV
250
Heating controls - TRV only
200
HW cylinder thermostat
50
Hot water tank insulation from none
50
Hot water tank insulation from jacket
50
Hot water tank insulation from foam
50
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 CCC38, 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
37
38
Levelised capex / MWh of heat delivered
[£]
37.0
Which uses data from a variety of studies, including DECC and AEA
(Foster, Love, and Walker 2015)
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Heat network technology
High temperature waste heat from industry/power sector
Levelised capex / MWh of heat delivered
[£]
30.0
River source heat pump
46.5
Sewage source heat pump
42.0
Gas combined heat & power (CHP)
41.5
Biomass boilers
33.0
Energy from waste
30.0
Gas peak load boilers
41.5
For individual low carbon heating systems, we adopted costs from (CCC 2015) and (CCC 2016b). We
have assumed the costs to fall by 20% by 2030.
Table 10: Individual low carbon heating system costs
Individual low carbon heating system
ASHP ATW no storage
ASHP ATW storage
Installed cost per dwelling [£]
7,000
8,000
GSHP ATW no storage
14,000
GSHP ATW storage
16,000
Biomass boilers on biomass wood/biomass pellets
5,520
Heat pump no storage from 2025
10,500
Heat pump with storage from 2025
12,000
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 2015) 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 table40. 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 11.
We assumed a comfort factor of 15% for the fuel savings from energy efficiency measures.
(Ofgem 2015)
41 (Salix 2016b)
39
40
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Buildings and the 5th Carbon Budget
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Table 11: Residential measures installed between now and 2032, lifetimes, and lifetime pattern of gas and electricity
consumption change (downward dip indicates saving)
Sub-sector
Measure
Life
Gas
Elec
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Buildings and the 5th Carbon Budget
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Table 12: Non-residential measures installed between now and 2032, lifetimes, and lifetime pattern of gas and electricity
consumption change (downward dip indicates saving)
Sub-sector Measure
Life
Gas
Elec
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Air quality
We used the air quality damage cost assumptions from (DECC 2016a) and implemented these in the
IAG spreadsheet toolkit.
Comfort benefit
For the purposes of IAG spreadsheet toolkit, we applied a comfort factor of 15% to the fuel savings
from efficiency measures in the residential sector.
Health benefit
The values for ‘Health benefit’ were calculated using a lower set of values derived from the HIDEEM
model and used in the ECO Help to Heat consultation stage impact assessment (BEIS 2016a), and a
higher set of values from the 2013 Fuel Poverty Strategy for England’s analytical annex (DECC
2013b). We applied these to fabric energy efficiency measures only. The ‘Mid’ value for health
benefits (in Table 15) is the mid-point between the two.
Electricity utility system benefits
We applied the following values, derived from Lazar and Colburn (2013), to the electricity savings in
the scenarios.
Table 13: Utility system benefits from end-use electricity savings
Utility system benefit
p/kWh
Avoided line losses
0.8
Avoided generation capacity costs
0.3
Avoided transmission capacity costs
0.2
Avoided distribution capacity costs
1.5
Minimising reserve requirements
0.1
Employment and gross value added
Values for the ‘Average annual FTEs needed’ comprise three separate components of calculation:
energy efficiency measures (low and high values), heat networks (one value), and individual low
carbon heating systems (one value).
We assumed 22 annual FTEs per £m spent on energy efficiency measures (Janssen and Staniaszek
2012) for our low value, and 32.6 FTEs (BEIS 2016a) for our high value. For heat networks and
individual low carbon heating systems we derived an estimate of FTEs per £m spent based on the
ratio of FTEs to turnover for the ‘low carbon heat’ and ‘energy from waste and biomass’ groups in the
first Low Carbon and Renewable Energy Economy Survey (LCREES) (ONS 2016). Our FTE estimates
for these sectors, applied to the relevant technologies shown in Table 11, are in Table 14.
Table 14: Annual FTEs per £m spent on heat deployment
Technology
Heat networks: CHP
Heat networks: energy from waste
Individual low carbon heating systems
FTEs per £m spent
2.9
2.1
7.2
For estimating Gross Value Added, we derived values from the previous version of the LCREES (ONS
2015), based on the three year averages (2010 to 2012) of the ratio of GVA to turnover in the relevant
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Buildings and the 5th Carbon Budget
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industry sectors. We applied a ratio of 39.8% to the efficiency activities in the scenarios, and 46.3% to
the heat activities.
Avoided cost of gas imports and public revenue
We applied the Oil & Gas Authority’s gas import dependency projections (OGA 2016) to the end-use
gas savings in the scenarios to produce partial estimates of the avoided gas imports in the scenarios
compared to the Baseline. To these we applied DECC’s central projection of wholesale gas prices
(DECC 2015e). Added to the GVA values produced above, these represent a partial change to GDP
resulting from the scenarios. Using the UK’s fiscal multiplier in (IEA 2014a), we produced the estimate
for the public revenue resulting from each scenario.
Present values
The total assessment period for the technologies deployed between now and 2032 is now to 2073.
We input the savings of different fuels into the IAG’s spreadsheet toolkit to calculate present values of
costs and benefits over the period, which is in accordance with the official guidance for valuing
changes in energy use and greenhouse gas emissions.
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Appendix III – Benefits sensitivity results
The tables in this Appendix correspond to the results presented in Chapter 5, and include the results
of the sensitivity analysis we have conducted for some of the benefits. The ‘Low’ and ‘High’ results for
‘Change in energy use’ and ‘Comfort benefit’ were produced using BEIS’s current low and high energy
price scenarios, which are incorporated into the IAG spreadsheet toolkit (IAG 2015). The sensitivity
results for ‘Change in emissions’ were calculated using BEIS’s low and high carbon value scenarios.
The sensitivity results (where we have produced them) for the other values are explained in Appendix
II along with other assumptions underpinning our cost-benefit analysis.
Residential sector
Table 15: Lifetime discounted costs and benefits of deployment between now and 2032, scenarios compared to baseline [£bn]
Capital cost
Change in energy use
Change in emissions
Net air quality impact
Comfort benefit
Health benefit
NPV
Average annual FTEs
needed
GDP effect: gross value
added of works
GDP effect: reduced
imports of gas
Gvmt revenue from GDP
effects
CCC
Low
42.4
10.2
1.9
3.4
-
Mid
57.8
51.4
21.0
2.9
2.4
6.4
26.3
High
62.3
32.1
3.0
9.4
-
UEP extended
Low
Mid
40.5
34.4
40.9
6.9
14.3
1.7
1.2
1.5
1.9
3.5
21.4
High
48.7
22.0
1.8
5.0
-
ACE
Low
44.6
11.3
3.5
4.4
-
Mid
73.0
54.3
23.2
2.8
4.2
8.2
19.7
High
66.2
35.5
5.0
12.0
-
57,000
66,000
75,000
36,000
40,500
45,000
69,000
86,000
103,000
-
25.3
-
-
17.9
-
-
31.4
-
-
6.1
-
-
4.8
-
-
6.7
-
14.5
-
-
10.5
-
-
17.5
-
Non-residential sector
Table 16: Selected lifetime discounted benefits of deployment between now and 2032, scenarios compared to baseline [£bn]
Change in energy use
Change in emissions
Net air quality impact
Reduced imports of gas
Gvmt revenue from GDP effects
CCC
Low
30.3
8.7
-
Mid
38.8
17.9
1.1
10.0
4.6
High
48.7
27.6
-
UEP extended
Low Mid High
25.8 31.5 37.7
4.1
8.3 13.0
0.9
7.8
3.6
-
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