Philip Dunne leads a debate on energy efficiency measures in buildings and achieving net zero carbon emmissions in our built environment.
I beg to move,
That this House has considered energy efficiency measures in buildings to achieve net zero.
I am very pleased—I would almost go so far as to say that it is serendipitous—that for the second time in succession you, my constituency neighbour, are chairing a Westminster Hall debate, Mr Pritchard. I hope that you and other hon. Members will find the subject relevant. It is an important debate for colleagues on both sides of the House who share my enthusiasm for exploring a variety of routes to reach net zero emissions as soon as possible—certainly by 2050. One is the groundbreaking Environment Bill, on which I had hoped to contribute in the Chamber. Several colleagues who would like to join this debate are in the main Chamber. Should some of them succeed in arriving before I sit down, I hope you will be liberal in your interpretation of the rules, Mr Pritchard, and allow them to chip in should they wish to catch your eye.
Another important feature of today is that it is the first day of Lent. I am joining colleagues here and individuals from around the country in making five green pledges for Lent: to cut down food waste, to use less single-use plastic, to make more zero-carbon journeys, to buy less new and so support local charity shops and the excellent repair hub in Ludlow, which is open on alternate Saturdays, and and to litter-pick. I urge the Minister to join me in following one or more of those pledges if he is observing Lent.
Yet another important feature of today is this debate, in which we highlight the vital need to reduce fossil fuel use in heating the buildings in which we live and work if we are to achieve net-zero Britain. I declare my interest as a property owner, and I refer to my entry in the Register of Members’ Financial Interests. The debate is timely, as last month the consultation on minimum energy efficiency standards in the non-domestic private rental sector concluded, and earlier this month the future homes standard consultation ended. Given that the Budget is confirmed for next month and the comprehensive spending review is to take place later this year, this is the ideal time for the Government to set out their ambition to show global leadership in improving the energy efficiency of buildings in this country ahead of COP 26 in November.
I congratulate the right hon. Gentleman on securing this important debate. One important measure that we will need to adopt, including in Greater Manchester, is retrofitting our much older housing stock. That obviously costs money—he is right to allude to the opportunity that the Budget presents to discuss that need—but it also requires people with skills to undertake the retrofitting work. Does he agree that the Government’s new points-based immigration system causes concern about the construction sector’s ability to meet the needs of a very extensive retrofitting programme in Greater Manchester?
I absolutely agree that retrofitting existing housing stock is one of the biggest challenges we face in trying to reduce fossil fuel use in our buildings. Much of my speech relates to that, so I will go on to talk about it. I will not talk about immigration status, but the hon. Lady makes an important point when she says that we need sufficient skilled people to do the work right across the Government’s infrastructure programme. It does not apply exclusively to retrofitting homes, although that forms part of it. If the skilled tradesfolk I know in my constituency are anything to go by, most earn considerably in excess of the Government’s threshold requirements, so skilled tradespeople may well still be able to come here as they meet the requirements of the points system.
I am pleased that there has been some progress in building more efficient homes over the past 30 years. Overall emissions from homes have been reduced by about one fifth since 1990, despite the fact that there are approximately one quarter more homes now. That is ostensibly due to policies to improve boiler efficiency and basic insulation in the early 2000s, but progress seems to have stalled in recent years. Now is the time for this energetic and committed Minister, whom I am absolutely delighted to see retaining this brief, to make his mark by re-energising energy efficiency across the built environment in Britain.
I am glad that the right hon. Gentleman has mentioned the Minister’s energy and enthusiasm, because I want to ask about energy efficiency in social housing. I am sure he is aware that measures such as insulation, window glazing and low-carbon heating can be installed very easily and cheaply in larger buildings. There are some very good examples of local authorities building low-carbon social housing and slashing energy bills for tenants. In my constituency, Camden Council has been reducing carbon emissions in its housing stock, and it has used refurbishments such as Swiss Cottage library to make big energy savings and install solar panels. Does the right hon. Gentleman think it should be down to cash-strapped councils to carry out those innovations, or should the Minister and the Government be playing more of a part in investing properly in energy-efficient social housing?
I am glad that the hon. Lady has raised social housing, because I will touch on that in my remarks. I am sure the Minister will respond to that point, because there was a clear commitment in the manifesto on which we were just elected to provide funding for energy efficiency measures specifically in social and affordable housing. I think she will get some good news from the Minister when he responds to the debate.
What is the scale of the challenge? The built environment accounts for nearly 40% of national energy use and approximately one third of UK emissions, but progress in the decarbonisation of buildings has been limited. Enhancing the energy efficiency of the UK’s housing stock is therefore one of the critical steps in achieving our net zero target.
The future homes standard is focused on new builds. The Government have called on the industry to deliver a further 1 million new homes over the course of this Parliament, with a more ambitious target of achieving 300,000 new additions each year by the mid-2020s, so getting the regulations right will have a significant impact on the carbon footprint of millions of future homes. That is good news for the environment as we move to net zero, and for people who are fortunate enough to live in the more fuel-efficient buildings of the future. The homes we are building in this and subsequent Parliaments should last more than 100 years—way beyond the 2050 target date for net zero. We must ensure that the standard of homes being built now contributes to meeting that target. It would clearly be perverse and extremely costly to build homes now that require retrofitting to reduce emissions at a later stage. There should be plenty of opportunities from technical innovation in new build standards to incorporate in the future homes standard. I have no doubt that the Government, in their response to the consultation, will seek to address the challenges we face in ensuring homes become more energy efficient and encouraging new technology and innovation in house building. I would like to see them include the notion of embedded efficiency in the materials used for construction, and not just focus on the future annual running costs.
I have concerns about some elements of the proposals that were consulted on. There is, for example, the suggestion that the fabric energy efficiency standard will be removed, which would make it possible to build less energy-efficient properties and still get them to pass building regulations by fitting larger renewable energy systems; as a result, properties would become more expensive to heat, which could increase fuel poverty. Taken over a large enough area, additional renewable energy capacity might be needed away from the new housing, bringing additional cost. I hope the Minister will reflect on that.
The proposals explicitly remove local authorities’ right to set higher than minimum energy efficiency standards, as higher standards are likely to increase costs for home builders. That would restrict their ability to set their own ambitious targets to tackle climate change, with homes that are sustainable for the future, and remove the incentive for home builders to innovate and become market leaders in energy efficiency.
My right hon. Friend is absolutely right. East Suffolk Council has ambitious plans to impose higher energy efficiency standards on new build properties and would be disappointed by what it would see as a retrograde move in favour of developers, which already make large profits, by letting them off the hook on reducing carbon emissions.
I am grateful for that example. The Minister should be willing to show some flexibility and consider the councils that want to make progress, because it could have an impact on builders’ inclination to develop to a higher standard within a particular area. In my view, these matters should be determined by self-regulating local authorities.
There are ambitious councils, but is the right hon. Gentleman not concerned that, were regulations determined by councils, developers would be drawn to the councils that do not impose higher standards, where their profit margin would potentially be higher?
That has happened where different rates of affordable housing were implemented by councils across England—in Scotland too, I suspect—and developers were drawn to the areas with the lowest standards. I am sure that the Government, in response to the future homes standard consultation, will seek to raise standards across the board, but say that if any local authorities wish to go further and faster, that will be up to them. That is a risk that we should be able to take.
The Government can assess in detail examples of how we can achieve more effective building techniques and of the associated costs versus the energy efficiency savings. One example from my constituency is in the town of Much Wenlock. The social housing provider Connexus— it is well known to you, Mr Pritchard—built a housing project there two years ago to a passive house standard, which through designer materials manages heat loss and airflow. Thanks to that efficiency, the residents save an average of £665 a year in reduced fuel bills and energy use has fallen dramatically, to the point that many tenants say that they barely need to turn on their heating. However, construction of the project carried additional costs. Connexus estimates that it cost 29% extra to build to a passive house standard compared with standard building regulations. The Government could step in to provide further support mechanisms to social housing groups and local authorities to deliver a very high standard of energy efficiency. It will be interesting to see whether the response to the future homes standard addresses that.
I will focus on the scale of the challenge of making existing housing stock more energy efficient, which, as I mentioned in response to the hon. Member for Stretford and Urmston (Kate Green), will by definition require the retrofitting of a huge number of properties. Some 29 million homes in the UK account for 20% of UK emissions. According to the Government’s live tables, of those homes, only 20 million have energy performance certificate ratings. The remaining 9 million homes are presumably owner-occupied and have not yet been required to undertake an EPC rating assessment.
Of the 20 million homes with an EPC rating, more are rated D than A, B and C combined. In total, almost 12.5 million dwellings are rated at bands D to G, compared with just 7.5 million rated A, B or C. That equates to 1.7 billion square metres of space that needs to be heated or cooled, which gives some indication of the scale of the challenge for the construction trade. In addition, non-domestic floor space energy performance certificates cover a further 688 million square metres in 935,000 properties that are used as non-domestic lodgements, with C and D the most common ratings.
The Committee on Climate Change published analysis about reaching net zero emissions by 2050 and recommended that by 2035, almost all replacement heating systems for existing homes must be low carbon or ready for hydrogen, so that the share of low-carbon heating increases from 4.5% now to 90% by 2050. In 2015, the Energy Technologies Institute estimated that 20,000 households per week—over a million per year—would need to be switched from the gas grid to low-carbon heating between 2025 and 2050 to meet the then 80% emissions reduction target in the event that non-fossil fuel gas alternatives have not been developed by then.
My right hon. friend spoke about the importance of retrofitting existing housing stock, which makes up about 85% of the homes that we are talking about. Does he agree that one suggestion that the Minister could take away is that over time, we could increase the duty on landlords to ensure that their properties become more energy efficient? A requirement for their properties to reach an energy efficiency rating of D, then C, and so on, would not only give landlords time to adapt, but would help tenants in some of the poorest households to save on fuel bills and would also help meet our carbon emissions targets.
I will touch on that briefly later in my remarks. My hon. Friend is right, and the Government have already introduced requirements for landlords to get to an E rating for all properties other than those in the categories of exemptions—those include listed buildings, properties where the tenant will not allow the adaptation because of its intrusive nature, or where the cost makes the adaptation disproportionate. Those requirements come into effect from 1 April for all new and existing tenancies, and there is talk of progressively increasing the requirement to a C rating, as my hon. Friend alluded to.
That is absolutely fine for new builds and is probably fine for properties in which the work relatively simple to do, but the big challenge is for existing, and particularly older, housing stock. The work is extremely intrusive and most tenants would not be able to occupy the building while it was being done, so it can only really happen when a tenancy comes to an end. Of course, that does not affect the 9 million-odd owner-occupied houses that do not already have a rating, so about a third of the housing stock is not rated at all. It will not apply to those properties unless the Government choose to change the rules and make owner-occupiers upgrade their buildings as well.
Going back to my thread about the scale of the challenge in adapting our existing housing stock, the current level of gas boiler sales is over 1 million a year, while heat pump sales are only around 20,000 a year. The capital cost of heat pumps, and the adaptations to existing homes to make them effective through under-floor heating, wall insulation and double glazing, make them a very expensive and disruptive solution for retrofitting homes.
The issue of ensuring the heat efficiency of older homes is particularly pronounced in rural areas, such as my constituency and that of my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter), where there are more older homes and—certainly in my case, in Shropshire—a higher proportion of listed houses. Those houses are exempt from EPC requirements at present, and they may also not be connected to the traditional gas grid. For example, only 3% of all off-grid homes are at the required minimum EPC level identified by the clean growth strategy, but rural off-gas-grid homes make up 11% of all UK homes. I encourage the Government to engage with industry to tackle that issue in working to meet the 2050 target.
We clearly face a massive challenge in adapting existing housing stock to reduce emissions and become more efficient. Some 85% of UK homes are heated through carbon-emitting gas heating systems. As I have already indicated, the pace and scale of adaptation to achieve net zero by 2050 will require a dual strategy of making homes more energy efficient and decarbonising their heat sources. The Government have taken action, including through the minimum energy efficiency standards for the private rented sector that we have just been talking about, which came into force for new tenancies in 2019. Those standards require landlords to contribute up to £3,500 to improve rental properties with an EPC rating of either F or G.
However, as I shall elaborate shortly, the experience of my constituents in rural Shropshire—and my own as a landlord—is that that sum does not reflect the actual cost of retrofitting most homes, such as three-bedroomed, semi-detached cottages in rural areas. I was surprised to discover a 95% decline in the installation of domestic energy efficiency measures since 2012, meaning that the rate at which homes undertake energy improvements needs to increase by a factor of seven to meet the targets set out in the clean growth strategy.
The Government can and must go further. For example, the market for zero-carbon heating technologies is still immature and needs further Government support to develop. The renewable heat incentive is due to end next year, in March 2021, and I sincerely hope that its successor arrangements will be included in the Budget next month. I encourage Ministers to consider replacing the RHI with a capital grant or an improved green finance loans scheme. That would better reflect the main barrier to heat pump uptake—the high up-front cost of capital equipment and adaptations required, such as underfloor heating—rather than helping to reduce running costs as at present.
I also hope that the Government will consider the recommendation of the January 2020 report of the Building Better, Building Beautiful Commission that VAT on housing, renovation and repair should be aligned with that on new build in order to stop disincentivising the reuse of existing buildings. The Government are in a position to take bold steps on retrofitting social housing. I welcome the Conservative manifesto commitment to invest £6.3 billion to improve the energy efficiency of 2.2 million disadvantaged homes, reducing their energy bills by as much as £750 a year over this Parliament.
Last year the financial scale of the challenge of improving existing housing stock was laid bare by the then Minister when answering a parliamentary question. It was made clear that the aspiration for as many homes as possible to be upgraded to EPC band C by 2035, as set out in the clean growth strategy, was estimated by the Department to have a total investment cost of £35 billion to £65 billion. If my maths is right and that applies to the 12.5 million properties at a D rating or worse, that would average between £2,500 and £5,200 per property. I have news for the Minister: from all our anecdotal evidence for the actual cost of conversion to get an EPC E rating to meet the private rental standards we have just been talking about, that seems to be an unrealistically low figure.
Whatever the figure, those are staggering sums. The good news is that, alongside doing the right thing for our environment, such investment could deliver substantial economic returns of up to £7.5 billion per year overall, and £275 per affected household per year by 2035. That would have a spin-off benefit of creating a large number of jobs to do the refitting work—estimated at 100,000—and saving the equivalent of six Hinkley Point C-sized power stations-worth of energy. There is therefore potential for a viable investment case to be made, but it needs to be credibly structured, which I am afraid some previous schemes were not.
The other significant challenge is that achieving net zero for our built environment will require improving not only domestic homes but non-domestic building stock across the country. The 2016 building energy efficiency survey identified some 1.83 million non-domestic premises in England and Wales, with vastly diverse usage and efficiencies, presenting a significant challenge in reducing emissions. In both rented and owner-occupied workplace buildings, five sectors accounted for 70% of total energy use—retail, storage, industrial, health and hospitality—and 67% of energy was used for activities that were not sector-specific, such as heating, hot water, lighting and the like. There is real scope to reduce energy consumption if the approach is correct.
The Government’s consultation set out two options outlining the energy cost implications of setting a target of achieving an EPC rating of B or, alternatively, an EPC rating of C. It is encouraging that the Government’s preferred approach seems to be to aim for the higher rating of EPC B, given the scale required to meet our emissions obligations, but that will of course require considerable investment, estimated at some £5 billion. The Government will need to reflect carefully on the delivery mechanisms used to stimulate the change required, not only using market mechanisms and support for new technologies, but enabling access for private sector businesses to green finance to facilitate adaptation.
The third area is the estate of the Government and public sector, which are of course substantial occupiers of buildings. The Government should lead by example to reduce emissions by tackling the energy efficiency of the Government estate. They have reduced emissions from the public building estate by 26% since 2009-10, but in reality that has been achieved mostly through a reduction in the estate rather than through improvements in efficiency.
Last year the Environmental Audit Committee took evidence on net zero government and learnt of interesting work going on through modern energy partners, a collaborative programme between the Department for Business, Energy and Industrial Strategy, the Cabinet Office and Energy Systems Catapult, working alongside the Crown Commercial Service and private sector specialists. MEP was launched in early 2018 and was expected to complete in April 2021, at which point the Government may consider the programme for adoption as business as usual.
The Conservative manifesto for the December general election committed to a public sector decarbonisation scheme totalling £2.9 billion over a five-year period, and to funding insulation in hospitals and schools. I trust that will be confirmed in the comprehensive spending review later this year. I do not want to pre-empt the conclusions of the MEP, but I hope that the Government will consider incentivising public sector organisations to invest in their own renewable energy sources wherever possible, which will deliver lower energy bills to help recoup their costs, as well as further reducing emissions and supporting the UK’s growing renewable sector.
I will also touch on the validity of the EPC ratings regime, since they have become the main tool for Government and those looking to buy properties to analyse the supposed efficiency of a building. I am afraid that I have serious reservations about the EPC regime. Its current methodology can produce perverse ratings that will hamper significantly our efforts to decarbonise existing building stock. For example, high carbon-emitting heating options can achieve higher scores because they are cheaper to run, which is clearly contrary to the ambition but a hangover from the legacy purpose of EPCs—they were originally introduced to help reduce fuel poverty, whereas their current use is primarily to assess energy efficiency. Thus, biomass boilers and wood-burning stoves often score badly in EPCs, as the number of models included in the database is limited, default efficiencies are poor and fuel costs can be higher than for heating oil, even though they generate a fraction of the CO2 emissions of oil, coal or gas per kilowatt-hour.
In assessing EPCs, the weighting of costly measures that can make a material difference in improving energy efficiency, such as replacing single-pane with double or even triple-glazed windows, can only score two points, in the case of double-glazed windows, since it may have a low impact on fuel costs. I encourage the Minister to take away this point and to engage with stakeholders on how the EPC ratings could be updated or amended to reflect better the ambition of meeting net zero by 2050.
In conclusion, I have five clear policy points, on which I hope the Minister will reflect. First, there is a need to strengthen the future homes standard, so that inefficient homes are not being built for longer than is necessary. Local authorities, as we have been discussing, should have the flexibility to set higher standards earlier if they so wish, to meet their own climate change targets. The Committee on Climate Change has called for the date to be moved forward to give certainty, and I hope the Minister will consider that.
Secondly, the Government must support zero-carbon heating beyond the end of the current renewable heat incentive schemes—beyond 2021—including financial support and targets for heat pumps and other zero- carbon heating options. Thirdly, householders should be incentivised to improve the efficiency of their homes, not only in fuel-poor homes. In rural constituencies such as mine, that will create jobs and keep heating bills lower, while cutting emissions and energy use, but Government support is required to get it moving.
Fourthly, in publicly owned buildings the Government have a real opportunity to lead by example. They should extend their manifesto commitment to improve schools and hospitals, by enabling public sector bodies to invest in on-site renewable energy sources. That would create jobs, reduce bills and emissions, and show the Government’s commitment to their world-leading ambition in cutting emissions. My final ask is that the Minister commit to a review of the EPC system, which has moved on from its original purpose and can create perverse anomalies, particularly for older, rural homes.
I welcome the Government’s future homes standard consultation and their clear target to reach net zero by 2050, with all the steps that will inevitably entail. I hope the Minister will reflect on the concerns of various organisations that will have submitted evidence through the consultation, and Members’ comments today, to ensure that the real opportunity to bring lasting change to the way we construct, insulate and heat our buildings does not slip through our fingers.
At the conclusion of the debate:
I welcome the Minister’s invitation to colleagues to continue with these themes in the coming months. I was particularly pleased to hear his commitment to extend RHI in some form and his comments on the future homes standard. We will look carefully at the Government’s response. I share his view that, with innovation in the City of London and other financial institutions in this country, we should be able to come up with a green finance scheme to help householders fund improvements.
The one area on which I would like to press the Minister on another occasion is the EPC regime, which needs to be looked at. I was slightly disappointed that he did not volunteer that. I hope that we can take another opportunity to discuss that, perhaps outside the Chamber.