The Climate Change Committee has published its Seventh Carbon Budget, which is a crucial and widely-used set of advice on how the UK can reach net zero. The report sets out what the Committee thinks is the lowest cost, most achievable way to move towards net zero, while meeting each of the UK’s legally binding carbon budgets along the way. It is a crucial document for everyone who works on climate mitigation in Britain, because it is the most comprehensive view of what we have to do to stay on track to meet our climate commitments.

This Seventh Carbon Budget is an update on the Sixth Carbon Budget document five years ago, and quite a few things have changed since then. So what does it say about decarbonising home heating, one of the most difficult challenges for reducing emissions and an area of focus for Nesta? Here are five things we’ve learnt from the Seventh Carbon Budget.

The Seventh Carbon Budget is clear that the majority of emissions reduction – around 60% – will come from electrification. That means switching from fossil fuels to electric vehicles, heat pumps and electric industrial processes, while generating a lot of clean electricity to power this.

Other measures will play a role in helping the UK reach net zero. Demand reduction is the next most important category with around 18% of emissions reductions. This covers changes like insulating homes, flying less and reducing meat consumption. Low-carbon fuels – like hydrogen in certain industries – and carbon capture and storage have a role to play, accounting for around 11% of emissions reductions. Meanwhile, carbon removals via machines (7%) and nature (5%) also play a role.

Within the category of electrification, the most important sources of emissions reduction are electric vehicles, then heat pumps. Reducing emissions from electricity generation also matters – although a lot of this work has already been done – and industrial electrification also plays an important role.

It is clear, then, that the main work of decarbonising the UK is electrification – replacing fossil fuel machines with equally good, and more efficient, clean electric machines.

The UK looked very unlikely to meet the trajectory for heat pump and low-carbon heating installations set out in the Sixth Carbon Budget, which envisaged a rapid growth in installations in 2025. The Seventh Carbon Budget has eased this pressure slightly, by reducing the number of low-carbon heating installations required in the rest of this decade, but has set out a much faster transition in the 2030s to compensate.

This trajectory is still rapid and will be hard for the UK to meet; it means installing 380,000 low-carbon heating systems in existing homes in 2028, and 610,000 in 2030. But the really stretching part will come in the 2030s, when the UK will need to get above 1.5 million low-carbon heating systems installed in existing homes in most years. It’s also worth noting how, in the 2040s, the number of homes switching to low-carbon heat slows down, as most homes will already have switched. This period will also see replacement of heat pumps and low-carbon heating systems for earlier adopters, as those installed in the 2020s begin to reach the end of their life.

If we look more closely at this trajectory up to 2035, we can see how it has been delayed compared to previous targets. The previous government, for example, had a target of installing 600,000 heat pumps in 2028 (though this included new homes, which we’d expect to account for around 200,000 of those). In this new pathway, heat pump installations in existing homes seem to be just over 200,000 – so the new pathway is somewhat slower than previous targets. Conversely, the rise to nearly 1.5 million heat pump installations a year by 2035 looks much steeper than previous trajectories, and suggests that the years from 2030 to 2033 will be the most challenging of the heat transition.

This shift in the trajectory should give the UK and devolved governments some breathing space in the short term, but it does not change the fact that we need to scale up heat pumps and other low-carbon heating installations very quickly.

When the Sixth Carbon Budget was published in 2020, there was still considerable uncertainty about the right mix of low-carbon heating technologies for the UK. Heat pumps were still relatively rare in the UK, hydrogen was still seen as a possible option, and there were open questions about the roles of technologies such as heat networks and hybrid heat pumps.

The picture on technology has moved on considerably since then, and the Climate Change Committee has updated its advice accordingly. It recommends no role for hydrogen boilers in home heating, and is much clearer that air source heat pumps will be the dominant technology in our homes. Air source heat pumps account for 71% of all low-carbon heating installed in existing homes by 2040 in the new Balanced Pathway.

There is still a role for plenty of other technologies, though, including direct electric heating (13% in 2040), heat networks (9%, although these also play a big role with non-domestic buildings), communal heat pumps (3%) and hybrid heat pumps (5%). Ground source heat pumps play a smaller role in this pathway. Crucially, all of these technologies use electricity.

It is worth stressing, though, that the Climate Change Committee cannot perfectly predict the future, and there should still be scope for competition between these heating options.

It remains the case that different technologies will play a role in the heat transition, but it is clearer than ever that electric heating, and especially heat pumps, will play the largest role.

The Seventh Carbon Budget envisages a smaller role for energy efficiency measures, particularly insulation, in shifting the UK’s homes to net zero. Its pathway includes just 5.5 million “big” energy efficiency measures – including loft, wall and floor insulation.

The majority of these measures seem to be loft and cavity wall insulation, with the Balanced Pathway envisaging most remaining homes to be upgraded by 2031, after which no further insulation measures are installed. This is a significant drop from the 11 million or so insulation measures envisaged in the Sixth Carbon Budget.

The pathway envisages a major acceleration in loft and cavity wall insulation between now and 2030, partly to help meet the UK government’s 2030 fuel poverty target. Installations drop away after this, as most viable lofts and cavity walls have been insulated. This approach – which implies few solid walls, floors or windows being insulated – seems to reflect a focus on the most cost effective insulation measures.

The pathway does also include 34.7 million “small” energy efficiency measures by 2050, including draught-proofing and hot water tank insulation. These are generally much lower cost measures that can nonetheless offer energy savings.

As a result of these changes, energy efficiency measures account for only 7% of carbon reductions in the Balanced Pathway, with a further 5% for energy saving measures. It is clear that the Seventh Carbon Budget leans more heavily on electrified heat for carbon savings in homes, and envisages installing many heat pumps without significant fabric upgrades.

The switch to low-carbon heat, like most of the shift to net zero, has a clear pattern of costs: you face high capital costs upfront (for installing heat pumps) but you get lower revenue costs (ie, cheaper energy bills) over time in return.

The Climate Change Committee’s assessment of this balance of cost for heating is remarkably pessimistic, though, certainly compared to their overall analysis of the costs of net zero, which is fairly upbeat. In their analysis, the additional capital cost of installing low-carbon heating systems averages around £13 billion a year through the 2030s, with a peak of over £16 billion a year in 2036.

The revenue savings, by contrast, look much more modest, never exceeding £3 billion per year. This is surprising, for two reasons. First, because the Balanced Pathway includes the electricity to gas price ratio falling well below three, which would make heat pumps considerably cheaper to run than gas boilers. In Nesta’s analysis, if levies on electricity bills are reformed sufficiently, the energy bill saving is almost sufficient to cancel out the higher capital cost of low-carbon heating, even allowing for financing costs.

Second, it is surprising because chapter 8 of the Seventh Carbon Budget shows a typical household’s energy bill falling by around £700 by 2050. Today, a typical household has an electricity bill and a large gas bill; by 2050, that is projected to be just an electricity bill, which is much lower due to cheaper electricity and, presumably, using a more efficient low-carbon heating system. It seems reasonable that at least some of these bill savings are linked to low-carbon heat, and it is surprising not to see these show up more strongly in the net cost analysis for residential buildings.

Nonetheless, cost remains a significant challenge for low-carbon heating. There is a lot that both the government and the heating industry need to do to address it. 

The most important action – identified prominently by the Climate Change Committee – is to reform the levies on electricity bills, so that electricity gets cheaper and electric heating leads to lower energy bills. But there are several other actions that can make a big difference.

Innovation to lower the upfront costs of installing heat pumps can make a big difference, especially as the industry scales up. Making heating systems more efficient is also a big opportunity to reduce costs – the Climate Change Committee assumes COPs of around 2.8, which is well below industry best practice. Reducing the cost of capital is also a critical factor – our analysis found that offering 0% loans is one of the most effective actions governments can take to lower the lifetime costs of a heat pump. 

The costs of switching to low-carbon heating are not fixed – there is plenty government can and should do to reduce them.

The Seventh Carbon Budget is a crucial document guiding the UK’s journey to net zero, and it has a clear message on home heating: the time for technology debates is over, the time for installing clean heating at scale has begun. The future of home heating will be electric, and we need to move towards that future quickly.