Earlier this year, the UK Government consulted on a flagship clean heating policy still under consideration: to require boiler manufacturers match gas, oil and other fossil fuel boiler production with a certain amount of heat pump installations. This policy has the potential to be so disruptive – in both the positive and negative sense of that word – that BIT and Nesta, working together, devoted considerable research time to the conditions under which it would succeed.
Ultimately, we concluded that the policy was a crucial tool to increase heat pump adoption, but that it needs supporting policies to work well – chiefly a scale-up in installer training, policies to increase consumer demand, and ideas to ensure high-quality installations. For example, we recommend the Government support the creation of a centralised review platform, which we argue will act as a ‘double nudge’: 1) helping consumers identify high-quality heat pumps and installers, and 2) encouraging manufacturers and installers to compete on quality. Today, we publish our full report on this research.
Our research
Our perspective on the UK Government’s plans was informed by:
- qualitative research into the customer journey for heat pump adoption
- an online hypothetical choice experiment investigating British householders' willingness to pay for heat pumps
- analysis of heat pump installations data from Microgeneration Certification Scheme (MCS), to analyse how the cost of heat pumps varies for householders
- a workshop with experts from the heating industry – stakeholders from boiler and heat pump manufacturers, energy suppliers, trade associations, installers and third sector groups. We worked with these experts to conduct a pre-mortem – where participants imagined that the policy had failed to deliver greater heat pump adoption and innovation in the heat pump market, and could then ‘work backwards’ to determine what caused the failure and develop mitigation strategies and solutions to these causes
Why this policy is important
In the past 30 years, the UK has delivered a greater per-capita CO2 emissions reduction than any other major high-income economy. Most of that reduction has come from decarbonising electricity. The country has decarbonised heat more slowly, though. Most heat still comes from boilers that use gas, oil or other fossil fuels. Heating homes accounts for 17% of all UK emissions, so it’s an important source of emissions to start reducing.
The UK government wants many homes – as many as 600,000 per year by 2028, and rising through the 2030s – to switch to heat pumps. Heat pumps use electricity, which by 2035 should be 100% zero-carbon, to provide heat. They do so highly efficiently, taking a unit of electricity and turning it into between two and four units of heat – an engineering feat made possible by drawing heat outside the home, even on a cold day, into the home.
But, right now, gas boilers are cheaper and easier to install. Heat pumps are expensive upfront, often have higher running costs for consumers (despite typically being two to four times more efficient, the very high cost of electricity dominates), and can take about a week to install. Replacing a like-for-like gas boiler feels simpler, less risky, more affordable in the short and long-term and more familiar.
How the UK Government’s proposed policy would work
The UK Government plans to mandate that manufacturers of fossil fuel heating appliances achieve the sale and installation of heat pumps equal to a proportion of their fossil fuel boiler sales in a given period. They have not specified what the proportion would be but have noted that it could be ‘stepped up’ over time.
The UK Government may allow manufacturers to trade credits with each other, where manufacturers sell excess heat pump credits to manufacturers responsible for otherwise insufficient heat pump installations. Manufacturers who do not produce sufficient credits to match their fossil fuel boiler sales (or procure them through trading) would face penalties – eg, through a fine proportionate to the amount of fossil fuel boilers sold beyond the allowance implied by their heat pump ‘credits’.
We assume that, to meet the mandate, manufacturers will reduce the cost and/or increase the desirability of heat pumps, likely financing this reduction in cost by increasing the cost of gas (and other fossil fuel) boilers. Manufacturers might also (or instead) invest in better marketing for heat pumps, or in research and development to make them more desirable (eg, through even higher energy efficiency, quieter components, smaller equipment size, elements that aid faster installation) without changing heat pumps’ upfront cost.
In these ways, we see the mandate as creating an implicit subsidy for heat pumps, financed by an implicit tax on fossil fuel boilers – a rebalancing of prices justified by the costs to society associated with greenhouse gas emissions from fossil fuel boilers.
What we found
Our greatest concern was that the policy would encourage an increased quantity of heat pumps without ensuring high quality. We note various solution ideas to mitigate this threat.
However, many participants in our pre-mortem workshop argued that even an increased quantity would be a good improvement. They noted that demand for heat pumps is still low, trained installers are scarce and many installers recommend gas boilers over heat pumps to consumers.
We agree that increased supply of heat pumps is not the direct solution to these problems. But this policy proposal is more than an incentive to manufacture heat pumps. It is an incentive to install heat pumps. The incentive should therefore motivate manufacturers to find varied and creative solutions to the above problems.
Yes, the policy doesn’t do everything required to lay the groundwork for the coming heat pump revolution. It seems a tall ask of manufacturers to find ways to increase heat pump installations when so many complementary factors are insufficient. Indeed, much of our report focuses on the supplementary policies the UK and Scottish, Welsh, and Northern Ireland governments will need to enact in order to grease the wheels of adoption and installation.
But the beauty of this policy is its flexibility – manufacturers have flexibility as to how to meet the mandate (including by supporting retrofits, training programmes, etc.), and also whether to meet the mandate (the fine for non-compliance is always an alternative for them). So, given that flexibility, we believe this policy will be a crucial arrow in policymakers’ quiver to encourage much wider heat adoption.
