Achieving net zero in social housing: Zero Emissions Social Housing Taskforce report

Background and Context

Introduction

The Scottish Parliament has committed to Scotland becoming a net zero emissions country, society and economy by 2045. This will mean achieving a balance between the amount of greenhouse gas emissions produced and the amount removed from the atmosphere. Scotland has world-leading statutory targets to ensure it plays its part in meeting our climate change obligations.

The Scottish Government’s Climate Change Plan Update (Securing a Green Recovery on a Path to Net Zero) notes that heat in buildings accounts for around 20% of Scotland’s greenhouse gas emissions. The transition to zero emissions heat will involve changing the type of heating used in over two million homes by 2045, moving from high emissions heating systems, reliant on fossil fuels, to low and zero emissions systems such as heat pumps, heat networks and other technologies.

The draft Heat in Buildings Strategy published in February 2021 sets out the need to take action now in order to accelerate decarbonisation of homes and buildings and to reduce our demand for heat. It includes a commitment to regulate to ensure that all homes across all tenures achieve a good level (equivalent to at least EPC C) of energy efficiency by 2035 and use zero emissions heating by 2045.

The Scottish Government’s Housing to 2040 Route Map, published in March 2021, sets out as a guiding principle (principle 10) that decisions around the quality, location and use of existing stock and new build should be consistent with the target for Scotland’s emissions to be net zero carbon by 2045. This sets a challenge for existing homes to be updated to improve their energy efficiency and decarbonise their heating, ending their contribution to climate change.

As a society we are increasingly grappling with the reality that moving towards a net zero society and economy will not be easy, but it is absolutely essential. This is becoming more evident every day, as we see and feel the effects of climate change through increasing average temperatures and more extreme weather events. We estimate that around 50% of homes, or over one million households, will need to convert to a low or zero emissions heating system by 2030. We will need innovative technological solutions; investment from public, private and individual sources; and significant behaviour change and support from individuals and communities if we are to meet our ambitions on decarbonisation.

Central to these ambitions is the principle of securing a just transition. This puts people, communities and places at the heart of our approach to climate change action. It aims to ensure we work together in order to meet the targets while anticipating and mitigating the risks to those worst impacted by the changes, so no one is left behind. As the pace of the transformation increases, the need for a collaborative and just transition becomes ever more important. This approach is at the heart of Scotland’s ambitions to move to a wellbeing economy that prioritises society’s wellbeing as the core aim of our economy.

Ensuring a just transition means we must meet these challenges while keeping rents and heating bills affordable – including, and most especially, for people on low incomes – as well as maximising the economic opportunities from the transition for communities across Scotland. The need to find ways to fund significant capital investment sustainably, while ensuring the switch to new heating systems does not exacerbate fuel poverty through increased utility bills, are crucial challenges to navigate. In the context of our long-standing and central aim of providing affordable homes for those who most need them, social housing providers have these considerations at the heart of plans to tackle climate change.

We are working in the context of considerable ongoing uncertainty too: some new technologies remain insufficiently tested, and there are questions about costs and benefits, and how those can be shared equitably. The future potential for, and costs of, hydrogen are unknown and there are gaps between the modelled and actual performance of some measures.

Finally, we recognise there are also factors such as energy costs, along with substantive economic levers, like energy market and regulations, that are out with the Scottish Government’s control. In developing recommendations for an approach to achieving net zero ambitions across social housing, a central priority is the need for flexibility so that changing, and potentially unforeseen, pressures can be successfully dealt with in the future. There is also considerable uncertainty in the economic position of the public sector, including local authorities, and significant demands on resources. This was true before the pandemic and is even more acute now.

The role of social housing

The social housing sector has for many years focused on delivering affordable, high quality, energy efficient homes. As a consequence, homes in the sector perform relatively better than other tenures in terms of energy efficiency standards. There is, however, still huge investment needed to get to zero emissions in the social housing sector. Reducing demand for heat and improving the conditions of our housing stock is a crucial first step in readying homes for zero emissions heat. We know we face a significant challenge in upgrading all our stock to the necessary level of energy efficiency.

The sector is committed to playing its part, while recognising decarbonising heating in social homes is only one part of the urgent challenge we face. Building on its social purpose, along with its strengths, skills and experience, social housing is already on a strategic pathway to the decarbonisation of its housing stock. This comes with continued problems, obstacles and barriers – not least the equally important commitment to driving down poverty and inequality, including preventing homelessness. We are aware of the challenge and commitment needed from the social housing sector to achieve this, and the financial support that will be required. This means that the programme of change must ensure that housing costs remain affordable as a core principle.

The importance of engaging with tenants in all of this cannot be over-stated and existing platforms such as the Regional Networks already enable tenants and residents to engage with the Scottish Government on development of national housing policy. Going forward, a variety of methods will be needed to ensure tenants have a strong and equal voice in the journey to net zero, in decisions, design, development and delivery. It is essential to ensure the changes are well understood, well tested and work for households across Scotland.

Securing a shift from gas to electric heating

Decarbonising the current homes in the social housing sector to meet net zero means moving from our current reliance on fossil fuels, such as natural gas, to zero emissions alternatives. In tandem, the aim must also be to reduce fuel bills and drive down fuel poverty.

The maturity of the renewable industry in Scotland provides potential opportunities to build on its achievements to date and to help with decarbonisation. Provisional figures indicate that in 2020, the equivalent of 97.4% of Scotland’s gross electricity consumption was from renewable sources, falling just short of the 100% by 2020 renewable electricity target.

Switching to zero emissions heating at this scale and pace presents three major challenges. First, it requires meeting a much larger share of heat demand from renewable electricity, in addition to other demands on the electricity grid such as charging of electric vehicles. However, and second, electricity is more expensive for end consumers than gas in the current market. Third, the sheer scale of the infrastructure works required to homes and the challenge of funding it, while again keeping rents affordable, cannot be over-stated.

Any programme of change must balance these three challenges, ensuring that social housing remains affordable, in all household costs, for those who most need it. In practice, we are firmly of the view that this means taking a Fabric First approach to achieving net zero emissions. This would involve charting a transition from gas and other fossil fuel heating to zero emissions heating while also significantly increasing energy efficiency to reduce energy demand and, at the same time, avoiding increasing the running costs for households.

We know the UK Government is considering how the costs of the net zero transition can be borne equitably, including through its forthcoming Call for Evidence on affordability and fairness in the energy market. It appears likely that high carbon heating will become more expensive in future. This would mean those in fuel poverty still using fossil fuel heating systems would face increased heating bills, resulting in even deeper levels of fuel poverty.

The Scottish Government’s role is to set standards for housing and give clear direction to the sector. The Scottish Government has responsibility for developing funding packages that meet the needs of the sector to support the scale and ambition of its climate change targets. The UK Government must also support investment, make the necessary changes to energy markets, and put in place safeguards to protect consumers.

It is clear that in order to fully address the challenges in the shift from gas to electric heating, partnership working between the Scottish and UK Governments, and with the housing sector, will be essential. It will be important to work across other parts of the public sector to ensure technological innovations are effectively scaled up and deployed.

The challenge facing social housing

Energy efficiency has been a priority in social housing for many years, reflected by substantial investment to meet, initially, the Scottish Housing Quality Standard (SHQS), and more recently the first milestone of the Energy Efficiency Standard for Social Housing (EESSH). Many tenants now have homes that are warmer and cheaper to heat, providing a solid baseline for progress on the Energy Efficient Scotland Route Map and the second milestone of the Energy Efficiency Standard for Social Housing (EESSH2). However, as outlined in recent research,^[1] these ambitions do not come without notable financial and technical challenges. Landlords in remote rural and island communities face particular challenges, where geographical and other factors further add to the pressure.

We know that many zero emission heating systems are expensive to install. In some cases, new heating systems also mean higher running and maintenance costs. New systems may involve other significant changes to homes such as the need for space to install hot water storage. Social landlords need support to plan how to manage the scale of the investment needed to improve homes. Because landlords’ income ultimately comes from their tenants’ rents, additional investment needs to be carefully planned and assessed for impact on rent pressure. Any additional costs such as increased energy bills or rents would undermine the benefits to tenants of more efficient heating systems, potentially leaving them worse off. This means that the impact on households needs to be carefully modelled. Social landlords bring experience and knowledge that can inform the net zero pathway and delivery solutions that come forward to ensure they address these key factors and support local planning to mitigate these risks and secure an effective transition.

Over a third of tenants in social homes are in fuel poverty, with households in the lowest income bands having the highest rates of fuel poverty. Ensuring housing remains affordable in the round for social tenants requires a focus on addressing high energy costs, and ensuring that decarbonisation objectives do not cut across this critical social wellbeing agenda.

A further challenge is the amount of social housing that lies within mixed tenure blocks, in which many owners – some of whom will be private landlords – may be unable or unwilling to find their share of the costs of energy efficiency and associated improvement works.

At the same time, there are significant opportunities which the social housing sector is well placed to build on. Over half of social housing is already in EPC band C or better, compared to two-fifths in the private rented and owner-occupied sectors. Landlords have extensive experience of delivering projects to improve the energy performance of buildings as well as innovative solutions that work for tenants.

Social landlords can work together with government to attract investment, create good quality local jobs in the green economy, and improve the warmth and comfort of social homes to tackle both climate change and fuel poverty together. However, this requires the combined resources and capacity of national and local government, along with other partners, to realise the opportunities and ensure the costs and risks don’t fall disproportionately on social housing providers, their tenants and communities.

Finding a way forward

The recommendations of ZEST aim to find a collaborative way forward through these many and significant challenges. They set out specific, realistic and practical proposals for how social landlords, local authorities and the Scottish Government can act in partnership to address the double challenge of getting to net zero in social housing while driving down poverty. These recommendations provide a foundation for effective planning by all partners, setting out the next actions necessary to manage a just transition to net zero housing.

Two other points have emerged from our work with equal force. The first is the necessity to reduce the demand for heat, allowing homes to consume less energy for heat by ensuring that what is used is not wasted. This is reflected in the emphasis on Fabric First in the recommendations. Energy efficiency measures that reduce heat loss from our buildings will not, on their own, get us to net zero. They can, however, pave the way to installing zero emissions heating systems that work well at a manageable cost, making them viable for social housing providers and tenants.

The second point is that this report should also be viewed as the starting point of a longer term workstream, acknowledging further work will be needed to make sure the proposals work in practice and can be delivered fairly and effectively. The lived experience of tenants and communities must be embedded throughout, and all of the proposed actions should be viewed from an equalities perspective to ensure the recommendations do not create or perpetuate inequality in society. This will require robust Equalities Impact Assessments and considerations of intersectionality as part of any further development. Although the proposed recommendations are specific to social housing, they offer alignment with other key policy areas, including public health, energy, transport and employment, and will require working across ministerial portfolios in addition to a cross-tenure approach to delivery. It is also clear that while some of the proposed actions will require funding, these are yet to be fully costed and will require further work to identify the budget requirements.