Building regulations - energy and environmental standards: consultation on proposed changes

Annex B: Draft Business and Regulatory Impact Assessment (Stage 1 review)

1. Title of proposal

The Building (Scotland) Amendment (No. 2) Regulations 2024 – Determining the principles for a Scottish equivalent to the Passivhaus standard

2. Purpose and intended effect

2.1. Background

The building standards system in Scotland is established by The Building (Scotland) Act 2003 (The 2003 Act). The purpose of the building standards system is to protect the public interest. The system regulates building work on new and existing buildings to provide buildings that meet reasonable standards which:

• Ensure the health, safety, welfare and convenience of persons in or about buildings and of other who may be affected by buildings or matters connected with buildings,
• Further the conservation of fuel and power, and
• Further the achievement of sustainable development.

The building standards system is pre-emptive and is designed to check that proposals meet building regulations. The main principles of the system are that a building warrant must be obtained from a verifier before work commences on site and a completion certificate is accepted by a verifier if, after undertaking reasonable inquiry, they are satisfied the building work meets the building regulations, prior to the building being occupied. The thirty-two local authorities in Scotland are appointed by Scottish Ministers as verifiers to administer the building standards system in their geographical areas. Responsibility for compliance with the building regulations lies with the “relevant person” as the party instructing building work and, ultimately, with the building owner.

Following the introduction of the Building (Scotland) Act 2003 and our current system of building standards in May 2005, energy standards within section 6 of the Building Standards Technical Handbooks were reviewed and improved in 2007, 2010, 2015 and most recently in February 2023.

Each review introduced further staged improvement to energy standards and related changes on topics such as ventilation. It is assessed that emissions arising from energy use in new buildings constructed to the February 2023 standards are, on aggregate, around 32% lower for new homes and 20% lower for new non-domestic buildings, compared to the previous 2015 standards and more than 80% lower than standards in force in 1990, the baseline reporting year for CO₂ emissions.

A further, specific change was introduced this year by the New Build Heat Standard, which applies to new buildings and certain conversions where a building warrant application was submitted from 1 April 2024. The new standard (6.11) requires, with few exceptions, that new buildings must no longer use ‘direct emission heating systems’ for space or water heating or cooling.

2.2. Objective

The purpose of this review is to consider changes to the requirements and processes set within The Building (Scotland) Regulations 2004 (as amended) and associated regulations (Building Regulations). Changes under consideration are to introduce a Scottish equivalent to the Passivhaus standard. The intent is that these changes will deliver two outcomes:

• Improvements to the setting of energy and environmental (ventilation) performance and standards for new buildings, leading to lower energy demand (and reduced running costs) and a healthy indoor environment; and
• Improvements to the design and construction process to give greater assurance that compliance, and therefore the performance sought, is delivered in practice.

This Draft Assessment considers the first of two stages in the review which will consider the technical, commercial and wider policy implications of improvements to energy and environmental standards in the context of broader action by the Scottish Government on climate change, to further our ambition of becoming a net-zero society by 2045.

This initial stage and the related consultation does not set out the details of proposed new standards or performance targets. That will be set out in a further stage and public consultation in summer 2025.

This initial stage seeks views on the form and approach that a Scottish equivalent to the Passivhaus standard, implemented through building regulations, should adopt. It seeks information to enable confirmation of the extent of amendment of regulations, proposed for December 2024.

2.3. Rationale for Government intervention

The Scottish Government is committed to reducing greenhouse gas emissions. The Climate Change (Scotland) Act 2009 introduced the most ambitious climate change legislation anywhere in the world. The Scottish Government has committed to stop contributing to climate change within a generation. The Climate Change (Emission Reduction Targets) (Scotland) Act 2019 includes a legally binding target of net zero greenhouse gas emissions by 2045.

Scotland’s commitment to reach net-zero greenhouse gas emissions by 2045 means a fundamental transformation of our economy. The document, ‘A National Mission for a fairer, greener Scotland’ was published on 23 March 2021. The Report provides practical advice to Scottish Government Ministers, through 24 recommendations, on how to deliver on a Just Transition to a net zero future. This includes recognition of the benefits that national regulation can play in driving change.

With the introduction of the New Build Heat Standard (NBHS) in April 2024 there has been a shift in focus in the way we heat our new homes and buildings. Apart from cooking, new buildings can be seen as contributing ‘zero direct emissions’ which positively contributed to achieving our 2045 targets. A step reduction in delivered energy use will aid the reduction of any associated upstream emissions as a result of production of the energy used in the operation of new buildings.

In December 2022 the Minister for Zero Carbon Buildings, Active Travel and Tenants’ Rights confirmed that, in response to Alex Rowley MSP’s Proposed Domestic Building Environmental Standards (Scotland) Bill, the Scottish Government would make subordinate legislation by 14 December 2024 to give effect to Mr Rowley’s final proposal “to introduce new minimum environmental design standards for all new build housing to meet a Scottish equivalent to the Passivhaus standard, in order to improve energy efficiency and thermal performance”.

2.4. The risks to be addressed

The actions proposed within this review are the reduction in delivered energy demand and improvement in the indoor environment whilst introducing a robust compliance regime.

The reduction in energy use for new development will contribute positively to the development of the Scottish Government’s Climate Change, Energy Strategy and Fuel Poverty Programmes.

In delivering further improvement, there are subsidiary risks that must also be considered. Minimum standards applicable to new buildings should still:

• be achievable across the whole of Scotland
• be proposed with an understanding of the potential cost of improvement to the delivery and operation of buildings;
• remain technically feasible;
• offer flexibility in the ways which standards can be achieved, to allow best value;
• ensure proposals do not conflict with or duplicate other regulatory requirements; and
• be implemented with consideration of wider societal issues related to the occupation and use of buildings.

3. Consultation

3.1. Development phase

Before making or amending building regulations, Scottish Ministers are required, under Section 1(2) of The Building (Scotland) Act 2003, to consult “such persons as appear to them to be representative of the interests concerned”.

Prior to public consultation on the proposed changes to regulations, this duty is discharged through the development of proposals by a Departmental Working Group, comprising of officials and representatives of industry, together with communication with other parts of Government and bodies representing organisations of the construction industry. This is intended to provide assurance that proposals are proofed against the considerations previously identified above.

In 2023, Scottish Ministers approved a Departmental Working Group to consider amendments to building regulations in respect of taking on the effect of Mr Rowley’s final Bill proposal. Along with government officials, the Working Group included members of local authority verifiers, designers, building services engineers, energy modellers, academia and private sector organisations representing the commercial and domestic sector.

Over four meetings between June 2023 and July 2024 alongside seven technical industry workshops, this group helped shape the development of proposals for consultation.

Themed industry workshops were held through Autumn/Winter 2023 to gather feedback on a number of topics related to very low energy building design and construction. Working Group members and wider industry stakeholders have been actively engaged in the review process to date. However, a position of consensus on what a Scottish equivalent to the Passivhaus standard should look like has so far not been reached.

Information on the review process to date, including membership of the Working Group is published at: Energy Standards Review – Scottish Passivhaus Equivalent: Working Group - gov.scot (www.gov.scot).

3.2. Within Government

Building Standards Division has a network of stakeholder organisations with an interest in building regulations. Government organisations and departments with a policy interest in proposals are contacted in respect of these proposals and consultation documents are made available to these bodies.

This includes direct contact and discussion with the following during the development phase. This ensures that the implications of options on other policy areas is clearly understood and that proposals are developed with an awareness of similar or related work elsewhere within the UK.

• Scottish Government Directorate General Communities
• Scottish Government Directorate General Net Zero
• Building Regulations, Wales
• Building Regulations, Northern Ireland
• Building Regulations, England (Health and Safety Executive)
• Building Regulations, England (Department for Energy Security and Net Zero)
• Building Regulations, England (Ministry of Housing, Communities and Local Government)

3.3. Business consultation

While changes to building regulations affect any party who chooses to build a new building or carry out new building work to an existing building, such changes have the most significant impact on parties involved in the delivery of such building work for example; designers, developers, contactors; and manufacturers of building products.

Businesses have been represented on the Departmental Working Group through the development phase of this consultation and have also been represented on a range of themed industry workshops through Autumn/Winter 2023

Further engagement with businesses will be organised once the consultation has been launched to enable a full discussion on the technical and financial implications of the proposed changes on Scottish firms. This will be initially on the principles for regulation proposed within the 2024 consultation. Engagement with businesses will continue through 2025 as the second consultation on detailed proposals is launched.

3.4. Public consultation

This Partial Impact Assessment forms part of a package issued for public consultation. This consultation seeks general comment on principles and processes to allow changes to regulations to be made in December 2024 as enabling actions.

Notification of the consultation is issued to a list of individuals and organisations previously identified as having an interest in building standards.

The full consultation package will be published on the Scottish Government website for a period to twelve weeks from July to October 2024.

4. Options

4.1. Sectors and groups affected

These proposals affect all persons who develop and deliver new buildings or new construction work and, ultimately, those who will own or occupy such buildings.

Sectors and groups directly affected can be categorised as:

• Persons procuring or occupying new buildings or building work, who may need to bear any additional costs associated with delivering buildings which have improved energy performance. Whilst this relates to a specific activity, the group who may be affected at one time or another can be considered to be the majority of the population.
• Developers who, in addition to the above, would have to review existing building specification, construction detailing and, potentially, methods of working. This might include, where relevant, seeking amended Scottish type approvals for standard constructions, possibly sooner than otherwise intended.
• Building materials and component manufacturers, who may need to review and introduce changes to products and literature to address revised performance standards.
• Those involved with the energy aspects of building design and construction, who would have to familiarise themselves with any revised standards and methodologies.
• Building services contractors, who may need to invest to increase the capacity for commissioning and testing of buildings and engineering services.
• Local authority verifiers, who may need to arrange training of staff on changes to energy standards and guidance, to ensure these can be verified at design submission and during construction where necessary.

4.2. Option Development

At this stage, we are seeking consultation responses to enable confirmation of any changes to current building regulations needed to enable the actions that would define the improved targets and processes of a revised standard. There are therefore limits to the available evidence at present.

The purpose is to identify where changes required to be made to current building regulations to enable actions that are identified as necessary to achieve the outcomes described in section 2.2

The nature of the regulatory changes can be confirmed. However, a full understanding of the costs and benefits of final changes will only be derived once the detail of changes to standards and performance targets and processes are set out next year. A full assessment of the cost and benefit arising from options will be presented in support of the second stage consultation in summer 2025.

Indicative costs of achieving an elemental standard approaching that associated with Passivhaus were include in the final assessment of options for the 2021 consultation on energy standards. This indicated a potential further uplift of capital cost to development, over and above the implemented options of 2-3% for new homes (resulting in a net increase in overall cost for a ten year policy period of approximately £ 300M) and up to 2% for new non-domestic buildings (resulting in a net increase in overall cost for a ten year policy period of approximately £ 80M).

This now requires to be re-evaluated in the context of current costs and the New Build Heat Standards and the omission of mains gas heating. This work is currently being undertaken and will enable an updated assessment of approximate impact to be provided post-consultation in November 2024.

An initial assessment of likely costs will be presented on conclusion of this 2024 consultation and will be based upon an update of components of the previous 2021 consultation and the outcome of new commissioned research currently underway. This will illustrate the likely impact of change and will be presented to enable an informed decision to be made on the extent of amendment to current regulations for December 2024.

It is again stressed that the full detail of proposed changes will determine the overall impact of the delivery of the new standard and its component parts – improvement to standards and targets and improvement towards a stronger, evidence-led approach to demonstrating compliance with energy and environmental standards.

5. Regulatory and EU Alignment Impacts

5.1. Intra-UK Trade and International Trade

An assessment has begun on the impact of these proposals to international trade and also in respect of trade within the UK. The measures proposed relate to the function or performance of construction work. They do not prescribe measures which:

• have the potential to affect imports or exports of a specific good or service, or groups of goods or services;
• affect trade flows with one or more countries; or
• include different requirements for domestic and foreign businesses.

At present, the proposals do not define technical regulations or conformity assessment procedures for which a relevant standard does not exist. Accordingly, proposals do not require a submission of a Technical Barrier to Trade notification to the World Trade Organisation.

5.2. EU Alignment

The subject of this review has material relevance to impact on the Scottish government’s policy to maintain alignment with the EU.

Energy standards set though building regulations formed part of the transposition of Directive 2010/31/EU on the energy performance of buildings, with changes as recent as June 2023 continuing cognisance of issues relevant to the transposition of that Directive.

Recent amendment of this Directive as (EU)2024/1275, such as the phasing out of fossil fuels from new buildings, have already been put in place in support of our domestic heat decarbonisation agenda, through the April 2024 New Build Heat Standard.

Work is ongoing to assess the continued opportunities for alignment as we review relevant standards. The topic of this review supports the more effective delivery of very low energy buildings and proposals in development for the second stage of this review will reference such opportunities and options in more detail.

6. Scottish firms impact test

The Scottish firms’ impact test regards all firms with fewer than 50 full-time employees as being small businesses. The majority of small firms have fewer than 10 employees and guidelines state that a concerted effort should be made to consult them over policy proposals.

Businesses have been represented on the Departmental Working Group through the development phase of this consultation and have also been represented on a range of themed industry workshops through Autumn/Winter 2023. Further engagement with businesses will be organised once the consultation has been launched to enable a full discussion on the technical and financial implications of the proposed changes on Scottish firms. A summary of engagement on the principles proposed will be provided within the final version of this document for November 2024.

Due to the staged format of the review and the presentation of detail on the nature of proposed technical and procedural change, it is intended that that the most significant engagement with business will occur in the period leading up to and during the second stage consultation in summer 2025.

7. Competition assessment

Having reviewed the five competition filter questions provided with the Competition and Markets Authority Fair Trading document “Competition assessment guidelines, Part 2: guidelines”, it is considered that proposals set out in this consultation will not result in a significant impact on competition within the market place.

In support of the above, it is noted that:

• The manner in which standards for new buildings are set allows for flexibility in the solutions adopted which reduces the emphasis on performance of individual products or solutions;
• New regulations and improved standards are a recognised driver to product improvement and to innovation and as such, and element of challenge to all parties involved in delivering products and services is expected.

No significant areas where issues of competition, restriction or imbalance will arise have been identified as part of this first stage of the review.

8. Consumer assessment

The Scottish Government definition of a consumer is “anyone who buys good or digital content or uses goods or services either in the private or public sector, now or in the future.”

While changed to building regulations affect any party who chooses to build a new building or carry out new building work to an existing building, we must recognise that consumers will eventually use or live in these buildings.

New regulations and improved standards are a recognised driver to product improvement and to innovation and as such there is likely to be an associated cost uplift due to the changes that are brought about by the improvement in building standards. Any potential cost uplifts will be reported in an updated BRIA as part of the second consultation in Summer 2025.

At this stage, the proposed changes do not create any adverse impact on consumers beyond what may reasonably be expected by a regulatory regime of this type (application of minimum standards to a process).

9. Test run of business forms

There are no new business forms proposed within any of the proposals identified. The need for such forms will be reassessed during the second stage of the review.

10. Digital impact test

The proposals put forward relate to the provision of physical systems within newly created buildings. These requirements are set through national regulation and implemented as part of construction work. As such, there are no direct implications or unintended consequences identified in relation to the impacts of digital technology and technological services.

Of indirect relevance, it can be noted that digital technology is implemented widely within the construction and housing sectors in the management of information and to improve productivity and outcomes. Correspondingly, the Scottish Government has an improvement agenda that include the increased use of digital solutions in the management of the building standards process.

For the building standards system, this includes an online portal for the submission of applications and approval of building warrants required for the construction of new dwellings. Ongoing development of this digital strategy is a workstream being continued under the Building Standards Futures Board.

11. Legal aid impact test

Proposals within this consultation that would be the subject of regulation follow established process and premise. It is not anticipated that there will be any greater demands placed on the legal system by the proposal. Accordingly, it is not considered that there will be any effect on individuals’ right of access to justice through availability of legal aid or on possible expenditure from the legal aid fund.

This will be reviewed further during the consultation and this aspect of proposals will be verified in discussions with officials from the Scottish Government Access to Justice Team prior to the production of a final impact assessment

12. Enforcement, sanctions and monitoring

12.1. Background

The proposed changes in this consultation will identify where amendment is needed to the Building (Scotland) Regulations 2004 and the Building (Scotland) (Procedures) Regulations 2004. Following a second consultation in Summer 2025, review will extend to the modification of the supporting guidance to the regulations and standards (issued by the Building Standards Division of the Scottish Government) that support the Regulations. This would include the Technical Handbooks list the mandatory functional standards set out under Regulation 9 of the Regulations and give guidance on ways of complying with these mandatory functional standards.

All matters relating to enforcement, sanctions and monitoring will be carried out under the existing processes, which form the building standards system in Scotland, as set out under the Building (Scotland) Act 2003. Parties responsible for operation of this system are currently the 32 Scottish local authorities, appointed as verifiers under the Act, and the Building Standards Division, on behalf of Scottish Ministers.

12.2. Enforcement and sanctions

Work subject to the Building (Scotland) Regulations 2004 generally requires that a building warrant must be obtained before work commences and to have a completion certificate accepted once works are finished. Whether or not such work requires a building warrant is set out under Regulation 5 of the Regulations, the person responsible for the building or work, the ‘relevant person’ as defined in Section 17 of the Building (Scotland) Act 2003, is required to ensure compliance with building regulations.

Where a building warrant is required, proposals are subject to the scrutiny of verifiers prior to approval of building warrant or acceptance of a completion certificate. Local authorities have enforcement powers under the act to ensure compliance with approvals and the Regulations. Cases of non-compliance can be referred to the Procurator Fiscal and persons found guilty of offences in terms of the Act are liable on summary conviction to a fine not exceeding level 5 on the standard scale. Separate work is underway to review the sanctions which can be applied to non-compliance with building regulations.

12.3. Monitoring

The objective of this exercise is to deliver a reduction in delivered energy and a healthy indoor environment alongside the introduction of a robust compliance regime in new buildings through changes to building regulations. Building regulations are applied within a legislative framework summarised above. In line with Scottish Government policy, any implemented changes which address this issue should be subject to a review within a 10-year period. Any such review shall be accompanied by a further Impact Assessment.

12.4. Implementation and delivery plan

On completion of the current consultation the results will be analysed and feed into the process of laying enabling regulations in December 2024. This will satisfy the requirement to give effect to Mr Rowley’s final 2022 Bill proposal by the laying of regulations.

A second consultation will be launched in Summer 2025 on the detailed proposals for technical and procedural changes enabled by the amended regulations. An updated suite of Impact Assessment will support this consultation.

An implementation date for changes will be confirmed on the laying of enabling regulations in December 2024. Dates of 2028 and 2026 are currently identified as options. A suitable period will be set between publication of the full suite of changes and their implementation under building regulations.

12.5. Dissemination

This Partial Impact Assessment forms part of a package issued for public consultation. This consultation seeks general comment on principles and processes to enable changes to regulations to be made in December 2024 as enabling actions.

Notification of the consultation is issued to a list of individuals and organisations previously identified as having an interest in building standards..

The full consultation package will be published on the Scottish Government website for a period to twelve weeks from July to October 2024. The outcome will be disseminated to respondents and published on the Scottish Government website. It will also inform the second stage consultation within which the details of proposed changes to standards, targets and processes will be set out.

13. Post-implementation review

Review will be carried out by the Building Standards Division considering the implementation of the change made to building standards legislation and supporting Technical Handbook guidance. This review will monitor the effectiveness of the changes and ensure that subsequent reviews can be made on an informed basis. This will be done through engagement from early 2026 initially with bodies representing trades, designers, verifiers and the industry in general. Engagement will increase once the revisions are applied in full, with a potential implementation date of early 2028.

14. Recommendation

This current review of building regulations is being undertaken in two stages.

A full understanding of the costs and benefits of change will only be evident once the detail of changes to standards and performance targets and processes are set out next year. A full assessment of the cost and benefit arising from options will be presented in support of the second stage consultation in summer 2025.

At this stage, we are seeking consultation responses to enable confirmation of any changes to current building regulations needed to enable the actions that would define the improved targets and processes of a revised standard. There are therefore limits to the available evidence at present.

An initial assessment of likely costs will be presented on conclusion of this 2024 consultation and will be based upon an update of components of the previous 2021 consultation and the outcome of new commissioned research currently underway. This will illustrate the likely impact of change and will be presented to enable an informed decision to be made on the extent of amendment to current regulations for December 2024.

We recommend that review progress to public consultation on this basis to enable information needed to support amendment of regulations to be gathered and an initial assessment of cost and benefit prepared for inclusion in the final business and regulatory impact assessment.

15. Declaration and publication

I have read the Business and Regulatory Impact Assessment and I am satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impact of the leading options. I am satisfied that business impact has been assessed with the support of businesses in Scotland.

Signed by the accountable Minister:

Paul McLennan MSP, Minister for Housing

Date: DD MMMM YYYY

Policy contact:

Daniel Foulds

Scottish Government
Building Standards Division Directorate for Local Government and Housing
Denholm House
Almondvale Business Park Livingston
West Lothian
EH54 6GA

Telephone: 0300 244 4000

Email: bsdenergystandardsreview@gov.scot