Domestic Energy Performance Certificates (EPC) reform: consultation

3. Context

3.1 Climate Change Plan 2018-2032 update

In December 2020, we published our Securing a green recovery on a path to net zero: climate change plan 2018-2032 update^[4] (CCPu). In it we committed to reduce emissions by 75% by 2030 (compared with 1990) and reach net zero by 2045. Currently, heat in buildings accounts for 23% of Scotland's greenhouse gas emissions. The transition to zero emissions heat will involve changing the type of heating used in over 2 million homes and 100,000 non-domestic buildings by 2045, moving to low/zero emissions systems such as heat pumps, heat networks and potentially hydrogen.

In drawing up the CCPu, we engaged closely with many stakeholders including advisory bodies, businesses and other organisations, and this engagement provided a number of key, cross-cutting themes, including the value of setting clear and accurate standards and targets (such as energy efficiency) to help people and organisations take action. The starting point for all of us as individuals, and across communities, should be to continue to invest in energy efficiency improvements and follow advice, and to reduce our electricity demand.

The proposals set out here are aimed at providing information which will help homeowners achieve these goals.

3.2 Climate Change Committee

The UK Climate Change Committee in its Sixth Carbon Budget report^[5] emphasised the importance of high quality advice and information in helping householders make good decisions. The CCC recommends that any work to reform EPCs is designed to drive deployment of the necessary energy efficiency measures on a holistic basis, and does not hinder the use of low-carbon heating solutions.

3.3 Draft Heat in Buildings Strategy

As set out in our draft HBS^[6] published in February 2021, we are revising our approach to energy efficiency and heat. We are proposing to develop a regulatory framework for energy efficiency and heat supply that will be based on a reformed assessment process using metrics from EPCs which will ensure standards meet both climate change and fuel poverty targets.

Table 1: Timeframe for Regulatory Framework as laid out in the draft HBS

	The Proposed Standard	Dates to lay regulations	Dates to meet the standards	Backstop dates for compliance
Private Rented Sector	To reach a level equivalent to EPC D for new tenancies	Autumn 2021 (not confirmed)	From April 2022	31 March 2025 for all tenancies
	To reach a level equivalent to EPC C for new tenancies	By 2025	2025-2027	2028 for all tenancies
	Zero Emissions Heating*	By 2025		2045
Owner Occupied Sector	To reach a level equivalent to EPC C	By 2025	Triggers proposed between 2025-2034	2035
	Zero Emissions Heating*	By 2025		2045
Social Housing	To reach EPC B	Standards reviewed in 2023	2024-2031	2032
Multi tenure/Mixed use	To reach a level equivalent to EPC C	By 2025	2025-2044	2045
	Zero Emissions Heating*	By 2025		2045
Non-Domestic Buildings	More challenging energy improvement targets to reduce demand for heat and ensure zero emissions heat supply to apply at trigger points	By 2025	Triggers proposed between 2025-2044	2045

*within scope of devolved powers, install a zero emissions heating supply, such as electricity, heat network, or over time potentially 200% hydrogen

The draft HBS identifies the need for an EPC framework that helps dwelling owners understand:

• the measures required to improve the energy efficiency of their property in order to reduce the demand for heat;
• the changes required to have zero emissions a heating system; and
• the impact of these changes on running costs.

The draft HBS proposes reforming the existing EPC so that it includes three metrics as a basis for future standards:

• a metric for energy efficiency (which will act as a basis to recommend to dwelling owners the measures needed to reduce demand for heat, as appropriate to their building type and fabric; and will also show the measures needed to remove poor energy efficiency for fuel-poor households);
• a metric for heating emissions (which will act as a basis to recommend to dwelling owners the most appropriate form(s) of heating system to reduce emissions to zero, as appropriate to their building type and fabric, and taking account of wider changes to heat supply in the area);
• a metric for cost of heating (which will inform dwelling owners and tenants of the impact of the energy efficiency and heating measures on their energy bills).

This consultation delivers on the first of these.

3.4 Fuel Poverty Strategy

The Fuel Poverty (Targets, Definition and Strategy) (Scotland) Act 2019^[7] was passed by Parliament with unanimous support in June 2019 and received Royal Assent on 18 July 2019. It sets statutory targets for reducing fuel poverty, introduces a new definition which aligns fuel poverty more closely with relative income poverty and requires Scottish Ministers to produce a comprehensive strategy to show how they intend to meet the targets.

The statutory fuel poverty targets introduced by the Act require that by 2040 as far as reasonably possible no household in Scotland is in fuel poverty and in any event, no more than 5% of households are in fuel poverty; that no more than 1% of households are in extreme fuel poverty, and the median fuel poverty gap is reduced to £250 (adjusted for 2015 prices). These targets are to be achieved by each local authority as well as Scotland as a whole. There are also non-statutory interim targets for 2030 and 2035.

The draft Fuel Poverty Strategy^[8] identified four drivers of fuel poverty, one of which is poor energy efficiency of the home. To remove poor energy efficiency as a driver of fuel poverty, the draft HBS commits to introducing new standards for all tenures, with higher standards for fuel poor households.

This consultation begins that journey, providing the basis for setting standards, and improving the information supplied to households on how to improve the energy efficiency of their property. It also supports our housing to 2040^[9] vision of delivery of safe, good quality and affordable homes for everyone.

3.5 What you have told us and wider context

In December 2019, the consultation on Improving Energy Efficiency of Owner Occupied Homes^[10], proposed the use of alternative metrics to the current cost-based Energy Efficiency Rating on the EPC citing the example where the rating can worsen for zero or low emissions heating systems. In that consultation document, we also set out draft interim proposals for a reformed Assessment/EPC process.

The feedback from that consultation was analysed and published in February 2021^[11]. One of the cross cutting themes identified was the need for change in the EPC process, since many respondents raised concerns about its effectiveness and accuracy. Individuals and representatives of professional bodies were most concerned that it was not an appropriate measure of energy efficiency in homes. Some called for it to be revised while others felt that another mechanism entirely should be used.

On 22 June 2021, a report commissioned for the UK Government on making SAP & RdSAP 11 fit for Net Zero^[12] was published. The report produced in conjunction with a number of stakeholders and industry experts, including input from the Scottish Government, set out 25 key recommendations based under 5 broad categories. The categories are:

• Alignment between SAP/RdSAP and its strategic objectives
• Improvements to the methodology
• Improvements to SAP/RdSAP and its ecosystem for Net Zero
• A better evaluation of energy use
• Support to decarbonise heat and electricity

The report sets out some of the key issues for net zero carbon and the strategic objectives of SAP. One issue which is relevant to this consultation was that the main metric currently used in policy to improve the housing stock is an energy cost metric and not an energy efficiency or carbon metric. At current SAP energy prices, this means that fossil fuels would still be encouraged by EPC ratings.

This is a criticism that the Climate Change Committee has also previously made in various reports, including its most recent 2021 Progress Report to Parliament where it recommends that governments must ensure that EPCs 'do not disincentivise low-carbon heat', and that they must 'implement improvements… including… Supporting delivery objectives across both energy efficiency and low-carbon heat, and valuing properly the benefits of low-carbon and flexible technologies'^[13].

The UK Government commissioned report outlines that a significant improvement to the key metric in SAP/RdSAP would be to provide information on "energy use" (kWh/m²/year), which the report views as the best indicator of energy efficiency. The report contains results of an online survey which received 337 responses. Of the respondents, 85% think energy use (kWh/m²/yr) should be a key metric.

The report recommends under the Improvements to SAP/RdSAP and its ecosystem for Net Zero category – "New EPC Ratings from SAP/RdSAP to support Net Zero and fuel poverty objectives". These recommendations for an energy use indicator in kWh/m²/year align with, and reinforce, the Scottish Government's own proposal in this consultation document for a new kWh/m²/year energy efficiency metric.

This consultation brings forward proposals to begin the reform work identified as needed through the owner occupied consultation and CCC recommendations referred to above. It confirms our commitment to the ongoing use of EPCs as the basis against which standards will be set. It also makes clear that we do hear the concerns, and reforms are needed if we intend to use EPCs to improve energy efficiency and ultimately achieve zero emissions from heating.