Greenhouse gas emissions projections: phase 1 and phase 2 modelling results

Appendix 3. Assessment methodology for Buildings Sector policies and outcomes

Details of the modelling assumptions used to calculate GHG impacts from policies and outcomes in the Buildings sector are set out below. These are grouped by topic/theme.

12.10 Existing buildings

12.10.1 Upgrading fabric efficiency

We have sought to calculate (a) the impact of specific policies/programmes, as well as (b) the overall impact of achieving the EPC rating targets. We understand there is likely to be a 'gap' between these, which will need to be met via other means.

For the purpose of this assessment, we propose to use EPC ratings as a proxy for fabric efficiency and have modelled heating system replacements separately, although we acknowledge that EPC upgrades can cover a variety of different interventions, including heating system replacements.

To avoid double-counting the impact of fabric efficiency measures, we have assumed that initiatives, policies, and funding allocated for building fabric and efficiency upgrades will contribute towards the EPC rating targets rather than resulting in additional energy demand or GHG reductions.

Further details are provided below.

(a) Following discussions with Scottish Government, it is understood that there are no specific targets for the number and type of measures that the schemes are likely to fund. For policies/programmes that have already been implemented and are planned to continue in future, we have therefore reviewed historic uptake rates or statistics (where available) and assumed that:

• Rates of uptake continue proportional with the amount of funding that is available going forward
• The technology split (or % of interventions by type) remains the same (apart from fossil fuel heating systems – discussed further below).

To estimate the impact of ECO measures, we have referred to statistics on the number and type of installations per year.^[67] The overall impact on energy use and emissions has been calculated based on statistics in the National Energy Efficiency Database.^[68] These have been used to generate an annual average estimate of the change in energy demand that results from the ECO scheme. Per Scottish Government feedback, we have assumed that the ECO will extend through 2026.

Comments provided by Scottish Government to Ricardo via email on 11 May 2022 indicated that the Bute House Agreement increased the HIBS Social Housing Decarbonisation funding from £1.6bn to £1.8bn, and that it will include:

• At least £465m to support those least able to pay
• £200m for the Social Housing Net Zero Heat Fund
• £200m for the Scottish Green Public Sector Estate Scheme

The impacts of the £465m HIBS Social Housing Decarbonisation funding, £200m Social Housing Net Zero Heat Fund, and existing HiBS domestic and SME Delivery Schemes have been modelled as a policy package (Package B1) based on the approach described above. We have referred to statistics on the measures implemented as part of the Warmer Homes Scotland (WHS), Area-Based Schemes (ABS), and Home Energy Scotland (HES) schemes (provided by Scottish Government) to calculate the average annual number of installations under each scheme. As with the ECO (see above), the overall impact on energy use and emissions has been calculated based on statistics in the National Energy Efficiency Database (NEED). We have then scaled the number of measures based on the amount of additional funding that will be available.

(As noted previously, we have generally assumed that the split of technologies remains the same. However, per Scottish Government feedback, we understand there is a commitment to phase out the use of fossil fuel heating systems. Therefore, where funding has previously been used to install gas or oil boilers, we have assumed that this will instead go towards heat pumps. However, there is a significant difference in capital cost which would affect the number of installations that could be carried out with the same amount of funding. The upfront capital cost of boilers and heat pumps varies depending on the model selected and the installation/labour requirements; however, as a rough estimate, we have assumed that only ¼ the number of heat pumps could be installed with the same amount of funding, based on current prices.^[69])

To estimate the impact of the £200m Green Public Sector Estate Scheme, we referred to evidence from the Climate Change Committee (CCC) on the typical cost of implementing common energy efficiency measures (£/m² floor area).^[70] We assumed 15% of the fund would go towards administrative costs^[71] and estimated the total floor area (m²) that could be upgraded based on the remaining 85% of funding. Benchmarks for energy use in public buildings (kWh/m² per year) were then used to estimate the pre-retrofit fuel consumption (kWh per year) that amount of floorspace would require.^[72],[73] We then assumed that retrofitting measures would reduce this by 15%, which gave a total estimated saving (kWh per year).^[74] Since the majority of non-domestic properties that currently do not have zero direct emission heating systems (ZDEH) instead use mains gas as their main fuel type (61-66%),^[75] we assumed that this saving would apply to gas consumption in non-domestic buildings.

Where quantitative information was not available, we have not provided a quantitative estimate of the policy's impact, but instead assumed that the policies will contribute towards bridging the 'gap' to achieving the EPC rating targets.

(b) To estimate the overall impact of upgrading domestic buildings to the target minimum EPC ratings, we have referred to published research on the typical fuel consumption of domestic buildings by EPC rating in England^[76] and scaled the data for Scotland based on the current distribution of EPC ratings.^[77] This allows us to then re-calculate what the total fuel consumption would be if the distribution of EPC ratings changes, as illustrated below:

Although there are limitations of using scaled data for England, given the significant evidence that shows that EPC ratings alone are not a predictor of actual fuel consumption, this approach was agreed to be suitable following discussions with the Scottish Government.

12.10.2 Replacement of heating systems

As with energy efficiency (see above), we understand that there is an overall target for replacing heating systems, as well as individual policies that will get some of the way towards the target, but that there will be a 'gap' between these, pending confirmation of further policies or programmes.

Our approach to modelling the existing policies that address both heating and energy efficiency is described in the previous section. This section sets out our approach to modelling the impact of decarbonising the equivalent of 50,000 non-domestic buildings, introducing the zero direct emission heating (ZDEH) target, and the RHI. These are addressed in turn below.

Non-domestic buildings: To model the impact of decarbonising the equivalent of 50,000 non-domestic buildings, we derived average fossil fuel consumption figures per building based on the total number of non-domestic buildings^[78] (c. 230,000) and subtracted this from the total fuel consumption for each building that is decarbonised.The reduction in fossil fuel use will therefore be directly proportional to the number of buildings that are decarbonised. This is a highly simplistic approach, but in the absence of any other details on how this will be achieved or what types of buildings would be targeted, it is considered sufficient for the purpose of this analysis. In the future, this assessment could be refined as part of a later project; it is understood that Scottish Government has recently commissioned a study examining data on non-domestic buildings^[79] that was not publicly available at the time of writing.

ZDEH: We have modelled the phase-out of fossil fuel heating systems to take place linearly between the proposed start date of the policy for each sub-sector and the proposed backstop date. However, there is not currently a regulatory approach for achieving this, and furthermore, that the policies are likely to be tied to trigger points,^[80] so implementation would not happen linearly.

Assuming most of these buildings will use heat pumps, this has been modelled by reducing the heat demand for buildings based on the relative efficiency of typical gas boilers and heat pumps as follows:

Electricity used for heat = n x (85% / 3.0)

where n is the benchmark for fuel consumption (kWh per year), 85% is the assumed efficiency of a typical gas boiler, and 3.0 is the assumed Seasonal Coefficient of Performance (SCOP) for a typical heat pump.

The assumed 3.0 SCOP for heat pumps is in line with the CCC assumptions made in the 6^th Carbon Budget report^[81] (SCOP between 2.83 and 3.26). In practice, there will be a mix of ZDEH technologies that are adopted, such as ground and air source heat pumps and heat networks, so this should be understood as a 'blended' efficiency factor representing the stock average.

RHI: The RHI measures are only modelled from 2020-2022 due to the closure of the scheme. Note that the amount of publicly available information^[82] differs for domestic and non-domestic RHI installations, and the statistics do not report the annual output or year-on-year changes by country. Furthermore, the emissions savings from RHI installations depend heavily on which technology is being installed and, crucially, which fuel is being displaced. These factors make it difficult to provide a reliable assessment of the impact of the RHI, particularly for non-domestic installations, which were therefore excluded from the analysis. To estimate the impact of the domestic RHI, we cross-referenced an Energy Saving Trust (EST) report on renewable heat in Scotland.^[83]

The number of domestic RHI installations in Scotland was estimated using statistics on the total number of domestic RHI accreditations in Great Britain over time (RHI Table M2.2) compared with the EST report, which cited figures for 2019. According to the RHI statistics, the vast majority (c. 95%) of installations in the years 2019-2022 were heat pumps, and according to the EST, around 87% of installations in Scotland are in off gas grid areas. On that basis, for simplicity it was assumed that all installations would displace oil (petroleum products) and replace it with a heat pump. Sensitivity testing indicated that this provides total emissions reductions in line with the averages if different fuels are being displaced. Typical system capacities and running hours for domestic heat pumps in Scotland were taken from the EST report.

Other policies: Other policies in this category, such as LHEES and the review of Permitted Development Rights (PDRs), have not been quantified as the Scottish Government has advised that there is no quantitative information / data available on the number and type of measures likely to be required or funded. They are enabling measures but will not necessarily have a direct GHG reduction impact.

12.10.3 Installation of smart meters

We have assumed that all domestic customers will have smart meters by the end of 2025 in line with the scheme targets. Evidence on the scale and longevity of energy savings is mixed^[84] although they are relatively small compared to retrofitting measures or switching to heat pumps. For the purpose of this assessment we have assumed that smart meters reduce domestic heating demand by 1% on average. We have assumed that 56% of properties do not yet have a meter operating in smart mode as of 2022, so the savings would only be achieved in these properties.^[85]

For non-domestic buildings, there is less data available on:

• the current proportion of fuel that is used to supply heat; and
• the energy savings that can be achieved from installing smart meters.

ECUK statistics suggest that around 56% of fuel consumption in the service sector is used for space heating and hot water, although this is less well-characterised than energy use in the domestic stock due to the greater variation in building types and energy end uses. If we assume, as for the domestic stock, that there is already some uptake of smart meters, and that these reduce heat demand by around 1%, then smart meters would result in a less than 0.56% reduction in fuel consumption in non-domestic buildings. Because this is a very small impact, and given the uncertainty surrounding this estimate, non-domestic smart meters have not been modelled separately.

12.11 New Buildings

12.11.1 Energy efficiency

Following discussions with Scottish Government, it was agreed not to model the impacts of higher energy efficiency targets in Building Regulations on the basis that these were not confirmed at the time of analysis.

New domestic buildings have been modelled to performance standards in line with recent new builds (where the first year of operation was 2015-2017), which are assumed to have roughly 1/3^rd lower heat demand than the stock average.^[86]To estimate the scale of new domestic development, we have used the National Records of Scotland (NRS) projections for the number of households as a proxy for the number of dwellings.

In non-domestic buildings, space heating demands typically account for a much lower proportion of the total energy demand (c. 28%) compared with domestic buildings (c. 76%).^{[87], [88]} Therefore, fuel consumption in non-domestic buildings is assumed to be less sensitive to building performance standards. Instead, it has been modelled to scale in line with GVA growth.

12.11.2 Low carbon heating systems

New domestic buildings have been modelled as having zero direct emissions heating (ZDEH) systems from 2024. The modelling approach is the same as for existing buildings (see above) whereby heat consumption is reduced based on the relative efficiencies of boilers and heat pumps.

It is understood that there will be a 3-year transition period for buildings granted planning permission prior to the regulations coming into effect; however, for the purpose of this analysis, all are assumed to be compliant from 2024. The implications for the results are minimal; modelling it this way will have a small impact on cumulative emissions between now and 2045 but no impact on annual emissions in 2045.

See above for an explanation of the underlying growth assumptions and information on non-domestic energy use.

12.12 Miscellaneous

12.12.1 Renewable electricity generation

Information on the number and type of CARES installations was not available during this project, so the impact has not been assessed.

Note: In principle, any targets aimed at improving EPC ratings could stimulate uptake of small-scale renewable electricity technologies, but our review of policies suggests that the aim of improving EPC ratings is generally more aimed at reducing bills and/or improving energy efficiency.

12.12.2 District Heat Networks (DHNs)

Scottish Government has advised that detailed quantitative information is not yet available on the number and types of DHN schemes likely to be delivered by these policies/programmes. Per correspondence with Scottish Government via email 19 August 2022, we agreed to provide off-model estimates of (a) the Heat Networks (Scotland) Act targets being met and (b) the District Heating Loan Fund (DHLF).

The Bute House Agreement increased the HIBS Social Housing Decarbonisation funding from £1.6bn to £1.8bn, and that includes £300m for Scotland's Heat Network Fund (HNF).^[89] This will form the basis for our assessment. We have reviewed the existing impact assessment for the DHLF^[90] and separate BEIS research on the typical cost of heat networks^[91] to estimate the number of projects and/or MWh of heat output that this could fund.

We have assumed that this contributes to the overall targets being met (2.6 TWh of output by 2027 and 6 TWh of output by 2030).

Estimating impacts of DHNs

Heat networks offer the potential to deliver GHG emissions reductions in several ways, examples of which include:

• Providing an opportunity to utilise waste heat - e.g., from waste treatment or other industrial processes
• Plant may operate more efficiently when there is a high and consistent heat load (although note that in some circumstances this may be offset by heat loss along the distribution network)

From a logistical standpoint, they can also facilitate the transition to lower emission heat sources, because if buildings are connected to a communal or district heat supply, then in principle it may be possible to switch one centralised system to a low or zero carbon heat source, which could be easier than replacing individual heating systems.

However, the actual energy and emissions impacts depend heavily on multiple factors. From a GHG emissions standpoint, one of the key questions is what heating systems and fuel types are currently in use, and what they are being replaced by. Furthermore, heat networks or communal heating systems may be installed in new developments, in which case there may be no impact at all on existing sources of GHG emissions, and instead the effects might be captured under the New Build Heat Standard (NBHS) for new buildings.

It is understood that, although the Scottish Government has set targets for the amount of heat (in TWh) that will be supplied by heat networks in future, there is currently no detail on exactly what types of heat networks would be delivered, which makes a detailed assessment impossible.

These issues notwithstanding, to provide some general context for the potential impact of this target (and the available funding that has been allocated towards it), we have provided some high-level estimates below. These are based on calculations described in Appendix 3.

Because it is unclear what sector the heat networks would supply (or where any waste heat might come from) the following rough calculations have been provided separate to the main GHG projections model.

1. Potential impact of achieving the target of 6 TWh of output by 2030:

For the purpose of this assessment we have assumed that all of the heat networks displace natural gas, as this is the most common fuel used for space heating in Scotland. Based on the emission factors used, using 6 TWh of natural gas per year would result in approximately 1,200 ktCO₂e per year. This is equivalent to the GHG reduction that would theoretically be achieved if this was replaced with a zero direct emission heat source (such as large-scale heat pumps supplied with 100% renewable electricity). For context, that is roughly 3% of Scotland's 2020 GHG emissions of 39,950 ktCO₂e.^[92]

2. Potential contribution of the £300m Heat Network Fund towards the overall target

As previously explained, we have assumed that £300m will be made available as part of Scotland's Heat Network Fund (HNF) following the Heat Networks Delivery Plan (HNDP).

The existing evaluation for the District Heating Loan Fund (DHLF)^[93] indicates that the range of costs for different schemes was £100k/scheme to £400k/scheme. On that basis, £300m could help to support between 750 and 2,700 heat network projects. It is important to note that historically, almost all of these were fuelled by biomass. Going forward, it may be more realistic to assume that heat networks would be supplied by heat pumps due to concerns about air quality, the availability of sustainably sourced biomass, and lifecycle GHG emissions.

For the reasons set out above, it is difficult to provide an estimate of the GHG emissions impact of individual heat network schemes. Therefore, to estimate the potential impact this could have relative to the target of 6 TWh of heat being supplied by heat networks by 2030, we have reviewed Department of Energy & Climate Change (DECC) research on the typical capital costs of heat networks.^[94] The research (which, it should be noted, is based on a limited selection of case studies) indicates that there is considerable variability in the capital cost of schemes – anywhere in the region of £250/MWh to over £900/MWh (see Figure 2 of the aforementioned DECC report). Purely on that basis, as a very rough estimate, the £300m in funding could potentially help to deliver heat networks with an output of between 0.33 and 1.2 TWh, which is equivalent to 6% to 20% of the overall 6 TWh target.

Again, note that the type of heat network is important, and this estimate does not reflect differences in prices between heat pumps and other types of systems like biomass- or gas-fired CHP.

Concluding points relating to heat networks

Based on the above assumptions, we estimate that achieving the 6 TWh target would reduce emissions by around 3% compared with a 2020 baseline of 40 MtCO₂e. The £300m in heat network loan funding could potentially contribute towards up to 20% of that target being met, leading to emissions reductions that are roughly equivalent to 0.2%-0.6% of total territorial emissions in 2020. This is likely to be an overestimate because it assumes that the heat networks will all use a zero direct emissions heat source. However, there is a much broader set of policies that will help to support and enable the development of heat networks in Scotland which have not been quantified.

These estimates are intended only to provide general context for the potential scale and direction of impacts from these policies, on the assumption that more detailed assessments would need to be carried out in future.