Heat in buildings strategy - achieving net zero emissions: consultation

Chapter 8 Developing a Regulatory Framework for Zero Emissions Buildings

Principles of our approach

To underpin our investment and provide long-term certainty to the sector and home owners, landlords, owners of non-domestic premises and the public sector, we will introduce new regulations to set standards for zero emissions heating and energy efficiency, where it is within our legal competence, between 2023 and 2025. Together, these regulations will cover the full range of Scotland’s domestic and non-domestic buildings and address both their energy efficiency and their direct emissions from heating. This chapter sets out our proposed approach for the introduction of these regulations for both new and existing buildings, including: reforming the assessment process and metrics underpinning Energy Performance Certificates; standards for existing homes; standards for existing non-domestic buildings; and standards for mixed-use and multi-tenure buildings.

Energy efficiency and zero emissions heating investments are long term decisions that require certainty and clear end-points. Regulations will help provide that certainty and also help build supply chain confidence to invest in training, skills and new projects. In this way, regulation can help to lower the costs of the transition^[15].

We will introduce regulation in a way that is proportionate and which considers the health and wellbeing of Scotland’s people, including continuing to target the eradication of poor energy efficiency as a driver of fuel poverty and ensuring our actions have no detrimental impact on fuel poverty, unless additional mitigating measures can also be put in place. We will ensure sufficient periods of transition to allow people and the market to adjust and prepare for new standards coming into force, and tailor our delivery mechanisms to set out a clear path of support and advice for individuals and organisations.

We will consider what legislation is needed to meet these regulatory ambitions, including bringing forward new primary legislation in this area if required, pending further policy development and securing agreement with the UK Government on any necessary devolution.

Alongside our regulatory approach, we are developing our delivery programmes to support the acceleration towards net zero emissions for buildings (as set out in Chapter 6: Kick starting investment in the transition).

Summary of action we will take:

73. We will introduce regulation in a way that is proportionate and which considers the health and wellbeing of Scotland’s people.

74. We will ensure sufficient periods of transition to allow people and the market to adjust and prepare for new standards coming into force.

75. We will tailor our delivery support to set out a clear path of support and advice for all those affected.

76. We will consider what legislation is needed to meet these regulatory ambitions, including bringing forward new primary legislation in this area if required, pending further policy development and securing agreement with the UK Government on any necessary devolution.

New Buildings

To ensure that new buildings are fit for the future and do not require retrofitting in the future to achieve zero emissions, the Scottish Government is currently developing regulations which will require new buildings consented from 2024 to use zero emissions heating (and cooling). This will initially apply to new homes - with similar requirements to be phased-in from 2024 for new non-domestic buildings. In parallel, we are reviewing the energy efficiency standards set by building regulations to ensure that Scotland’s future buildings are highly energy efficient, in line with our wider net zero ambitions.

Our proposals will ensure that, from 2024, where there is an installed heating system contained within the curtilage of a new building, it will be required to produce zero direct greenhouse gas emissions at the point of use^[16]. We envisage that at present, electrical heating or heat supplied by heat networks would produce no direct greenhouse gas emissions at point of use, but we recognise that there are other technologies which could produce a similar outcome and are seeking evidence on this.

We published our initial Scoping Consultation on the 2024 New Build Heat Standard^[lvi] on 9 December 2020, and we are welcoming evidence and stakeholder input as we look to further develop the Standard. We are also seeking evidence on the impact of introducing these requirements earlier than 2024 if feasible. In addition, stakeholders will also have a further opportunity to contribute through a Technical Consultation in 2021 – which will set out, in greater detail, issues such as compliance, enforcement, and calculation methodologies.

As above, we are undertaking work in parallel with development of the New Build Heat Standard, to review energy standards set through building regulations, to deliver further improvements in building energy performance. This will include very high levels of building fabric performance in our new homes, avoiding the need for costly retrofit in the future, contributing towards removing poor energy efficiency as a driver of fuel poverty, and making homes more affordable to heat.

For new public sector buildings, we have developed the Net Zero Carbon Public Buildings Standard, working with the Scottish Futures Trust and other public sector partners. This new standard will be progressively applied to new build and major refurbishment projects across the public sector from early 2021. The voluntary Standard has been adopted by Scottish Ministers and we are working with our wider public sector partners to support application of the Standard to projects, helping public sector bodies to meet their commitments to reach net zero. We will publish the Standard in early 2021. This will feed into work to introduce regulation and mandatory standards across the non-domestic sector more widely from 2023-25 onwards.

Summary of action we will take:

77. Develop and bring into force the 2024 New Build Zero Emissions from Heat Standard, requiring new buildings to have zero direct emissions heating systems.

78. Review energy standards within current building regulations to deliver further improvement in energy efficiency and emissions reductions in new buildings, in 2021 and 2024.

79. Publish the Net Zero Carbon Public Buildings standard in early 2021 and work to introduce regulation and mandatory standards across the non-domestic sector more widely from 2023-25 onwards.

Existing homes

In responding to the challenge of net zero, we recognise that our proposed regulatory framework needs to go further than previously set out in the 2018 Energy Efficient Scotland Route Map.

Following feedback from recent Energy Efficient Scotland consultations and advice from our External Advisory Group we are revising our approach and developing a regulatory framework for energy efficiency and heat supply that will:

• reform the assessment process and metrics underpinning Energy Performance Certificates (EPCs) so that standards are effective, meeting the demands of both climate change targets and fuel poverty targets.
• address both heat decarbonisation - to the extent that our powers allow - and energy efficiency, where previously our regulatory approach was centred on energy efficiency alone.
• increase clarity and pace by regulating to ensure that all buildings across all tenures achieve a good level of energy efficiency by 2035 and use zero emissions heating (and cooling) by 2045^[17], with more ambitious delivery for households in fuel poverty. This brings forward the target end date for energy efficiency standards by 5 years and proposes to introduce standards for heating, not previously included in the Energy Efficient Scotland Route Map.

Energy Performance Certificates

Energy Performance Certificates (EPCs) and the methodology behind these are the backbone of our existing standards. The UK Climate Change Committee (CCC), the Scottish Government’s own EPC Assessment Short Life Working Group, and responses to recent consultations on the setting of standards across various tenures and for off gas grid properties, have all recommended a need to reform EPCs so that they can be effectively used as the basis of regulation and to ensure that they drive the energy efficiency and heat decarbonisation measures needed for our net zero objectives.

The CCC recommends^[lvii] that the EPC framework should be reformed and improved to ensure it drives the energy efficiency measures needed, as well as the installation of zero emissions heating. To do this, we need an EPC framework that helps building owners understand:

• The measures required to improve the energy efficiency of their property, so as to reduce the demand for heat and ensure that poor energy performance is not a driver of fuel poverty.
• The changes needed to the heating system so that it is zero emissions.
• The impact of these changes on running costs.

To be a useful tool for property owners, EPCs need to set out clear property-level recommendations on the measures needed to reduce demand for energy and reduce emissions to zero. For EPCs relating to properties in mixed-tenure and mixed-use buildings, it will be important that they recommend the necessary communal works to retrofit the whole building. It will be important that EPC recommendations are tailored and appropriate to the property, and are in line with the heat zoning set out in the area’s Local Heat & Energy Efficiency Strategy.

EPCs for domestic property currently include two ratings: an Energy Efficiency Rating and an Environmental Impact Rating. The former is currently an energy cost rating based on energy demand; the latter is based on carbon emissions. The Energy Efficiency Rating is the primary rating in use; is relatively well known; is included in adverts for property; and is currently the basis of our energy efficiency standards. The current Energy Efficiency Rating can be improved by installing a cheaper to run fossil fuel heating system, such as replacing electric storage heaters with a gas or oil boiler. Conversely, installing a zero emissions system could lead to a worsening of the rating^[lviii]. As such the current system is not compatible with our zero emissions objectives. However, simply adopting the Environmental Impact Rating as the basis of our regulatory approach would not be compatible with our statutory fuel poverty targets.

We are therefore considering reforming the existing EPC so that it includes three indicators as a basis for future standards:

• an indicator for energy efficiency (which will recommend to building 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);
• an indicator for heating emissions (which will recommend to building 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);
• an indicator for cost of heating (which will inform building owners and tenants of the impact of the energy efficiency and heat emissions measures on their energy bills).

As we reform the EPC system it will be important that it continues to fulfil its original intentions, as well as enabling strengthened action, including as a regulatory tool, on emissions and fuel poverty. As we do this, it will be important to ensure a degree of equivalence for energy efficiency so that the trajectory for energy efficiency improvements required remains broadly the same in the reformed system as we have already proposed.

We will consult in detail on proposed reforms to Energy Performance Certificates, which will underpin our proposed regulatory framework, later this year.

Energy Efficiency and Zero Emissions Heat

We are already committed to taking action across all tenures to address the energy efficiency of existing homes. Our proposals for a regulatory framework for decarbonising homes, as set out here, build on and update the regulatory framework set out in our 2018 Energy Efficient Scotland Route Map.

The framework we set out in 2018 focussed only on energy efficiency. We now need to strengthen this framework so that it covers both energy efficiency and zero emissions heating, so that it is aligned with our net zero emissions targets while continuing to support progress on eradicating fuel poverty.

We will strengthen our proposed regulatory framework to the extent that our powers allow and, where required, will seek additional powers from the UK Government to enable this. We propose that our strengthened regulatory framework requires properties to achieve a good level of energy efficiency by 2035, equivalent to EPC C for homes, and have zero emissions heating systems by 2045 at the latest^[18].

Details are set out below for a proposed new all-tenure zero emissions heat standard, as well as minimum energy efficiency standards for private-rented, owner-occupier and social housing. We will also develop a bespoke approach to regulating for improvements in mixed-tenure and mixed-use buildings.

62% of all homes in Scotland are owner occupied, 24% are social rented and 14% are private rented.^[lix] Just over one third of Scottish households live in flats, which are often found in mixed-tenure and mixed-use buildings, where residents include owner occupiers and private and social renters, and commercial premises occupy the ground floor.

All Tenure Zero Emissions Heat Standard

We will bring forward regulation proposals to require installation of zero or very near zero emissions heating systems in existing buildings from 2025.

It is proposed that compliance with a new zero emissions heat standard be phased in with all buildings needing to meet this standard no later than 2045. It may be appropriate to have an earlier backstop date for certain types of properties or areas. This could for example apply in the ‘low regrets' areas of activity, such as where heat network zones have been identified and a heat network is available, or in high emissions properties, such as those that currently use heating oil or coal as their primary heating fuel.

In consulting on these proposals, we would expect these regulations to use the same or similar trigger points as those applying to energy efficiency standards, on which we have previously consulted (see below). We would seek to consult during 2022 on a proposed standard and any legislation needed to underpin this.

Private Rented Housing Minimum Energy Efficiency Standard

Twenty percent of private rented housing has a poor EPC rating (of E, F or G) compared to just 6% of social housing and 17% of owner-occupied^[lx]. To tackle the low energy performance in the private rented sector and help to make the heating bills of those living in those homes more affordable we have been committed to the introduction of regulations to ensure properties in the private rented sector reach an EPC D by 2025 and have trailed this standard for the past 3 years. However, we recognise that the private rented sector has been significantly affected by the ongoing COVID-19 pandemic, with emergency legislation needed to prevent evictions, support tenants and landlords and protect the broader sector. As a result, and to reflect the need to reduce pressure on the sector, the formal process to bring these regulations forward has been paused.

Our commitment to improving the energy efficiency of this sector remains. In line with the direction provided by the CCC^[lxi] we will introduce regulations requiring private rented sector properties to meet a minimum standard equivalent to EPC C, where technically feasible and cost-effective, by 2028. Any intermediate steps to reach this standard between now and 2028 will take cognisance of the pressure faced by the sector as a result of the Covid-19 pandemic.

Owner-Occupied Private Housing Minimum Energy Efficiency Standard

We will set out and consult on detailed proposals for introducing regulations for minimum energy efficiency standards for all owner-occupied private housing. It is envisaged that these will be set at a level equivalent to EPC C where it is technically feasible and cost-effective to do so. This will apply at key trigger points. We propose to introduce regulations from 2023-2025 onwards, and all domestic owner-occupied buildings should meet this standard by 2035. This brings forward the previously proposed backstop from 2040 to 2035. Where it is not technically feasible or cost-effective to achieve the equivalent to EPC C rating, we propose that a minimum level of fabric energy performance through improvement to walls, roof, floor and windows, as recommended in the EPC, would apply.

Social Housing Minimum Energy Efficiency Standard

Social housing is already paving the way for energy standards. The first milestone, the Energy Efficiency Standard for Social Housing (EESSH1) was due to be met in December 2020. The Scottish Housing Regulator reports that 87% of social rented homes were already meeting this milestone as of the end of March 2020.

In June 2019, the Minister for Local Government, Housing and Planning agreed a second EESSH2 milestone for all social housing to meet, or be treated as meeting, EPC B, or be as energy efficient as practically possible, by the end of December 2032. We will seek the agreement of social housing stakeholders to bring forward the review of EESSH2 to 2023, with a view to strengthening and realigning the standard with wider net zero requirements so that we can work in partnership with social housing to lead the transition to zero emission buildings and avoid the need for further retrofit in the future.

Mixed-tenure and mixed-use buildings

Mixed-tenure or mixed-use buildings^[19] make up a significant share of Scotland’s building stock. Such buildings could include a mixture of owner occupied, private rented and social housing, and also non-domestic uses, or simply multiple ownership within the same tenure. We recognise the challenges that common works present to mixed-use, tenement and mixed-tenure buildings, and that this often presents a barrier to installing energy efficiency and zero emissions heating measures unless property owners act together.

Local Heat & Energy Efficiency Strategies (LHEES) (Chapter 4: Place) will go some way to supporting delivery in these areas, by making it clearer to building owners the measures most likely to be appropriate in their building and the surrounding area. However, LHEES alone are unlikely to provide the certainty to households, organisations and developers that changes will occur, making it more difficult to plan and make investments.

For mixed-tenure or mixed-use buildings, it may be more helpful for energy efficiency and heat standards to apply to the whole building rather than to individual properties or units, such as individual flats or ground floor commercial premises within a tenement.

We will consult on a regulatory approach for mixed-tenure buildings which would see them required to reach a good level of energy efficiency, equivalent to EPC C rating, where technically feasible and cost effective, and install a zero emissions heating supply by 2040-45^[20]. In consulting, we will consider if there are circumstances under which certain households or owners of other buildings are exempt or have a longer period of time to meet standards.

We propose that specific backstop dates for both energy efficiency and heat in individual building blocks or areas would be determined by their date of zoning (see below section on Regulatory Trigger Points and Area-Based Regulation) – reflecting the need for coordinated measures for example through ‘whole building retrofit’. Therefore, this could see some buildings required to comply with zero emissions standards ahead of 2045. This approach to zone-based regulation for mixed-tenure and mixed-use buildings will be guided by Local Heat & Energy Efficiency Strategies, ensuring a careful phasing to improve this whole portion of the building stock, year-by-year. We will introduce regulations from 2023-25 onwards, with an expectation that all of these buildings should meet this standard by 2040-45.

To facilitate the common works that will be essential for decarbonisation of these buildings, such as connection to heat networks or whole building insulation, we will consider bringing forward primary legislation to support this.

Historic Buildings

We will work with Historic Environment Scotland to consider what specific provisions or exemptions may be needed within regulations to take account of buildings which are designated as listed or in conservation areas, in meeting requirements for decarbonisation of their heat supply and reducing their demand for heat.

Summary of action we will take

80. We will consult on a reformed EPC assessment process to better align with wider net zero objectives whilst meeting our fuel poverty obligations by summer 2021.

81. We will bring forward proposals for regulating, to the extent that devolved powers allow, to require the installation of zero or very near zero emissions heat in existing buildings from 2025, with a backstop of 2045.

82. We will bring forward regulations requiring private rented sector properties to achieve an equivalent to EPC C by 2028.

83. We will consult on detailed proposals to introduce regulations from 2023-2025, to require owner occupied private homes to meet a minimum level of energy efficiency (equivalent to EPC C) by 2035.

84. We will seek the agreement of the social housing sector stakeholders to bring forward the review of EESSH2 to 2023 with a view to strengthening and realigning the standard with net zero requirements so that social housing leads the transition to zero emission buildings.

85. We will consult on introducing regulation to require mixed tenure and mixed-use buildings such as tenements to reach a good level of energy efficiency (equivalent to EPC C where technically feasible and cost effective), and to install a zero emissions heating supply by 2040-45, including provisions on ensuring cooperation between building owners to carry out works and recover costs.

86. We will work with Historic Environment Scotland to consider what specific regulatory provisions or exemptions may be needed within regulations for buildings designated as listed or in conservation areas. (this also applies to non-domestic buildings as below)

Existing Non-domestic buildings

Since 2016, regulations^[lxii] have required non-domestic buildings over 1000 m² on sale or rental to a new tenant to carry out an assessment to determine and implement modest energy efficiency improvements. Owners have the option of either implementing the measures identified or lodging a Display Energy Certificate reporting annual energy use.

As set out in the 2018 Energy Efficient Scotland Route Map, we will introduce regulations which will expand and tighten requirements so that they cover all non-domestic buildings. We will do this by placing requirements on owners to reduce demand for heat through energy efficiency improvements, and install a zero emissions heating supply, within the extent of our powers. Regulations will be introduced from 2023 to 2025, with backstops applying to all non-domestic buildings between 2035 and 2045.

In the Energy Efficient Scotland Route Map 2018, we proposed that regulations be phased in, starting with the largest buildings with the scope of the regulations increasing over time so that by 2045 all non-domestic buildings would be improved. A phased approach is likely to remain appropriate. We will consult on our proposed regulatory framework for non-domestic buildings, including trigger points, backstop dates, compliance and enforcement, during 2021-22.

Public sector buildings

We are committed to showing leadership in the 23,000 public sector buildings^[lxiii] in Scotland. This means that the public sector needs to act more rapidly and in advance of the introduction of further regulations for new-build and existing non-domestic buildings.

We expect public sector leadership to include the early phase-out of all fossil fuel based heating systems in the public estate at the earliest feasible dates. The Scottish public sector should take a zero emissions-first approach to heating system replacement, with new or replacement heating systems designed to be compliant with public bodies duties set under Section 44 of the Climate Change Act and the net zero declarations made by public sector organisations. To further support public sector leadership, we will develop guidance for minor refurbishments and heating system replacements in the public sector.

Summary of action we will take

87. Develop and introduce strengthened regulation for non-domestic buildings, which builds on existing requirements under Section 63 of the Climate Change (Scotland) Act, to ensure they reduce demand for heat and install a zero emissions heating supply; and launch a consultation on these proposals.

88. We will develop guidance for minor refurbishments and heating system replacements in the public sector.

Regulatory Trigger Points and Area-Based Regulation

There are a range of natural points where changes happen to a building. These could be used as triggers at which regulation could come in to force including:

• change of tenancy (when a property is empty);
• point of sale;
• major refurbishment;
• replacement or installation of a new heating system.

In many cases standards triggered at the individual property level will be appropriate. However, in circumstances where there are common or shared issues across an area it may be more appropriate to require action across a defined area, for example:

• in areas where there is a common building fabric type or construction archetype;
• in areas where there are mixed-tenure or mixed-use buildings requiring common works; or
• in areas where a communal or area-based heat solution, such as heat networks or hydrogen network, is identified through zoning by a Local Heat and Energy Efficiency Strategy^[21], requiring action to be taken across multiple buildings in tandem.

As we develop our regulatory approach for buildings we will consult on area- or zone-based triggers to complement those at the individual property level. For some of these triggers, such as sale of a property or identification of a heat zone, an appropriate grace period^[lxiv] may be needed so as not to place an undue burden on individuals and in some cases achieve changes more cost-effectively.

Zoning may also be important as a means of ensuring action by building owners who have otherwise not received triggers to take action at an individual property level (for example properties that have not been sold or changed tenancy), ahead of the final compliance dates for the regulations (i.e. 2035 for energy efficiency; 2045 for zero emissions heating). Again, appropriate time would be needed to notify building owners, to allow compliance, and to allow phasing of works for the supply chain, to avoid potential last-minute bottlenecks ahead of backstops.

As set out in Chapter 6, we will also consider how we could use our local tax and charging powers, alongside our planned approach to regulation.

Summary of action we will take:

89. We will consult on area or zone-based triggers to complement those at the individual property level.

UK-Wide regulation

We know that introducing regulation to require changes to the way in which our buildings are heated will impact on the current operation of the heating market, which is currently dominated by fossil fuel (high emission) heating systems. Whilst regulating for emissions, heat and energy efficiency is a largely devolved matter, the regulation of energy markets, fossil fuels, consumer protection and competition are reserved to the UK Government. As such, there is a risk that in exercising devolved powers we cut across into areas that are reserved to the UK Government. Given that the UK Government faces the same challenge to decarbonise heat in buildings that we face, we will work with them to enable us to introduce regulation for zero emissions heating across the entire building stock from 2025 at the latest.

Questions

48. What are your views on the regulatory actions set out in the proposed regulatory framework?

49. What are your views on the timeframes set out for the application of the regulation set out above?

50. What are your views on how our Delivery Programmes could support compliance with regulation?

51. What other mechanisms/support may be required to ensure that regulation is fair and equitable for all?

A table representing the proposed timeline for consultation, legislation and regulatory proposals to set standards for buildings, split under the category headings of private rented sector, owner occupied, social housing, multi tenure, non-domestic, public buildings and all buildings.