New Build Heat Standard 2024: business and regulatory impact assessment

17. Summary and Recommendation

162. In conclusion, it is being recommended that Option 2 – the New Build Heat Standard (NBHS) – be adopted. The NBHS prohibits the installation of Direct Emissions Heating (DEH) systems in new buildings and conversions of existing buildings, both domestic and non-domestic. This would apply to building warrants applied for from 1 April 2024 onward.

163. The objective of adopting this policy is to prevent greenhouse gas emissions associated with delivering space heating, hot water, and cooling in new buildings, helping Scotland to achieve net zero emissions by 2045. On a Climate Change Plan (CCP) accounting basis for emissions,^[130] the NBHS is expected to deliver cumulative savings of around 5.2 MtCO2e over 2024 to 2083 under central assumptions, with this broken down as 2.3 MtCO2e saved in the Residential sector and 3.0 MtCO2e saved in the Services sector.^[131]

17.1 Summary of Costs and Benefits Table

164. As discussed in Section 6, we present the Net Present Social Value (NPSV) of the policy below in Table 4. The NPSV is the present value of benefits minus the present value of costs, so can be viewed as a summary measure of the overall impact of the policy on social welfare. If it is positive, then this implies the policy has a net beneficial impact (the benefits outweigh the costs); if it is negative, then this implies the policy has a net negative impact (the costs outweigh the benefits).

165. As is shown in Table 4, our central NPSVs are positive, suggesting the NBHS has a net beneficial impact on social welfare, with the vast majority of benefits comprising avoided retrofit scrappage costs in 2045 and avoided greenhouse gas emissions. Depending on the future evolution of gas prices, the energy savings as a result of the policy could be positive (under a future with high gas prices, C) or negative (under a future with moderate gas prices, B).

166. Further sensitivity analysis for the NPSV is discussed in Section 19.4, but the headline finding from said analysis is that the NPSV remains positive across all sensitivities considered. This suggests the policy confers a robust net benefit for social welfare.

167. Comparison of the Non-Traded Carbon Cost-Effectiveness (NTCCE) with the Non-Traded Cost Comparator (NTCC) in Table 4 indicates that the emissions are – on average – being abated in a cost-effective manner by the policy. Further information on how these cost-effectiveness indicators are constructed is provided in supplementary guidance to the Green Book,^[132] but also briefly explained in the footnotes accompanying Table 4.

Notes: Figures in parentheses denote negative values. Assessment period spans 2024 to 2083.