Securing a green recovery on a path to net zero: climate change plan 2018–2032 - update

Chapter 2 Buildings - 3.2. Buildings

Introduction

3.2.1 The scale and pace of the changes to how we heat our buildings will be nothing short of transformational. Emissions from heating all buildings across Scotland need to reach zero by 2045 and demand for heat in buildings must be significantly reduced, with poor energy efficiency removed as a driver of fuel poverty. Currently, heat in buildings accounts for 20% of Scotland’s greenhouse gas emissions^[46]. By 2040 our statutory fuel poverty targets require: that no more than 5% of households are fuel poor; that no more than 1% of households are in extreme fuel poverty; and the fuel poverty gap is reduced to £250 (adjusted for 2015 prices). We also have interim targets for 2030 and 2035. Currently 24.6% of households are fuel poor, and 12.4% are in extreme fuel poverty^[47]. We will deliver upon these targets in a way that carefully coordinates the dual challenges of decarbonisation and tackling fuel poverty to ensure a fair and just transition.

3.2.2 The zero emissions heat transition will involve changing the type of heating used in over 2 million homes and 100,000 non-domestic buildings by 2045, moving from high emissions heating systems, reliant on fossil fuels, to low and zero emissions systems such as heat pumps, heat networks and potentially hydrogen. Our interim statutory target of a 75% emissions reduction by 2030 means we must rapidly accelerate heating system conversions during this decade, from the current rate of around 0.1% of homes converting per year to a rate in the region of 5-10% (over a hundred thousand) homes per year.

3.2.3 These changes will involve households and businesses across Scotland becoming familiar with new heating technologies, and seeking to adopt them. The potentially significant costs associated with transforming our heating systems will need to be balanced in a fair way that neither exacerbates fuel poverty rates nor allows the burden of paying for the transition to fall on those least able to pay. Vital to Scotland’s transition will also be very significant policy action from the UK Government in key reserved policy areas.

3.2.4 We have made good progress on upgrading the energy efficiency of Scotland’s building stock, with 45%^[48] of homes now achieving Energy Performance Certificate Band C or better. We are supporting households to install energy efficiency measures and zero emissions heating systems through a range of schemes, as well as supporting an increasing number of heat network projects where these are appropriate and help with our fuel poverty objectives.

3.2.5 We still have a considerable challenge ahead in order to deliver a net zero emissions buildings sector. Currently, only around 11% of households have a low carbon heating system and just over half of our non-domestic building stock has heating from low or zero carbon sources.

3.2.6 We will need to see a mass switch away from high emissions heating in homes and buildings (e.g. gas and oil central heating), as well as further expansion of renewable electricity production and stronger electricity grid infrastructure, to support the delivery of highly efficient and affordable electric heating at scale. This transition will also require further development of heat networks and, dependent upon successful demonstration and positive decisions on the future of hydrogen in the gas grid, the development of new hydrogen production, distribution and servicing industries.

3.2.7 We estimate that around 50% of homes, or over 1 million households, will need to convert to a low carbon heating system by 2030 to ensure our interim statutory targets are met. Our initial focus will be on off-gas-grid buildings and those most suitable for connection to a heat network. However, we will need to go further with some conversion of the remaining on-gas-grid stock. Furthermore, up to an additional 50% of non-domestic buildings will need to be converted to low and zero emissions heating by 2030.

3.2.8 Achieving a good standard of energy efficiency across all buildings will continue to have a critical role to play. This will deliver emissions savings for buildings using fossil fuel heating systems, enable the roll out of low and zero emissions heating systems, and support progress towards our fuel poverty targets.

3.2.9 This is a journey that will affect people right across Scotland in their homes and workplaces, and will require rapid growth of our domestic supply chains. There are many local economic opportunities to be captured that will support good quality local jobs, and there is a great deal of potential to improve quality of life, including the health benefits that come with comfortable, well insulated homes. We must also ensure a just transition, allowing consumers to easily access affordable low and zero carbon options.

New context

3.2.10 The long-term impact of COVID-19 upon the Buildings sector is uncertain, but the pandemic may have a sustained effect on the ways we work and how we use our buildings. Increased homeworking has changed both domestic and workplace heating patterns. We are yet to see whether this trend for homeworking will continue into the future, and how that might affect how buildings are heated. Increased domestic energy use at present, along with reduced incomes for many, has increased the numbers of people at risk of fuel poverty and potentially increased energy debt. We need to mitigate these effects and design decarbonisation policy in a way that does not exacerbate them.

Green recovery and just transition

3.2.11 A number of key stakeholders, including the Climate Emergency Response Group, the Just Transition Commission, and a number of industry stakeholders, have recommended that the Scottish Government prioritises investment in zero emissions buildings as part of a green recovery from COVID-19. Reflecting this, we put investment in decarbonising and modernising our buildings at the core of the green recovery investments announced in the 2020-2021 Programme for Government, with £1.6 billion committed over the course of the next five years.

3.2.12 We will maximise the opportunities that arise from this transition: continuing to address poor building quality and inefficiency as a driver of fuel poverty; driving investment in improved insulation and affordable heating; developing a skilled workforce based on high-quality jobs; and creating a strong domestic supply chain that builds upon the experience and expertise already developed by Energy Efficient Scotland.

3.2.13 Currently, around 13,000 people in Scotland are employed in the low and zero emissions heat and energy efficiency sectors, and of that 8,200 people are estimated to work in the design, manufacture and installation of energy-efficient products such as wall insulation and energy efficient doors and windows^[49]. Zero emissions heating system manufacturing alone is estimated to employ around 2,000 in Scotland^[50].

3.2.14 Taken together, our policy interventions and immediate policies and investments, delivered as part of Scotland’s green recovery from COVID-19, will build the scale of the zero and low emissions heat market, which should then deliver new jobs, skills and retraining opportunities. We expect to see industry develop expertise, and for costs to reduce through economies of scale and product improvement. This should ultimately bring cost benefits to consumers. We will also prioritise a just transition for the heat sector and tackle fuel poverty: while energy efficiency measures can help to offset some of the increased costs of heating, we need to ensure that decarbonisation does not disadvantage those already struggling to heat their home.

3.2.15 Our policies will deliver very significant expansion of heat pump deployment in the coming years. For example, Scottish Government investment through our enhanced domestic and SME loans and cashback schemes, and our advice and support services that leverage funding from UK schemes should boost our domestic manufacturing and installer base.

3.2.16 Our investment in, and regulation of, heat networks will stimulate the development of new heat networks and the extension of existing networks. This will provide high quality, sustainable green jobs across Scotland’s towns and cities, such as in specialist design and architecture, equipment manufacturing, civil engineering, and maintenance. Furthermore, our direct investment and regulatory interventions will see increased rates of installation of energy efficiency measures, potentially supporting 1,200 jobs for every £100 million invested^[51]; our support for further demonstration of hydrogen, smart heating technologies and electricity network innovation will create ripple effects across the wider energy system supply chain; and our targeted support for innovation will support companies with a high growth potential, boosting the economy and creating jobs. Overall, we estimate that as many as 24,000 jobs could be supported in Scotland by the roll out of low and zero emissions heat^[52].

3.2.17 We will publish a Supply Chain Strategy for energy efficiency and heat in buildings in 2021. This will expand our existing programmes of support for skills and retraining, cluster building, funding for demonstrators and business support through the enterprise agencies, and will maximise the impact of city and sector deals as well as UK Research and Innovation and Challenge Fund funding. We are also working with Skills Development Scotland to ensure that heat and energy efficiency skills sit at the heart of the Climate Emergency Skills Action Plan.

Positive vision for 2032 and 2045

3.2.18 By 2032, through the scaling of targeted support, a substantial majority of Scotland’s homes will have achieved a good energy efficiency rating, meaning that they are better insulated and have lower demand for heat. The number of socially rented homes achieving a high energy efficiency rating will be maximised, due to the investment of social landlords. As a result, we will have made significant progress in removing poor energy efficiency as a driver for fuel poverty in the majority of Scotland’s homes.

3.2.19 In addition, we will have considerably accelerated the deployment of zero emissions heating, particularly in off gas-grid areas, and we will have seen a significant expansion of low carbon heat networks in heat dense areas. All new homes and buildings consented from 2024 will use zero emissions heating and be highly energy efficient. This process will see Scotland’s economy and society benefit from new jobs and skills development.

3.2.20 Properties connected to the gas grid will be supported to decarbonise through the electrification of heat and connection to heat networks, and through the significant progress that will have been made to decarbonise the gas network. We will see the emergence of an established zero emissions heating market, with a wide range of companies manufacturing, installing and innovating zero and low emissions heating products. As these companies prosper in this transition, they will be exporting and commercialising their expertise.

3.2.21 Buildings across Scotland will have been supported to reduce their energy demand, making it easier and more cost effective to install and operate low carbon heating systems. We will seek to ensure that support is coordinated and managed where possible to deliver economies of scale and high quality workmanship.

3.2.22 Through all of this, individuals will be enabled to be active participants in the transition. Where we provide support and advice to the general public, we will do so in an appropriate range of languages and formats to ensure that everyone is able to understand their energy use. We will seek to put in place robust customer protections and standards, supporting a just transition and reliable market.

3.2.23 Our vision for 2045 is that our buildings will be much greener and more energy efficient. We will have reduced emissions from, and demand for, heat, so that virtually all buildings are zero emissions. Renewable sources of energy will supply our heating, cooling and lighting needs. People will feel comfortable in their homes all year round, and we will have met our statutory targets for fuel poverty.

3.2.24 Delivering these changes requires further technology innovation, cost reductions and increased familiarity with and adoption of zero emissions heating technologies by people and businesses. They also mean our wider energy system will have to transform to be able to supply secure and affordable zero emissions electricity at scale. Furthermore, they depend upon the right market and pricing signals and regulations being in place.

Route Map to 2032

2020

£1.6 billion Heat in Buildings announced, to be invested over the next Parliament.

2020-2024 – Non Domestic Public Sector Energy Efficiency Framework.

Support for investment in Heat Networks: District Heating Loan Fund.

£6.9 million support for the H100 hydrogen for domestic heat demonstrator.

Heat pumps cashback schemes for households and SME businesses initiated.

Consult on a skills plan for heat in buildings.

2021

Net Zero Public Sector Buildings Standard for new builds.

Public Engagement Strategy for heat decarbonisation developed.

Minimum energy efficiency standards for the domestic private rented sector introduced.

Funding via CARES for community zero and low emissions heat projects aimed at supporting off-grid communities to transition to net zero.

Scottish Cities’ action plans on heat and energy efficiency.

Provision for multi-year Area Based Schemes put in place.

Consultation on the use of existing powers to regulate for the connection of nondomestic buildings to heat networks.

Response to the recommendations of the Expert Advisory Group on a heat pump sector deal for Scotland.

Supply Chain Strategy for heat and energy efficiency developed and early actions implemented, as well as a new framework of support for energy innovation.

2022

A new national delivery scheme procured, to replace the existing Warmer Homes Scotland contract.

2023

Subject to the passage of the Heat Networks (Scotland) Bill, district and communal heating systems become regulated.

Local Heat and Energy Efficiency Strategies launched across all local authorities.

Regulations introduced for all buildings to achieve a good level of energy efficiency.

Plan agreed with Scotland’s electricity network companies showing how network investment can facilitate our heat decarbonisation pathway.

2024

New Build Zero Emissions from Heat Standard.

Detailed research, demonstration and trials conducted, and updated evidence published on the integration of heat pumps into electricity networks.

2025

Zero emissions heating systems (including connections to heat networks) account for at least 50% of new systems being installed each year.

Scotland’s zero emissions heat supply chain has grown significantly, supporting highquality jobs and providing excellent service across the whole of Scotland.

Proposed regulatory framework for zero emissions heating to drive scaled-up deployment, where appropriate and subject to consultation.

2030

At least 50% of Scotland’s building stock is heated using zero emissions systems.

The actions we are taking

3.2.25 As recommended by the Committee on Climate Change (CCC), we will set out a clear, long-term vision and policy direction for heat in buildings in the Heat in Buildings Strategy. This will include a comprehensive set of policy actions out to 2025 to significantly scale up deployment of zero emissions heating and energy efficiency in Scotland. This Climate Change Plan update provides a summary of the policies and actions that will be set out in more detail in our Heat in Buildings Strategy. During 2021 we will set out the key elements of how the housing sector will drive towards net zero emissions in the context of the 20 year Housing to 2040 strategy.

3.2.26 Our early actions to 2025 will focus on increasing deployment rates of zero and low emissions heating through three broad mechanisms:

A. standards and regulation;

B. significant investment, including scaling up delivery programmes; and

C. supply chain support

3.2.27 Principles for action include:

a) taking a whole systems view;

b) protecting consumers and ensuring a just transition, including supporting continued progress towards meeting our targets on fuel poverty;

c) working closely with citizens, households and businesses;

d) driving innovation to secure efficiency improvements and cost reductions;

e) exploring innovative finance and service models; and

f) using tax based incentives to drive change.

3.2.28 Key enablers will be:

• creating the conditions to secure growth of heat networks in Scotland;
• Local Heat & Energy Efficiency Strategies for all of Scotland by the end of 2023 to ensure a place-based approach; and
• working with the Heat Pump sector.

3.2.29 These key actions, principles and enablers of our approach are outlined below. The Heat in Buildings Strategy will set out in more detail how we will achieve our critical milestones.

A. Standards and regulation

3.2.30 The Heat in Buildings Strategy will update the Energy Efficient Scotland route map^[53] and will commit to putting in place standards and regulation for heat and energy efficiency, where it is within legal competence, to ensure that all buildings are energy efficient by 2035 and use zero emission heating and cooling systems by 2045.

3.2.31 We will ensure the alignment and coherence of wider policies and regulations so that these support the reduction of emissions from buildings.

3.2.32 As far as is within our legislative competence, we will put in place a new, appropriate framework by 2024-25.

3.2.33 Our initial focus for action before 2025 will be on:

1. new buildings, including introducing a standard requiring all new homes consented from 2024 to use zero emission heating;

2. introducing minimum energy efficiency standards for the domestic private rented sector;

3. introducing regulations for all buildings to achieve a good level of energy efficiency;

4. establishing a new net zero carbon standard for new public buildings; and

5. taking steps to facilitate common works in tenement buildings.

3.2.34 We will also work with social landlords to bring forward the review of the existing Energy Efficiency Standard for Social Housing (EESSH2) with a view to strengthening and realigning the standard with net zero requirements.

3.2.35 The forthcoming Heat in Buildings Strategy will set out the steps we will take to develop proposals for a future regulatory framework for zero emissions heating, to be put in place to drive very significant scaling-up in deployment and accelerated market growth from 2025, subject to the limits of the Scotland Acts.

B. Delivering significant early investment

3.2.36 We will invest £1.6 billion^[54] in heat and energy efficiency over the next Parliament. This will leverage additional UK Government funding and private household financing to deliver against our ambition to see, as a minimum, the rate of zero emissions heat installations in new and existing homes and buildings double every year out to 2025.

3.2.37 The investment will deliver against four themes:

1. Supporting those least able to pay, for example through increased funding for our Area Based Schemes and Warmer Homes Scotland and continuation of the social housing funding stream within the successor to the Low Carbon Infrastructure Transition Programme (LCITP). As running costs for zero emissions systems can in some instances be higher than current fossil fuel equivalents, we will also build in support to ensure people can continue to enjoy warm homes that are affordable to heat.

2. Investing in strategic technologies by making zero emissions heat deployment a priority funding theme in the LCITP successor programme, supporting communities to decarbonise their buildings (through schemes such as CARES, including dedicated support for islands and our most remote communities).

3. Showcasing Net Zero Leadership through early adoption by providing support for decarbonisation of the public sector estate, maximising spend through domestic and small and medium-sized business cashback schemes, and developing a new support programme for the self-funded.

4. Innovation and demonstration: we will promote learning by doing, support technology and business model innovation and maintain innovation and demonstration as a priority theme within the LCITP successor programme. Furthermore, we will support demonstration in strategic areas such as electrification and hybrid systems, and in the more challenging aspects of decarbonisation such as multi-tenure buildings.

3.2.38 Investment commitments include:

1. £50 million Green Recovery Funding Invitation to support low carbon and zero emissions heat projects in Scotland (already in progress);

2. up to £95 million for heat decarbonisation and energy efficiency of the public estate;

3. £25 million to support zero carbon energy infrastructure and heat networks for residential and commercial premises in the Clyde Mission region^[55];

4. up to £4.5 million over the next six months in a cashback scheme for households, providing 75% cashback for zero emissions heating and 40% for domestic energy efficiency measures, with a total of £13,500 available per home;

5. boosted and strengthened Energy Efficient Scotland delivery schemes to stimulate even greater take up of energy efficiency measures across homes and non-domestic buildings^[56] and a new commitment to increase zero emissions heating installations; and

6. continued support for affordable housing providers who wish to install zero emissions heating supply ahead of regulatory requirements in 2024, through our Affordable Housing Supply Programme.

3.2.39 We will use our investment to leverage additional UK Government and private investment and target deployment at no and low regret priorities in order to grow the customer base, raise awareness and support supply chain development.

3.2.40 We will:

• increase our support for community low and zero emissions heat projects through our flagship CARES programme; and
• publish a Local Energy Policy Statement which will be underpinned by a set of key principles we wish to see adopted, to ensure a just, inclusive energy transition, that has people at its centre, supported by strong partnership working and collaboration at a local level.

Protecting consumers and ensuring a just transition

3.2.41 We will establish clear principles to underpin our commitment to no one being left behind, ensuring our approach neither increases the fuel poverty rate nor increases the depth of existing fuel poverty. This will include a boosted commitment to effective design and targeting of our fuel poverty and heat in buildings programmes to ensure we manage the heat transition in a way that does not exacerbate fuel poverty, with policies that build in excellent consumer care and boosted collaboration with energy retailers to ensure a good deal for consumers^[57].

3.2.42 While our funding programme for 2021-22 is clear, we will consult in our Heat in Buildings Strategy on specific investment options for our programme over the following four years where it significantly ramps up.

3.2.43 We will design future delivery programmes to ensure significantly accelerated retrofit of buildings, with new programmes to be in place from 2025 in order to secure long term delivery against the 2030 and 2040 targets. We will ensure housing makes its full contribution to our national target of net zero emissions by 2045 by signalling our long-term objectives in Housing to 2040.

C. Supporting supply chain growth

3.2.44 Supply chain growth is essential ahead of the mass-rollout of zero and low emissions heating systems commencing in the mid-2020s.

3.2.45 In the coming 12 months, we will rapidly build a more detailed understanding of the potential for supply chain growth in order to target support effectively and start to ramp up skills requirements and support for colleges.

3.2.46 Specifically we will:

1. Develop a Supply Chain Strategy for energy efficiency and heat decarbonisation in partnership with the enterprise agencies, and including a specific Islands component. This will set out a range of wider actions to support supply chain growth and preparedness ahead of mass-rollout from the middle of the decade.

2. Continue to work closely with Skills Development Scotland to develop the construction sector element of the Climate Emergency Skills Action Plan (CESAP) for energy efficiency and zero emissions heat.

3. Deliver on actions in the CESAP relating to the heat transition, including investment in Scottish Colleges, and the skills development opportunities supported by our recent green recovery announcements, including the National Transition Training Fund, Youth Guarantee and Green Jobs Fund.

4. Set out new skills requirements for installers, designers and retrofit co-ordinators in a Skills Plan for consultation under the CESAP. This will cover: adoption of the installer skills matrix, developed by sector skills bodies and industry, and its integration into PAS 2030 and Microgeneration Certification Scheme (MCS) installer standards; and development of qualifications for other roles in PAS 2035 wider retrofit standards where no qualifications currently exist in Scotland.

5. Provide increased support for Scottish colleges for training and retraining for jobs in the energy efficiency and zero emissions heating sectors, including capital investment for colleges to buy equipment.

6. Bring forward and support demonstrator projects, particularly those testing: hybrids and high temperature heat pumps; the use of hydrogen for space and water heating; projects to understand the impact of heat transition on existing energy networks.

7. Work with stakeholders to develop an approach to making Scotland a leader in net zero carbon housing. We will build on lessons learned from the ‘Edinburgh Home Demonstrator’ project, which is developing a new business model for affordable housing and using it to build c. 1,000 homes to net zero standards across the Edinburgh City Region.

8. By the end of 2021, we will publish a new Scottish energy technology innovation framework, setting out new support for innovation in heat generation, storage and supply, as well as innovative methods for improving building energy efficiency.

Our approach

a) Taking a whole systems view

3.2.47 The energy system as a whole needs to be readied to support the delivery of an increasing proportion of electrical heat, and to ensure zero emission heating systems are ‘smart’ and can enable system flexibility. We are ensuring a whole system approach through our boosted work with Ofgem and electricity network companies. This work will provide a well-developed evidence base to support network planning, ensuring that we have the networks needed to link electric heating in our buildings to wind farms and other sources of renewable electricity across Scotland.

3.2.48 This includes:

1. the trial and demonstration of the integration of zero emission heating into the electricity system, including through the use of storage and demand management, to better understand the capacity and upgrades required; and,

2. a new Heat Electrification Strategic Partnership to ensure that the Scottish Government can work closely with the electricity network sector to deliver the network capacity needed in the right places across Scotland.

b) Protecting consumers and ensuring a just transition

3.2.49 We will establish clear principles to underpin our commitment to a just transition, ensuring our approach neither increases the fuel poverty rate nor increases the depth of existing fuel poverty. This includes a boosted commitment to effective design and targeting of our fuel poverty and heat in buildings programmes to ensure we manage the heat transition in a way that does not exacerbate fuel poverty, with policies that build in excellent consumer care and boosted collaboration with energy retailers, ensuring a good deal for consumers^[58].

3.2.50 Specifically, we will:

1. Continue delivery of energy efficiency investment to support fuel poor households. This will help remove poor energy efficiency as a driver of fuel poverty by making homes warmer and cheaper to heat by reducing demand. It will be vital that the UK Government acts to reform the system of levies and charges on consumer bills, and promotes innovation in tariffs to remove the disproportionate burden these place on low income consumers.

2. Increase the number of zero emission heating measures funded through our fuel poverty programmes, targeting households who can benefit most from decarbonisation, avoiding those where there is a risk of detrimental outcome, and providing uplifted support where necessary to secure fuel poverty objectives.

3. Work with energy retailers to encourage them to: offer tariffs suitable for zero emission heat; to ensure that households are on tariffs suitable for their individual circumstances; and ensure that vulnerable consumers moving to zero emission heat are appropriately identified in network operators’ vulnerable customer strategies.

4. Increase Scottish Government programme support for microgeneration (solar/thermal PV) and storage systems, to support households to make maximum use of self-generated electricity.

5. Enable the installation of smart enabled zero emissions heating systems (and funding of these through Scottish Government programmes) to ensure fuel poor households can take advantage of the potential cost savings from heat pumps working in combination with dynamic energy tariffs. This will require considerable awareness raising and consent.

3.2.51 We will also urge the UK Government to:

• rebalance environmental and social obligation costs on energy bills to make gas and electric systems relatively more cost comparable; and
• increase levy funding for social obligations and make changes to how costs are charged to low income and fuel poor households with higher energy costs, to ensure that progress is maintained in reducing fuel poverty.

Case Study: Warmer Homes Scotland

Warmer Homes Scotland (WHS) is the Scottish Government’s national fuel poverty scheme. It is focused on the installation of energy efficiency and microgeneration measures to improve the energy efficiency, warmth and comfort of properties occupied by those living in or at risk of fuel poverty. Since the scheme was launched in September 2015, it has helped more than 20,000 fuel poor households across Scotland become warmer and healthier in their homes, in addition to saving an average of £300 per year on their energy bills. Warmer Homes Scotland includes an Employment and Skills Action Plan, with targets for job creation, apprenticeships, training and skills. The scheme invests in young people and apprentices across engineering, plumbing, electrical, construction and business administration skills and, as of October 2020, has supported 2,859 jobs and training opportunities.

c) Working with citizens, households and businesses

3.2.52 We will build public support for the heat transition through extensive and sustained engagement with individuals, communities and businesses across Scotland. The Scottish Government’s Draft Public Engagement Strategy for Climate Change, published alongside this Plan update, will raise awareness of the ways emissions from buildings can be reduced and secure buy-in to the long-term changes that are required.

3.2.53 Specifically, we will:

1. open up public dialogue and engagement on the heat transition, including through a commitment to develop and implement a Public Engagement Strategy on the heat transition with extensive and sustained engagement with individuals, communities and businesses across Scotland;

2. develop our digital communications and maximise the impact of our advice and support schemes to build public awareness and understanding of heat decarbonisation and energy efficiency solutions;

3. build public engagement into our demonstration projects;

4. use the development of Local Heat and Energy Efficiency Strategies across all local authorities in Scotland as an opportunity to ensure extensive community engagement on local heat decarbonisation choices; and,

5. increase our support for community low and zero emissions heat projects through our flagship CARES programme.

d) Driving innovation

3.2.54 Our support for innovation in heat generation, storage and supply, as well as innovative methods for improving building energy efficiency will drive significant emissions reductions.

3.2.55 Actions will include:

1. the development of a new framework of support for energy innovation with a strong focus on low carbon heat; and

2. support for demonstration projects, such as SGN’s H100 hydrogen project.

e) Support innovative finance and service models

3.2.56 Innovations in finance and heat supply services can leverage and secure low cost financing for zero emissions heat and energy efficiency investment. In this Climate Change Plan update, we are announcing a new commitment to support innovative approaches with a view to these models being deployed from 2025, if appropriate and consistent with the developing wider UK market framework.

3.2.57 There is significant interest and capital available across the private sector to invest in decarbonisation. However, a known barrier to investment relates to the currently low (although growing) demand from building owners for investing in energy efficiency and heat decarbonisation measures. We will continue to promote demand growth through sustained signalling to the market, utilising ongoing capital incentives and support programmes, as well as committing to a phased regulatory framework across the domestic and non-domestic sectors. This will provide certainty to private investors around long term returns on their investments, as well as demand for finance. The risk and cost of lending should therefore reduce, and the demand for the private (including household) finance increase.

3.2.58 Specifically, we will:

1. Establish a short life working group on finance for the heat transition to consider and provide recommendations on options, including: the use of guarantees with financing institutions to support de-risking of lending, such as guarantees for mortgage top-ups; co-investment funds with private sector institutions that focus on heat decarbonisation investment; potential development of ‘heat as a service’ business models that promote private sector investment in the supply chain; collaboration and partnership with the private sector and Scottish National Investment Bank to invest long term, patient capital in key strategic projects; and longer term financing options such as green bonds, public-private partnerships and regulated asset base models of financing.

2. Pilot innovative financing approaches that provide additional support for de-risking of institutionally-provided finance, and therefore promote and support early stage ‘crowding in’ of low cost private sector capital.

3. Commit to taking the recommendations from the working group forward for deployment from 2023 if appropriate and consistent with the developing wider UK market framework.

f) Tax based incentives to drive change

3.2.59 We will consider how our local tax powers, such as council tax and non-domestic rates, could be used to incentivise or encourage the retrofit of buildings. We will commission further analysis to identify potential options, to be implemented from the middle of the decade where appropriate, subject to consultation and public engagement.

Enablers

Creating the conditions to secure growth of Heat Networks in Scotland

3.2.60 Key enablers for the growth of heat networks in Scotland will be the passing of our Heat Networks (Scotland) Bill, the planning system, and the roll out of Local Heat and Energy Efficiency Strategies.

3.2.61 Specifically:

1. Once passed, we will work with local authorities and developers to implement the provisions of the Heat Networks (Scotland) Bill by 2023^[59].This will see the creation of zones suitable for heat networks, within which networks can be developed with assurances over demand, alongside continuing and strengthening the support available to support local authorities and private investors to bring forward projects for investment.

2. Where there is new development, including where infrastructure is required, our planning system will support the heat transition. Heat Network Zoning and development planning will need to work together.

3. Through National Planning Framework 4 we will ensure that local development plans take account of where a Heat Network Zone has been identified.

4. We are also exploring how stronger planning policies can help to ensure that future developments connect to heat networks.

5. We will decide whether to extend Permitted Development Rights (that remove the need to apply for planning permission) for zero-emission heat networks and micro-renewable technologies.

Local Heat & Energy Efficiency Strategies for all of Scotland by the end of 2023

3.2.62 These local strategies will identify zones for different preferred heat solutions, to guide building owner decision-making about replacement heating systems, and forming the basis for local delivery plans targeting heat and energy efficiency investment. We are boosting our action by providing a structured methodology for developing Strategies in early 2021, and will consider how to introduce new zoning powers to enable phased action to support regulatory standards, which will be set out in more detail in the Heat in Buildings Strategy.

Working with the Heat Pump sector

3.2.63 We have established a new expert advisory group to make recommendations to Scottish Ministers on the scope of a potential heat pump sector deal for Scotland. The deal will forge an important partnership between the Scottish Government and industry on sector-specific issues, creating opportunities to boost deployment, employment, innovation and skills. The expert advisory group will report in 2021 and we will respond to its recommendations by Q1 2022.

Our call to others

The UK Government

3.2.64 As set out by the CCC in their 2020 Progress Report, Scotland’s success in decarbonising heat is contingent upon urgent action from the UK Government.

3.2.65 We continue to urge UK Government to provide clarity on the steps it will take to ensure rapid gas grid decarbonisation, and we call on the UK Government to address the imbalance in pricing for electricity and gas, to better incentivise the deployment of zero emissions heating technologies.

3.2.66 Whilst recent announcements are a welcome step, the UK Government must significantly increase investment in innovation and research and development, and scale-up its investment in place-based demonstrators for zero emissions heating, including enhanced support for hydrogen demonstration and targeted support for heat pump deployment. We will continue to press the UK Government to amend Ofgem’s remit to require the regulator to work to deliver on statutory climate change targets, including those of the Scottish Parliament, in order to secure the investment that is urgently needed in our energy networks.

3.2.67 To protect consumers, we need a UK-wide legislative framework that is fit to deal with the scale of installations required to decarbonise buildings, protecting customers from unscrupulous installers or poor quality work.

3.2.68 We have identified a number of barriers to action to decarbonise heating. To address these, we call on the UK Government to:

1. address the imbalance in pricing for electricity and gas, to better incentivise deployment of zero emissions heating technologies;

2. accelerate decisions on the future of the gas network and commit to an expanded programme of demonstration for hydrogen and further funding for carbon capture and storage;

3. amend the Gas Safety Management Regulations 1996 to enable increased blending of green gas in the gas network. This will support transitional steps, such as blends of hydrogen, for decarbonising the gas network;

4. extend and expand forthcoming GB-wide schemes such as the Green Gas Support scheme and the Clean Homes Grant to be able to flexibly take account of regional differences and the needs of a wide range of households, businesses and building types;

5. develop improved product standards, for example requiring gas boilers to be hydrogen-ready;

6. ensure UK primary legislation for heat networks creates powers for the Scottish Government to appoint a regulator to enforce consumer protection requirements in Scotland; and

7. amend the VAT regime so that all energy efficiency and low emissions/zero emissions heat retrofit receives the 5% reduced rate.

Scottish public sector organisations

3.2.69 Public sector organisations can set a strong example of climate action, and we will support them to take steps to reduce emissions. Our fund of at least £95 million for heat decarbonisation and energy efficiency of the public estate will support improvements in energy efficiency, as well as the replacement of existing heating systems with low carbon or renewable alternatives.

3.2.70 We will work collaboratively with the public sector to implement a net zero new public sector buildings standard. In alignment with this standard, public sector organisations procuring new buildings should ensure that they are highly energy efficient and that heating is provided using renewable or low carbon systems. Building on the Non-Domestic Energy Efficiency Procurement Framework^[60], we will work collaboratively with partners to facilitate uptake of zero emission heat solutions across the public sector building stock.

Scottish businesses and industry

3.2.71 Currently, 50% of non-domestic buildings use zero emissions heat. We need more than half of the remaining stock to transition by 2030.

3.2.72 We will support Scottish businesses to take measures to improve the energy efficiency of non-domestic buildings, and to replace existing heating systems with low carbon or renewable alternatives. We will provide enhanced advice and support to businesses through existing programmes such the Energy Efficiency Business Support scheme.

3.2.73 To meet anticipated demand, Scottish businesses involved in the low carbon and energy efficiency supply chain will need to scale up the manufacture and deployment of energy efficiency measures and renewable or low carbon heating systems, as well as investing in the skills and workforce needed to maintain and operate these systems. The rate of acceleration required is somewhere between 40% and 50% year on year for some technologies such as heat pumps.

Individuals/households

3.2.74 CCC research estimates that over 60% of emissions reductions to meet net zero will be predicated on some kind of individual or societal behavioural change. In the buildings sector, higher impact savings from behavioural changes are needed, driven by increased engagement with the public on emissions reduction, particularly due to low levels of awareness and understanding of the connection between buildings and climate change.

3.2.75 We will:

• set out clear messages and support for all building owners and tenants on what delivering a net zero emissions buildings sector by 2045 will mean for them;
• provide enhanced advice and support to households through existing programmes such as Home Energy Scotland; and
• continue to ensure that our programmes particularly support the most vulnerable in society and households in fuel poverty.

3.2.76 The step-change required to meet these emissions reduction targets will see a significant increase in the assessment and improvement of homes, and with this the requirement for robust quality assurance and consumer protection. Clear and effective advice, information and complaints mechanisms are being developed as part of our quality assurance and consumer protection provisions within Energy Efficient Scotland and the Heat Networks Bill.

International engagement

3.2.77 The Scottish Government believes strongly in international collaboration and knowledge-sharing: we have already forged a strong partnership with the Danish Government to benchmark our approach on heat and energy efficiency against best practice, with a focus on regulation and deployment of heat networks; and we are active members of the Advisory Council of the European Energy Efficient Mortgages Initiative.

3.2.78 We were one of the first governments to sign the World Green Buildings Council’s Net Zero Carbon Buildings Commitment in 2018^[61]; our proposed approach to regulate to require new buildings to use zero or low emissions heat from 2024 is an important step in realising this commitment.