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Local Government, Housing and Planning Committee

Retrofitting Housing for Net Zero - January 2022

Letter from the Minister for Zero Carbon Buildings, Active Travel and Tenants' Rights to the Convener , 11 January 2022

Retrofitting Housing for Net Zero

Thank you for your letter to the Cabinet Secretary for Net Zero, Energy and Transport on 10 December. As the issues raised in your letter relate to my portfolio, I am responding to the important issues raised by your committee ahead of its debate on 18 January 2022.

I share your sentiment that there are many issues that merit ongoing exploration. The Heat in Buildings Strategy sets out an ambitious policy package taking significant steps on the pathway to zero emissions heat. The Strategy makes clear that it is a foundation for further ongoing work that will be necessary to ensure the heat transition delivers both fairness as well as emissions reduction, and does so in a way responsive to changing circumstances. I welcome the Local Government, Housing and Planning Committee’s contribution to that endeavour.

Increasing the pace of retrofit

As your letter indicates, we must significantly increase the pace of retrofit to meet our ambitious target to reduce emissions from heat in buildings by 68% from 2020 to 2030. This reduction will make an important contribution to the economy-wide 2030 interim emissions target agreed by the Scottish Parliament in 2019. We are demonstrating leadership in this ambition, particularly in comparison with the UK Government’s plans which it estimates will reduce emissions from heat in buildings by 25-37%.

Your letter highlights suggestions from the Existing Homes Alliance regarding various purchasing and ownership models that could be used to support collective switching to zero emissions heat for neighbourhoods as a contribution to increasing the pace of retrofit. This work is welcome. Such models of coordinated change could be one route to simplifying and accelerating the pace of heat decarbonisation, particularly in neighbourhoods with common construction types. My officials have regular contact with both the EHA and Changeworks, and look forward to following up on their findings.

Communities can play an important role in planning, identifying and delivering projects on heat and energy efficiency, including the decarbonisation of community assets such as halls and community centres, or community ownership or co-ownership of communal heating solutions, such as heat networks. The Scottish Government’s flagship Community and Renewable Energy Scheme (CARES) supports such initiatives directly. Local energy projects have the potential to help local communities reduce carbon emissions, create local jobs, upskill local people, reduce energy costs and overall allow greater investment in local economies. A shift towards more localised energy solutions is a vital part of our journey to a net zero future. We recognise that innovative and integrated local energy systems cannot be realised in isolation but will develop alongside (and within) a vibrant national energy network, and that both are critical to ensuring that Scotland can transition to a net zero future by 2045 in a way that delivers secure, affordable, clean energy for our communities.

Local Heat and Energy Efficiency Strategies (LHEES) will also facilitate development of collective solutions. LHEES will set out the long-term plan for decarbonising heat in buildings and improving their energy efficiency across an entire local authority area, including identifying strategic heat decarbonisation zones, and setting out the principal measures for reducing buildings’ emissions within each zone.

Accompanying the Strategies will be LHEES Delivery Plans, which will be developed in partnership with key stakeholders, and provide a strong basis for action for local communities, government, investors, developers and wider stakeholders, pinpointing areas for targeted intervention and early, low-regrets measures. We want Local Heat and Energy Efficiency Strategies and Delivery Plans to be published for all local authority areas by the end of 2023, so that they can support area-based initiatives such as collective switching to zero emissions heat, as well as being an enabling factor in increasing the pace of retrofit more broadly.

While innovative collective models of transition may play an important role in increasing the pace of retrofit, coordination across buildings is just one of several issues we must tackle to accelerate deployment. Your letter highlights a number of areas which are also critical, which I respond to below, including: consumer awareness and confidence, access to finance and growth in supply chains.

Public awareness

Public engagement has a critical role to play as the heat transition will touch the lives of everyone in Scotland – transformational change will depend on public awareness, understanding and willingness to act. That is why, as set out in the Heat in Buildings Strategy, we are committed to developing a bespoke public engagement strategy, which will ensure delivery of an inclusive and people-centred transition. In particular, the public engagement strategy will have a focus on:

  • raising the profile of energy efficiency and zero emissions heating options so that people are aware of the benefits and begin to see them as a positive choice;
  • enabling people to actively participate in shaping the development of Scottish Government policy and incentives as well as local level heat and energy efficiency planning; and
  • raising awareness of the support and advisory services available in order to maximise uptake of the support available.

In your letter you highlight the tight timescales for upgrading buildings to zero emissions heating, and the importance of the public being aware of the changes coming. I agree. The scale and pace of change needed to reach net zero means that we must do more now to support people in making decisions regarding how they heat their homes. And consumers must have confidence and trust in the system to be able to meet their needs, both now and in the future.

A first step towards this is at a societal level – we must work to normalise the heat decarbonisation agenda across a range of audiences so that there is acceptance of the change that is necessary, and people are ready to act. To inform this work, we will build on the objectives and principles set out in our corresponding Public Engagement Strategy for Climate Change – this will further ensure consistency in approach.

On-going implementation and delivery of this strategy will become the responsibility of the upcoming dedicated National Public Energy Agency. The agency will be established as a virtual agency by September 2022, and the public awareness campaign will be one of its first priorities. The agency will scale up to become a single dedicated body by 2025.

Your letter also highlighted the importance of people feeling invested in the change. Our just transition planning framework, published in September, guides our work on planning for the net zero transition across regions and sectors. This has co-design at its heart and acknowledges that the public must be active participants in the transition. Our first just transition plan will be a refreshed Energy Strategy and Just Transition Plan this year: we are working on an approach that will actively seek out input from those liable to be impacted by the energy transition.

LHEES will also form a basis for local public engagement, awareness raising and involvement in decision making at the local level and will facilitate engagement with local communities. We are working in partnership with local government to deliver LHEES and expect that engagement across different local authority areas needs to be flexible and tailored to the local context.

Linked to our commitments on public engagement, we recognise the importance of our support schemes being easy to identify and navigate, and take seriously the issues raised in your letter, including a perception that the funding landscape presents an “alphabet soup”.
We recognise the importance of ensuring a straightforward consumer journey in Scotland to better encourage deployment of zero emissions heat. We recently made the decision to opt out of the forthcoming UK Government Boiler Upgrade Scheme in favour of boosting our existing schemes. As well as avoiding overlapping schemes that complicate consumer journeys, focussing support through Scottish delivery schemes will also allow us to tailor support to the particular needs and requirements of our communities.

The National Public Energy Agency will have a role in streamlining the process, and how it will do that will be considered as part of the development work to establish the new Agency. Some funding programme allocations are made on a competitive basis to ensure value for money and to support those projects most likely to accelerate emissions reductions and delivery wider outcomes. Other funding is provided on a region-by-region basis and our Home Energy Scotland support is available to all householders.

In the Heat in Buildings Strategy, we committed to making at least £200 million of capital funding available through the Social Housing Net Zero Heat Fund over the course of this Parlaiment. We anticipate that £40 million of capital funding will be allocated to the Social Housing Net Zero Heat Fund for heat and energy efficiency in 2022-23. The Fund no longer operates on a competitive basis. The funds remain open to applications, with grants awarded to projects meeting the criteria on a first come first served basis. Applications are assessed for eligibility quarterly.

It is clear the public sector alone cannot bear the full cost of converting homes and buildings. Alongside public investment we need innovative mechanisms to increase individual and private-sector investment into energy efficiency and zero emission heating. We are establishing a Green Heat Finance Taskforce to recommend ways the Scottish Government and private sector can collaborate to scale up investment. It will provide an interim report by March 2023 and final recommendations by September that year.

Just transition

The Heat in Buildings Strategy includes a set of principles to ensure progress on heat decarbonisation is aligned with the need to eliminate fuel poverty as far as is reasonably possible and in line with statutory targets. These principles will guide us in our delivery programmes, such that we only take forward actions where they are found to have no detrimental impact on fuel poverty rates, unless additional mitigating measures can also be put in place.
In your letter you refer to a more general principle of no detriment, “so that nobody will be worse off as a result of retrofitting their home.” The Heat in Buildings Strategy recognises that, in some instances, switching from fossil fuels to zero emissions heat can increase running costs in current market conditions.

In part this reflects policy choices made by the UK Government, which result in energy levies being recovered through electricity tariffs to a far greater extent than gas. We have consistently called on the UK Government to take action to rebalance prices, in order to make running costs for zero emissions heating comparable with fossil fuels. While the UK Net Zero Strategy offers positive signals on this issue, it lacks clarity and urgency and we continue to await publication of their full Fairness and Affordability Call for Evidence.

The Committee is right to emphasise that people should be in a warm home that is affordable to heat and which is healthy for them. However, the Committee will also be aware that this is a significant challenge as we drive progress towards fully decarbonising heat supply. At a whole-economy level, the transition to zero emissions heat supply will involve significant costs, estimated at £33 billion for homes and buildings for the entire period to 2045. We must ensure these costs are minimised (by exploiting cost efficiencies and driving cost-reducing innovation). We must also ensure these costs are distributed fairly and in a way that protects those least able to pay, in line with the principles of a just transition.

Alongside the completion of the Heat in Buildings Strategy we worked with stakeholders to develop a series of impact assessments covering equalities, Fairer Scotland duty, island communities, child rights and wellbeing and business and regulatory impacts. As we take forward the actions within the Heat in Buildings Strategy we will ensure that the issues highlighted through impact assessments are considered in the design of delivery programmes and development of further policy and regulation.

Just transition principles are embedded in our climate legislation and underpin the action we take. As referred to above, in 2022 we will consult on an Energy Strategy and Just Transition Plan. The process of developing and drafting a formal consultation document will be actively shaped by those liable to be impacted by the transition. This means exploring how the energy strategy can best support our just transition outcomes, whilst identifying potential risks and trade-offs.

Fabric first approach

The committee is correct to note that a fabric-only approach will not reduce emissions to the extent we need. As set out in the Heat in Buildings Strategy, and following advice from the Climate Change Committee, we prioritise fabric efficiency upgrades as a strategic no-regrets technology. This is because, from a whole systems perspective, ensuring all homes reach an adequate standard of energy efficiency helps reduce aggregate costs along different technology pathways.

We set out in the Shared Policy Programme agreed between the Scottish Government and Scottish Green Party that, where technically and legally feasible and cost-effective, by 2030 a large majority of buildings should achieve a good level of energy efficiency, which for homes is at least equivalent to an EPC C, with all homes meeting at least this standard by 2033. We recognise the existing EPC rating metric has some drawbacks in relation to our objectives and have recently consulted on developing an additional metric which would more directly support reductions in the demand for heat and ensure that poor energy performance is not a driver of fuel poverty.

We have also committed to bringing in regulations from 2025 requiring buildings to reach both an energy efficiency standard and a zero emissions heat standard. Given the pace at which we need to deploy zero emissions heat systems over this decade, we will be giving further consideration as to how these standards work together, and their sequencing. For example, there may be cost efficiencies arising from ‘whole house’ approaches that align the timing of energy efficiency and zero emissions heat retrofit. We will consult on our approach to regulations later in 2022.

Mixed tenure

Coordination of works in multi-owner and mixed-use buildings is an important challenge raised by your letter. We recognise that a need for common works often presents a barrier to installing energy efficiency and zero emissions heating measures in these buildings, unless property owners act together.

Local Heat and Energy Efficiency Strategies can 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.

As we set out in the Heat in Buildings Strategy, our approach to regulations may need specific provisions for such buildings to reflect their different legal status from single use or single tenure buildings. This could include properties in such buildings having longer periods in which to comply, reflecting the additional challenge of coordination. Regulations could also be triggered by area-based zoning which would align the timing of regulatory requirements across properties in a building more effectively than, for example, regulations applying at change of occupancy. We recognise that the complex coordination challenges presented for owners and occupants of these types of buildings may require more coordinated delivery models to allow whole-building or area-based retrofit. We will consult on our approach to regulation later in 2022.

Following the recommendations from the Parliamentary Working Group on Tenement Maintenance, the Scottish Law Commission (SLC) will be undertaking a Law Reform Project with a view to producing a draft Tenement Maintenance Bill. The recommendations that this law reform project will consider include the requirement of:

  • dwelling owners within tenements to organise themselves into management committees;
  • five-yearly assessments of the tenement to identify and plan for repairs and maintenance; and
  • dwelling owners to pay into a communal fund to finance repairs and maintenance as needed.
  • Since the publication of the Heat in Buildings Strategy, we have been engaging with stakeholders to discuss the key issues and challenges surrounding energy efficiency and zero emission heat systems in multi-owner or mixed-use buildings. We are establishing a Short Life Working Group which will be tasked with developing options for consultation on a regulatory approach for these buildings which would see them required to reach a good level of energy efficiency and install a zero emissions heating supply by 2040-45, and how building owners and occupants can be supported in meeting these requirements. We will reflect on the initial findings of this Working Group in our consultation on our approach to regulation during 2022.

    Rural areas

    Your letter notes concerns of increased costs and skills shortages associated with retrofitting in rural Scotland. Through CARES, up to £5.25 million has been made available this financial year to assist community groups in developing renewable energy projects, supporting the growth of community and locally owned energy in Scotland. In addition, our support will recognise the distinct challenges faced by island, rural and remote communities. We have made an additional £3 million available to support decarbonisation of Scotland’s most remote and rural off-grid communities by upgrading their energy systems, making them more energy resilient and sustainable for the future.

    We will publish an Islands Energy Strategy in 2022 setting out our approach to supporting island residents and communities to develop renewable energy solutions that can promote resilience, enhance sustainability, and meet their energy needs now and in the future. As part of this work we will review the evidence base and options for an "islands uplift" across our delivery programmes as part of our commitment to provide additional support for rural and island homes for heat and energy efficiency.

    In addition, our approach to supporting the development of a skilled workforce (below) will include specific consideration of the support needed for training and skills development, specifically for those in remote rural and island areas.

    Skilled workforce

    The Climate Emergency Skills Action Plan sets out immediate actions to support the development of skills needed to meet the climate change challenge. Through CESAP, we have established a Green Jobs Workforce Academy existing employees, and those who are facing redundancy, to assess their existing skills and undertake the necessary upskilling and reskilling they need to secure green job opportunities as they emerge.

    We have commenced a Heat in Buildings Workforce Assessment Project, working in collaboration with ClimateXChange, Skills Development Scotland and Scottish Renewables. This project will review current labour force trends across the heat and energy efficiency supply chains, and, focusing on the downstream supply chain, identify potential labour force gaps and present option for addressing those, considering entry pathways into the sector and timescales required for workforce development. The assessment will consider a wide range of skillsets, including in: building assessment, design and advisory services; insulation installation; heat pump installation and maintenance; heat network design, construction and installation; and, product and equipment manufacture.

    We are confident that the supply of zero emission heating products, and the availability of construction materials won’t be a constraint in the delivery of our ambitions. In the short term, the construction supply chain, as with the wider economy is experiencing some materials shortages. We are working with the construction sector through the Construction Leadership Forum to address the factors behind this.

    Overall, we estimate that an additional 16,400 jobs will be supported across the economy in 2030 as a result of investment in the deployment of zero emissions heat. We will work with industry to co-produce a Heat in Buildings Supply Chain Delivery Plan by summer 2022 specifically focussed on strengthening the broad supply chains needed to deliver at the pace and scale we need. Scotland has the potential to be a strategic location for the manufacture of low carbon heating products building on the strong existing base of companies located here.

    Development planning

    Your letter sets out the Committee’s view that development planning should not be in conflict with retrofitting. The draft National Planning Framework 4 has been laid in Parliament and we look forward to the Committee’s consideration of it. The draft Framework is clear that we must embrace and deliver radical change so we can tackle and adapt to climate change. It sets out a vision for more sustainable locations and types of development in Scotland to achieve net-zero, including support for energy efficient developments and homes. Beyond this, permitted development rights are already in place that would allow for external energy efficiency retrofit solutions for many buildings without the requirement to submit a planning application.

    However, an application for planning permission is required where, for example, the house is within a conservation area. Conservation areas are designated by planning authorities in order to protect the character, setting and appearance of the area. Requiring a planning application for development which would not usually require one outwith a conservation area, allows the planning authority to take these characteristics of the area into account. It should be noted that the requirement for an application for planning permission does not mean that permission will automatically be refused, indeed the vast majority of applications are approved. Within our wide reform of Scotland’s planning system, we are currently progressing a phased review of permitted development rights across a wide range of development types, and microgeneration and householder permitted development rights are part of that programme.

    Internal works to a building do not require planning permission but may require other consents.

    If a building is listed, then a separate Listed Building Consent process is required for any works which change the character and appearance of the listed building, either inside and out or both. Permitted development rights do not apply to listed buildings. The relevant local authority’s planning service is best placed to advise on what consents are required in individual cases and the information needed to assess the impact of any proposal.

    Any changes made to a historic building has to take into consideration the general principles set out in the Historic Environment Scotland – Historic Environment Policy for Scotland. There is a range of guidance available from Historic Environment Scotland to help with potential options for the installation of micro-renewables technologies, energy efficiency measures and climate change adaptations in listed buildings – all measures which can help reduce Scotland’s emissions and combat the climate emergency.

    International models

    The Scottish Government draws on a wide range of evidence, including international evidence, to inform heat and energy efficiency policies, including internal research, commissioned studies and engagement with academic and expert communities.

    The Danish and Scottish Governments signed a new memorandum of understanding (MOU) during COP26 on 8 November 2021. This MOU focusses on cooperation in the areas of decarbonisation of heating systems, district heating and energy efficiency in buildings. It builds on previously strong links between Scotland and Denmark, officials from both governments are in discussions on agreeing the work plan for 2022. The work plan is likely to include:

  • mentoring opportunities for Scottish heat networks and local councils,
  • knowledge sharing across heat networks and energy efficiency more widely, including on the development of regulatory standards,
  • participation in working groups to support the delivery of secondary legislation,
  • study tours to support learning and development of our teams as well as parliamentarians,
  • Global ABC Heat Alliance, and
  • International Heat Network Market Event in Scotland, including session on opportunities for Scottish businesses in the Danish market.
  • We continue to learn from wider international evidence and experience, including in relation to innovative policy and financing approaches to accelerating heat and energy efficiency deployment.

    UK Government

    I note that the Committee is raising the issues of VAT on retrofit work and electricity tariffs with the UK Government. This is very welcome, and is in line with the asks of the UK Government set out in the Heat in Buildings Strategy.

    Yours sincerely,

    Patrick Harvie
    Minister for Zero Carbon Buildings, Active Travel and Tenants' Rights
    Scottish Government