Are net-zero targets affordable?

As “the year of net zero” continues and emissions reduction targets are set, how much are you prepared to pay to turn the world green?

| 5 min read

Clearly, there is only one direction of travel in the climate-change debate. Emissions will be cut, and tough targets will be set. But the spiralling cost of creating net-zero emission economies by 2050 is likely to be a drag on these targets, especially when it comes to personal consumer decisions.

Emissions associated with heating domestic and non-domestic buildings (excluding industry) were responsible for 23% of the UK’s emissions in 2016, according to the Department for Business, Energy & Industrial Strategy (BEIS). Natural gas has been the predominant fuel used to heat the UK building stock, but if the government’s target of net-zero greenhouse gas emissions by 2050 is to be achieved, this needs to change. Fast.

Heat pumps the answer?

Heat pumps offer great hope for domestic buildings, but the major challenge is persuading homeowners to install one in the first place. Of course, there are alternatives and heat pumps will only part of the mix, but the Committee on Climate Change (CCC) modelled heat pump deployment under a pathway where the UK reaches net zero carbon emissions by 2050. It concluded that 19 million heat pumps would need to be deployed in existing homes, excluding new build, by 2050.

The CCC has calculated that Britain will need to ramp up to an annual installation rate of 1,149,000 heat pumps by 2030 to meet its emissions commitments and the government committed in its ten-point Green Industrial Plan to install 600,000 heat pumps a year by 2028.

Approximately 240,000 heat pumps are operational in the UK right now, miniscule when compared with 26 million fossil-fuel boilers already installed. They represent less than 1% of all heating systems across the country. That’s because they are expensive.

Air source heat pumps are priced between £7,000 and £14,000 while ground source heat pumps, which get heat from holes drilled into the ground, cost from £15,000 to £35,000. Costs are high because of the limited number of trained installers. Here lies the main problem that needs to be solved. Consumers are reticent to buy heat pumps because they are more expensive than their traditional boilers, but prices won’t come down to make them affordable until volumes are sufficient for mass production to bring down prices. Governments will have to force people into spending money or taxpayers will have to foot the bill.

A similar situation is seen in the automotive sector, with Germany needing to solve this conundrum fast. Consumers are holding off on purchasing new vehicles as they are unsure about the new technology and it costs too much. This means carmakers are starved of the cashflows they need to invest in R&D and retool into the electric-vehicle world.

Skills needed

The UK also needs to make significant investment in its skills base. Boilers and heat pumps are technologically different although they are manufactured from similar raw materials. The heat pump industry supported around 2,000 full-time jobs in the UK in 2019, who built, installed and maintained heat pumps. So, there is also a significant retraining needed. The main area where there is a definite skills gap in the UK is dealing with refrigerant gas in the production process.

There will also have to be massive investment in the supply chain, as a majority of heat pump components are currently sourced from outside the UK. Nevertheless, manufacturers have emphasised that they will be able to respond to any demand dynamics.

Another challenge is that the UK generally has poorly-insulated buildings and a changeable climate, which means heat pumps used in other countries are not strictly compatible with UK properties. To use imported heat pumps will need improved standards for insulation and airtightness. There will need to be a lot of expensive retrofitting going on.

BEIS wants heat pumps better optimised to the UK climate without the need for such new building standards – even in buildings where “improvements in retrofitting insulation and improved airtightness are more challenging”. Manufacturers say this is possible, but higher sales volumes would be required to make the necessary product development worthwhile. This is now a familiar conundrum.

Alternatives are possible

At the end of May, the government announced £44m of funding announced to address “the urgent need to reduce the carbon footprint of heating homes and workspaces which makes up almost a third of all UK carbon emissions”. Of this, £30m was earmarked to fund three heat-network projects providing low carbon energy in Bexley, Manchester and Cambridgeshire.

Boris Johnson’s government is expected to reveal shortly plans to force homeowners to replace their conventional gas boilers with greener alternatives when they sell their property – or carry out significant renovations to ensure their heating systems comply with tougher new environmental standards. A consultation on the best way to implement this is also expected to be launched soon, but it looks like most of the cost will be forced onto homeowners.

So, when world leaders stand shoulder-to-shoulder this weekend trumpeting their bold environmental targets, these will be paid for by us all. It is highly likely that, a decade hence, we may need a bonfire of the long-term targets. Otherwise, it may mean a significant rise in costs extracted from Joe Public as politicians attempt to meet targets that might not be achievable anyway.

A version of this article first appeared in the Daily Telegraph.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Are net-zero targets affordable?

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