Next steps to zero carbon homes – Allowable Solutions Government response and summary of responses to the consultation July 2014 Department for Communities and Local Government © Crown copyright, 2014 Copyright in the typographical arrangement rests with the Crown. You may re-use this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, www.nationalarchives.gov.uk/doc/open- government-licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected]. This document/publication is also available on our website at www.gov.uk/dclg If you have any enquiries regarding this document/publication, email [email protected] or write to us at: Department for Communities and Local Government Eland House Bressenden Place London SW1E 5DU Telephone: 030 3444 0000 For all our latest news and updates follow us on Twitter: https://twitter.com/CommunitiesUK July 2014 ISBN: 978-1-4098-4267-5 Contents Government response ......................................................................................................... 4 About the consultation ......................................................................................................... 8 Overview of consultation responses .................................................................................. 12 Chapter 1: Fabric Energy Efficiency and Carbon Compliance ........................................... 14 Chapter 2: Design Principles for Allowable Solutions ........................................................ 16 Chapter 3: Other Delivery Options Considered .................................................................. 24 Chapter 4: Allowable Solutions Measures and Verification ................................................ 27 Chapter 5: Price Cap ......................................................................................................... 42 Chapter 6: Allowable Solutions Delivery Routes ................................................................ 50 Chapter 7: Next Steps........................................................................................................ 64 Appendix A: List of Data Tables ......................................................................................... 65 3 Government response Introduction 1. As part of the journey to zero carbon homes the Coalition Government has significantly strengthened the energy performance requirements in the Building Regulations for new homes. New homes are now required to be on average over 30% more energy efficient than before we came into office and these changes mean that consumers can save an extra £200 on average a year on their fuel bills. These changes mean that new homes in this country are already amongst the most energy efficient anywhere, but we are not stopping there and we will be implementing zero carbon homes from 2016. However, we recognise that it is not always technically feasible or cost effective to meet the zero carbon homes standard purely through measures on site. 2. So while we intend to set a more stretching minimum on-site energy performance standard for new homes from 2016, we will also put in place a cost effective and flexible mechanism to allow house builders to meet the remainder of the zero carbon target by supporting off-site carbon abatement measures termed ‘allowable solutions’. The consultation Next steps to zero carbon homes – allowable solutions1 set out proposals and sought views on key design principles, options and processes for an allowable solutions framework. 3. This report provides the summary of responses to the consultation on Next steps to zero carbon homes – allowable solutions on and is structured around seven chapters which reflect those set out in the consultation document. Each chapter includes summary qualitative analysis of the views and comments submitted for each consultation question in that chapter as well as tables showing how the different organisation types responded to the question. We have carefully considered the responses to the consultation set out in this report and will take the steps outlined below to take forward the policy. This includes bringing forward legislation, as announced in the Queen’s Speech, to enable the framework for allowable solutions. 1 The consultation on Next steps to zero carbon homes – allowable solutions can be found at https://www.gov.uk/government/consultations/next-steps-to-zero-carbon-homes-allowable-solutions 4 On site energy performance requirement for new homes from 2016 4. We intend to set an on-site energy performance requirement at a level equivalent to level 4 energy standards of the Code for Sustainable Homes (the ‘Code’). This represents an improvement on current Building Regulations’ requirements of approximately 20% across the new homes build mix. This is a challenging standard for new homes without forcing excessive cost and unrealistic levels of ambition onto house builders. 5. Industry is already taking steps to tackle that challenge through the AIMC42 project which has brought together a consortium of major house builders with the support of the Technology Strategy Board with the aim of pioneering the volume production of homes built to the level 4 energy standards of the Code. But there is still more to do and industry learning and supply chains will need to improve as currently only around 10% of new homes are built to this standard. 6. Our zero carbon homes strategy does not just stop at strengthening the Building Regulations, we want to ensure that homes are performing as we would expect. To this end we are supporting a wide piece of work with industry, being led by the Zero Carbon Hub3, to ensure that all new homes when built are actually saving the amount of energy and carbon that should be expected. The Zero Carbon Hub led work looks at closing the gap between design and as-built performance of new homes and we will consider how best to take forward its recommendations. Exemptions 7. We recognise that meeting the zero carbon homes standard represents a bigger challenge to small house builders than for larger house builders and we also need to ensure that small house builders do not face unreasonable extra costs. That is why we have announced an exemption for small sites. We intend to seek views on how an exemption could best work, ensuring it is targeted effectively and is proportionate. 2 Details of the AIMC4 project can be found at: http://www.aimc4.com/ 3 Details of the work of the Zero Carbon Hub on closing the gap between design and as-built performance can be found at: http://www.zerocarbonhub.org/ 5 Design principles and delivery model for allowable solutions 8. We intend to adhere to the design principles for allowable solutions as proposed in Chapter 2 of the consultation (paragraph 2.4). This included that house builders should be able to decide how they meet the short fall between the minimum on-site energy standard and the zero carbon requirement, and that the framework to achieve this should provide choice and flexibility. To this end the delivery model for allowable solutions will include the 4 routes proposed in the consultation. These routes are not mutually exclusive. It may be that a house builder might want to mix and match, depending on their circumstances: i. the house builder could do more or all carbon abatement on site or through connected measures (e.g. a heat network) ii. the house builder could meet the remaining carbon abatement requirements themselves through their own off-site carbon abatement action (e.g. retrofitting existing buildings) iii. the house builder could contract with a third party to deliver the carbon abatement measures sufficient to meet the house builder’s zero carbon obligation. iv. the house builder could make a payment into a fund which then invests in carbon abatement projects sufficient to meet the house builder’s zero carbon obligation. 9. We have concluded that there should be verification and certification arrangements established for each of these delivery options. There was support for both ex-ante and ex-post verification and we will work with industry and local authorities to develop an appropriate arrangements for the verification and certification of allowable solutions. 10. Other key principles for allowable solutions are that the carbon saving should be both cost effective and additional, and we will strive to ensure that the administrative overheads are minimised whilst maintaining a robust verification and certification system. National Framework for Allowable Solutions 11. We will set out a national design framework for allowable solutions, for which there was strong support in the consultation, rather than require local authorities to set up their own local arrangements. This approach will provide for greater efficiency in delivery and total coverage of the country, better ensure consistency, and maximise the opportunities to use allowable solutions to support strategic carbon abatement schemes. The legislation we are bringing forward will provide powers to enable the framework for allowable solutions to be established through the Building Regulations. We want to give local authorities the ability to participate in allowable solutions but within the national framework, working with house builders to bring forward projects to be supported through route iii or by the fund (route iv). The 6 legislation we are bringing forward will allow for this but ultimately it will be the house builders choice as to which route he chooses and there will be a price cap established for any fund. 12. We want to provide flexibility in defining allowable solutions measures to allow for innovation and new measures to be brought forward. We will consider further a criteria based approach to identifying appropriate allowable solutions measures as opposed to a statutory list which might be set out in secondary legislation. In regard to what allowable solutions measures may be suitable we will not restrict these to carbon abatement measures in the non traded sector of the economy, and carbon abatement measures that include work to both residential and non-domestic buildings will be acceptable. We do not want to rule out or rule in specific allowable solutions measures at this point but they would need to be capable of delivering verifiable carbon savings at a cost effective price. Neither do we want to tie allowable solutions measures to specific locations. Price cap 13. We agree with the majority of consultation responses that there should be a ceiling price for allowable solutions and we therefore intend will set a ceiling price or ‘price cap’ for the fund (delivery route iv above). This will set a benchmark for the costs of allowable solutions. While we anticipate that the other delivery routes should bring forward measures at prices below the fund price cap there may be cases where a house builder may voluntarily want to support specific measures that cost more than the price cap. We therefore will not put a price cap on the other delivery routes. 14. The consultation set out 3 price cap scenarios for allowable solutions – low (£36 per tonne of carbon), central (£60 per tonne of carbon) and high (£90 per tonne of carbon). We recognise the importance of setting an appropriate price cap: too high and it could seriously stifle growth; too low and there is a risk that allowable solutions measures may not be available at or below that price and it may not drive forward innovation. The consultation brought much conjecture but no new evidence on how the different price caps may impact either on the extent to which allowable solutions measures would be brought forward or on the viability of house building. However, it is clear that house builders – who will be the consumers of allowable solutions – have strong concerns about potential costs and the impact on house building. We will therefore undertake further analysis on these impacts before a decision on the price cap is made. 15. There was strong support for reviewing the price cap every 3 year and we agree that provides an appropriate interval for review and we will take that forward. 7 About the consultation 16. The Department for Communities and Local Government (DCLG) issued the consultation ‘Next steps to zero carbon homes – Allowable Solutions’ on 6 August 2013, the consultation closed on 15 October 2013. Allowable Solutions are carbon abatement measures that house builders may support to offset carbon emissions from the new homes they build. The scope of the consultation was to set out, seek views and gather further evidence on the key principles, price cap and processes for the delivery of Allowable Solutions. The intention is to provide an Allowable Solutions framework that provides a flexible and cost effective means for house builders to meet the zero carbon homes standard that the government intends to implement from 2016. The consultation was divided into 6 chapters. Chapter 1 – Fabric energy efficiency and carbon compliance 17. Chapter 1 of the consultation explained that fabric energy efficiency and carbon compliance levels will set a minimum threshold for onsite energy performance measures for 2016. Although the government cannot anticipate the final detailed energy performance requirements for 2016, which will be subject to full consultation in due course, the consultation sought views on whether the government should base its consideration for the requirements on fabric energy efficiency and carbon compliance standards recommended by the Zero Carbon Hub’s independent report in 20114. It also asked whether respondents had any evidence which could be used to review the assumptions underpinning the Zero Carbon Hub’s recommendations. Chapter 2 – Design principles for Allowable Solutions 18. Chapter 2 explained the basic approach and objectives for Allowable Solutions and proposed a set of five basic design principles: • that the house builders should be able to decide how to mitigate the carbon emissions arising from regulated energy;5 4 http://www.zerocarbonhub.org/resourcefiles/ZeroCarbonStrategies_web.pdf; http://www.zerocarbonhub.org/building.aspx?page=2; http://www.zerocarbonhub.org/definition.aspx?page=8 5 Regulated energy may derive from sources such as fixed heating, hot water, ventilation and fixed lighting and other fixed building services. It does not, however, include appliances such as white goods. 8 • Allowable Solutions framework should give the house builders choice and flexibility • the carbon savings from Allowable Solutions must be additional • that Allowable Solutions should deliver cost effective carbon savings • steps are taken to minimise administration overheads. 19. Views were sought on whether or not these design principles are appropriate for the policy, and if the respondents had any other principles they would like to add. The second section of the chapter considered possible delivery routes for Allowable Solutions centred around a proposed “menu of options” which the house builders can choose from to meet the zero carbon homes standard: • more / all on-site carbon abatement; • meeting the remaining carbon abatement requirement themselves through off-site carbon abatement action – the ‘D-I-Y’ approach • contracting with a third party Allowable Solutions provider • making a payment into a fund. 20. Respondents were asked to state whether or not they agreed with a “menu” based approach and if they had any alternatives to the proposed delivery routes. Chapter 3 – Other delivery options considered 21. Chapter 3 sought views on two other options for the delivery of Allowable Solutions that the government had considered: • a “do nothing” approach, whereby there would be no national policy framework, thus leaving local authorities to take action as they see fit • a mandated local scheme, where local authorities would be required to have Allowable Solutions available for developments in their areas. 22. Respondents were asked whether or not there should be a national policy framework in place and also whether there should be a mandated local approach to Allowable Solutions. 9 Chapter 4 – Allowable Solutions measures and verification: 23. Chapter 4 set out options for determining what carbon abatement measures should be supported by Allowable Solutions. It also discussed approaches to verification to ensure that the measures supported meet the appropriate conditions. 24. Views were sought on concentrating Allowable Solutions on particular types of measure, confining Allowable Solutions to measures in the non-traded sector6, using Allowable Solutions to support measures in the traded sector and extending measures to cover domestic and non-domestic buildings. 25. The chapter also contained questions on how to verify savings from Allowable Solutions projects, and whether the verification system should include arrangements for ex ante and ex post verification. Views were also sought on how best to operate the system and the possibility of sanctions for failing to deliver the expected Allowable Solutions. Chapter 5: Price cap 26. Chapter 5 sought views on how Allowable Solutions could be priced and proposed the use of use of a price cap or ceiling. Three price cap scenarios were proposed, a low price cap (£36/tCO ), central price cap (£60/CO ), and a high price cap 2 2 (£90/tCO ). Views were sought on which level of price cap was appropriate, the 2 potential impact it could have on future development and how often it should be reviewed. Respondents were also asked to give their views on whether the level of carbon abatement to be achieved should take account of the future decarbonisation of the grid. Chapter 6 - Allowable Solutions delivery routes 27. Chapter 6 considered in more detail the “menu” of delivery routes described in chapter 2. It sought views on how the different delivery routes could operate in practice and whether the government should explore the possibility of establishing matching and/or brokerage systems for the third party contract route, to enable house builders to quickly and simply find potential Allowable Solutions projects. It also asked respondents to state their preferred delivery route and their reasons for their answer. 6 Non traded sector refers to sectors of the economy not covered by the European Union Emissions Trading Scheme. In broad terms these are emissions resulting from heat, transport, waste and agriculture. 10