As Labour pares back its £28bn pledge for green investment, the Tories are debating weakening one of their own climate commitments. In recent weeks, the government has come under pressure to scrap its clean heat market mechanism (CHMM), which some have unfairly dubbed the “boiler tax”. But without this pragmatic, market-making policy – which conservative environmentalists should support – the government risks leaving a big gap in its net zero plan, which will likely need to be filled by more spending.
Domestic heating accounts for around a third of the UK’s gas usage and around a seventh of our emissions. The CHMM offers a way to enhance our energy security and decarbonise British households. It will encourage the take-up of cleaner, alternative heating methods, such as heat pumps. By running off Britain’s renewable electricity, heat pumps can reduce households’ carbon emissions by around 40 per cent. At the same time, heat pumps can help end the UK’s unhealthy reliance on gas imports, which leaves household bills at the whim of volatile international markets.
The CHMM will require boiler manufacturers to produce and install an increasing number of heat pumps as a proportion of the number of oil and gas boilers they sell. This means, for example, a manufacturer who sells 100,000 boilers in the first year of the scheme, will also need to sell and install 4,000 heat pumps. In the second year, this will rise to 6,000 heat pumps. This will only apply to large manufacturers, of over 20,000 gas boilers or 1,000 oil boilers, accounting for 99 per cent of the market.
Rather than mandating households to change their heating system, nurturing and incentivising the heat pump market in this way allows the government to set a direction of travel for industry, while ensuring manufacturers and consumers have time to adjust. It allows producers to ramp up their supply chains, rather than being required to drastically change direction overnight. Crucially, it ensures households that have just invested in a new boiler will not be forced to have them ripped out.
This mechanism opens the door to new players entering the market and gives confidence to investors, as the government sets its preferred direction for home heat decarbonisation. This competition in the market, alongside the strengthening of supply chains, will ultimately drive down the cost of heat pumps further.
The government estimates that the first two years of the scheme could result in an extra 150,000 heat pumps being installed across the country. Manufacturers who are short of the target will be able to buy credits from those who are above the target or pay a £3,000 penalty for each missing heat pump installation.
However, a small number of boiler manufacturers – instead of backing this innovative and vital technology – have voiced their strong opposition to the policy, opting to pass the £3,000 penalty on to consumers through increased gas boiler prices.
There is little justification for boiler manufacturers to increase the price to consumers, given the flexibility within the scheme and low targets in its initial years. Based on the number of boilers installed in 2022, the scheme would require around 60,000 heat pumps to be installed in the first year, and 90,000 in the second year. For context, last year, there were just over 40,000 certified heat pump installations.
Applications for the government’s £2bn boiler upgrade scheme jumped by 60 per cent after the grant was increased by 50 per cent to £7,500. This decision was only made in October last year, so the total increase in yearly sales is not yet clear. The increased grant now makes the upfront cost of a heat pump comparable, if not cheaper in some cases, than a conventional boiler. It is clear there is significant demand for cleaner home-heating systems, and thanks to the increases in the boiler upgrade scheme, the industry’s targets will be easier to reach.
But there are still more levers the government can pull to further boost heat pump demand and make the technology more financially attractive to consumers. By shifting some of the levies on energy bills, which are disproportionately applied to electricity at the moment, on to gas and into general taxes, the government could help reduce the bills associated with heat pump use.
Given the government’s target is 600,000 heat pump installations per year by 2028, there is a significant way to go to meet this. Missing the target risks not only undermining the Conservatives politically with their climate credentials, but also casts doubt over the ability of the UK to reach net zero by 2050.
The government should stand firm on implementing the CHMM, providing a market-led solution to low-carbon home-heating. In an election year, when both energy bills and climate change are front of mind for the electorate, the government has the opportunity to lead the way and tackle both.
First published by New Statesman. Sam Payne is the Conservative Environment Network's Climate Programme Manager.