A significant impediment to achieving our net zero targets and decarbonising our homes is a lack of certainty about the way forward. On the consumer side, there are concerns about making considerable investments in a potentially unreliable and expensive piece of new technology while, on the business side, the immaturity of the market for heat pumps creates a ‘wait and see’ attitude among potential investors. 

To a certain extent, the prevailing mood of ‘net zero uncertainty’ is appropriate given policymakers themselves are often conflicted about exactly how (or if) to legislate clean heat solutions across Scotland’s housing stock. Combine this with a patchy history of heat pump installations over the last decade – with some homeowners having been sold undersized heat pumps, fitted with the wrong kind of radiators or misinformed about how to run their systems – and, perhaps, consumer scepticism is not entirely unfounded.

Despite the rocky road to net zero travelled so far, 2024 is not 2015 let alone 2010. Over the past fifteen years, heat pump technology and, more importantly, system design knowledge have advanced considerably. Today, experienced heat pump installers know how to make a heat pump heat any home (regardless of the home’s size, style, age or condition), while policymakers know how much installing a heat pump is expected to cost the average homeowner and what the running cost implications are depending on how draughty the home is. What remains is for the government to bring all of this hard-earned understanding together under one policy framework and engage in a meaningful way with business to break through what can only be described as (heat pump) market failure.

The Scottish government’s New Build Heat Standard, which mandates all new homes use ‘clean heat systems,’ is the first example of such a framework for net zero certainty. This clear step forward ensures a market for around 20,000 heat pumps in the next 12 months which, in turn, generates immediate demand for units, installers, and engineers. This kind of market clarity alleviates investment risk and fortifies supply chains while, simultaneously, fostering consumer confidence by introducing thousands of new ‘heat pump enjoyers’ into the population each year.

To capitalise on this progress, policymakers need to address the decarbonisation of the existing housing stock with the same commitment and clarity. The Heat in Buildings Standard legislation, presently making its way through Parliament, is designed for just this purpose. As early as 2028, it could be mandated that gas and oil boilers will need to be replaced with heat pumps (or equivalent). Aside from the unhelpful prospect of having these red lines pushed out to 2045, several key components are missing from the strategy. Fundamentally, these relate to funding. 

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It is not at all clear what borrowing, subsidy, or scheme arrangements are intended to support these obligations between now and 2028. In practice, the vast majority of homeowners will require a way to access capital, otherwise they simply cannot make the change. Furthermore, consumers need clear advice on the trade-off between capital investment in heat pump systems and associated fabric upgrades (CapEx), and the running cost implications of their decision (OpEx). Put crudely, the more you spend when you install your heat pump the less you spend on heating your home – while, conversely, money saved on bigger radiators, draughtproofing or insulation may increase your running costs into the future.

One way to build consensus around the road to net zero is to put all our cards on the table, offer transparency around the costs, and allow consumers to send signals to the market about their interests and demands. The more we avoid the hard conversation about material realities, the longer we wait for market-based solutions. To start, we have to admit we live in an unequal society composed of people with various capacities to contribute to our net zero future. The most primitive division is into those that ‘can pay,’ those that ‘can contribute,’ and those that ‘require funding.’ It makes no sense for the government to subsidise the net zero journey for those with means while expecting those without funds to invest in new heating systems.

The Herald: Dr Nicholas Harrington says one way to build consensus around the road to net zero is to put all our cards on the tableDr Nicholas Harrington says one way to build consensus around the road to net zero is to put all our cards on the table (Image: University of Glasgow)

New financial products as well as government-backed low (or zero) interest loans may need to be established. This is where effective dialogue between the public and private sectors is required. Financial institutions will only take on these new forms of risk if they are supported by the state, while the state needs to limit their products to homeowners that can’t be serviced by the market. Those who can pay for clean heat technologies should be able to shop between various ‘green loans,’ home equity drawdowns, or reverse mortgages. Those who can contribute should be able to access government loans. And those that require funding should be brought along the net zero journey without being exposed to additional financial burden. There may also be a consumer protection role for the state in capping the interest and terms that can be charged on lines of credit designed to facilitate the common good.

The Scottish Government’s mandate on new homes was the perfect first step towards establishing certainty on the road to net zero. It’s important to recognise, however, that this was relatively straightforward since the difference for a developer between installing a heat pump or a gas boiler is negligible in the context of the overall scheme. What is far more challenging is building consensus around how to motivate the owners of the other 2.7 million homes in Scotland, given the relative cost implications of their decision is far, far higher.

The sooner the government can provide clear guidance on what borrowing, subsidy, or scheme arrangements are intended to support our clean heat obligations, the sooner the private sector can go to work filling the gap, innovating and responding to consumer signals. Consumers, however, can only start sending signals when they have a fair idea of what things will cost and what their options are. As is often the case, the responsibility to correct our present (heat pump) market failure falls on policymakers.

Dr Nicholas Harrington is involved in research investigating the decarbonisation of the UK's domestic heating with the UK Collaborative Centre for Housing Evidence (CaCHE).