Tuesday, 25 October 2016

How can we ramp up conversion to heat pumps?

The CCC recommends we need 2.3 million domestic heat pump
installations by 2030. At the current rate of 450/month by 2030
we will have 108,600 - just 5% of that target.
The Committee on Climate Change (CCC) recommends that to achieve our 2050 carbon targets we need the vast majority of homes to use heat pumps fuelled by low carbon electricity - and to get there in time we need to start ramping up the supply chain now. CCC says we need at least 2.3 million heat pump installations by 2030 [1]. Based on RHI statistics we currently have about 33,000, and there are 450 new installations a month [2]. At this rate, by 2030 we will have 110,000 - only a small fraction of the number we need. Of course heat pumps are only one technology that we need to ramp up - there are lots of others and they all need some kind of price support. The Renewable Heat Incentive was supposed to provide this for heat pumps but it isn't working. It seems to me that we need a carbon tax.

When it comes to large ticket items like heating, people tend to choose on the basis of cost and at the moment heat pumps are more expensive than gas central heating. The running costs are comparable - very roughly gas is a third the cost of electricity and heat pumps are three times as efficient. However, a typical replacement gas boiler will set you back £2300 whereas an air source heat pump will cost £7,000 to £11,000 [3].

Fuel prices indexed to 2010, from [4]
The Renewable Heat Incentive (RHI) is supposed to promote low carbon heating by subsidising the extra cost but it is aimed at households off the gas grid. There are about 4 million households like this, mostly using electricity, bottled gas or oil. These fuels are more expensive than gas so there are savings in moving to a heat pump which offset some of these capital costs. When the RHI was extended to domestic heating in April 2014 the tariffs were set accordingly. Since then, for homes using electricity, the prices have stayed level but for homes on oil or LPG, the oil price has about halved - while the RHI has gone up by just 3% [4]. This means oil is now considerably cheaper relative to heat pumps and discourages people currently on oil from switching. (Though it can still be a good deal, especially if you would have had to replace your oil tank as well.)

The CCC's scenario is based on steadily increasing fossil fuel prices but history tells a different story. The price of oil has been particularly volatile. Assuming the world as a whole meets the Paris commitments demand for fossil fuels will drop further, which surely means prices will drop too. This makes reliance on wholesale prices to drive demand for low carbon heating a very bad bet.

Carbon taxes are all the rage. Across the world, 13% of emissions are covered by some kind of carbon price system [5]. In fact we already have a sort of tax,  but it only affects some users. Industrial fuel users (including power stations) pay a minimum carbon price called the Carbon Price Floor. Commercial fuel users pay the Climate Change Levy. However, domestic users are exempt from all these taxes. Increasing the carbon price floor makes heat pumps even less economic for home owners because it makes electricity more expensive but does not affect other domestic fuels!

Any kind of tax is generally unpopular, but if the money raised is redistributed fairly carbon taxes mean poorer households gain more than they lose. They use less energy (on average) so they pay less tax but they would benefit just as much, if not more (see WikiLeaks reveals that Clinton considered a carbon tax — but her campaign missed something.) Plus experience from Canada and the UK shows that carbon taxes do not harm the economy [6][7]. (See also Welfare versus Carbon Tax.)

Relying on commodity prices to drive the transition to low carbon technology will never work. Carbon taxes can work - and at the same time they can benefit the poor with no harm to the economy.

[1] Sectoral scenarios for the fifth carbon budget - technical report (Committee on Climate Change) Nov 2015
[2] RHI Deployment Data September 2016 (ONS) Sep 2016
[3] Prices from the Energy Savings Trust
[4] Quarterly energy prices (ONS) Sep 2016
[5] Continuing Momentum for Putting a Price on Carbon Pollution (The World Bank) May 2016
[6] The impact of a carbon tax on
manufacturing: evidence from microdata
(LSE Research online) 2014
[7] British Columbia's carbon tax - the evidence mounts (The Economist) 2014


  1. It's hard to think of a good reason against a carbon tax, but the political momentum just isn't there. People hear the word "tax" and automatically assume it's an extra tax and that it will cost more. Trying to float a new form of taxation is an uphill battle, even more so in the UK with its neo-lib media who are certain to shout it down as yet more green crap.

    1. That is why the Citizens Climate Lobby have been calling their scheme a 'carbon fee and dividend', avoiding the word tax. But I don't think too many people are fooled. I notice Canada is talking about a carbon price and leaving it to the states how they implement it. http://www.cbc.ca/news/politics/canada-trudeau-climate-change-1.3788825