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Decarbonisation and the Command Economy

Professor Michael Kelly, University of Cambridge

The costs of retrofitting existing domestic buildings to improve energy efficiency and reduce CO2 emissions, compared with the savings on energy bills, represent a wholly unsatisfactory return on investment from a family perspective.  A command economy would be required to make any serious inroads on the challenge as proposed by the Committee on Climate Change.

In its recent (February 2019) report, ‘UK Housing: Fit for the Future?’, the 29 million existing homes must be made low-carbon, low-energy and resilient to climate change.   This note is an abbreviated update of a study[1] I prepared subsequent to a three-year appointment as Chief Scientific Adviser to the Department for Communities and Local Government during 2006–9.   I also delivered an ‘amateur’ prospectus to the Council, University, Business and Entrepreneurial sectors of the City of Cambridge, with an estimated bill of £0.7–1 billion to retrofit the 49,000 houses and 5500 other buildings within the city boundaries to halve the net CO2 emissions.

On the basis of a presentation I made to the then Science Minister, Lord Drayson, in 2008, the Government launched a pilot ‘Retrofit for the Future’ programme, with £150,000 devoted to over 100 houses in the housing association sector.  This programme, and its outcomes[2], did not rate a mention in the recent CCC report. However, I have visited one of these, and seen a 60% (the target was 80%) reduction in CO2 emissions after the retrofit: full wall insulation, underfloor insulation, use of the newest appliances etc.  At this rate of spend, the 29 million existing homes across the UK would cost £4.3 trillion to retrofit.   If the typical energy bill of £2000 per year were to be halved, the saving would be £29 billion per year and the payback time would be 150 years!  Who would lend/invest on that basis?

In fact, the £150,000 limit was set to ensure that the end target of 80% CO2 emissions could be met[3], on the understanding that economies of scale and learning by doing would reduce the cost per household by at most 3–5-fold.  However, how much reduction in cost is required before private individuals would invest in improving the energy efficiency of their home?  This would be limited by the conditions set by lenders, and they want a payback of 3-4 years on most investments, stretching to say 7-8 years on infrastructure investments in the home.  The implied ceiling of lending of £10,000 per house goes nowhere on energy efficiency measures and would not give a 50%, let alone 80%, energy reduction.

Only if there is a Government direction to spend this scale of money on this issue will any significant inroads be made in energy reductions in existing houses. No political party would commit to this level of spend on a national retrofit programme until the need is pressing and urgent, not on a distant horizon.  There is no ducking or diving from this conclusion.

The progress since the 2010 CCC report on housing[4] is nugatory, and a third report will be rewritten again in 10 years, with similar pleas.

Michael Kelly is Prince Philip Professor of Technology (emeritus) at the University of Cambridge and a former chief scientist at the Department of Communities and Local Government.

[1] See attached slide for summary (from a 2015 presentation).

[2] Rajat Gupta, Matt Gregg, Stephen Passmore & Geoffrey Stevens:, ‘Intent and outcomes from the Retrofit for the Future programme: key lessons’,  Building Research & Information, 43:4, 435-451, 2015.  DOI: 10.1080/09613218.2015.1024042.  See .

[3] .  Note that only 3 of 45 projects, where the full data was available, actually met the 80% reduction target.