Improving energy efficiency in owner occupied homes: consultation

Part 1: Setting the energy efficiency standard for owner-occupied housing

We are proposing that energy efficiency standards should be introduced for owner-occupied housing, and that they should be legally binding. In this section we describe proposals and options for:

• What those legally binding standards should be.
• When they should start operating across Scotland.
• When they should apply to an individual property or homeowner.
• How compliance should be checked and enforced.
• What valid reasons there might be for not complying or only partially complying with the standard.

In Part 2 we describe what steps a homeowner would need to take and proposals for how they can be supported and enabled to meet the standards.

1.1 What the standard should be

In the Energy Efficient Scotland Route Map^[7], published in May 2018, we proposed that the standard for domestic properties should be based on the Energy Efficiency Rating (EER) of the Energy Performance Certificate (EPC). We said that all homes should reach at least an EER of Band C, where it is technically feasible and cost effective to do.

Using the Energy Efficiency Rating as the standard would bring owner-occupied housing into line with the standards applying in private rented and social rented housing, which would help make it more easily understood across the general public and industry.

From previous consultation responses^[8] we know that there is some support for using EER, as an appropriate level and measure for the standard. Energy Performance Certificates are an established mechanism to benchmark a property's energy efficiency, and they have been required at the point of sale since 2008 as a standard part of the Home Report. You have previously told us that, while not always fully understood, EPCs are widely recognised and should be built upon.

An EPC provides information on how energy efficient a building is and how it could be improved. An EPC report contains a number of different energy and environmental related information values in addition to the Energy Efficiency Rating (EER). Examples include the Environmental Impact Rating (EIR) and a Primary Energy Indicator. In Annex A, we describe in a little more detail how EPCs work and what the different values relate to.

There are pros and cons to each of these EPC-related options for the long term standard. For example, one of the downsides of using the Energy Efficiency Rating alone as the standard is that - because of the current higher cost of many renewable fuel sources - it is possible in some cases to make the Energy Efficiency Rating worse even though the carbon emissions from the home have reduced.

Conversely, it is also possible in some situations to improve the Energy Efficiency Rating of a property while making the Environmental Impact Rating of the property worse – by changing the heating system to a high carbon heating system.

It is not the aim of these proposals to encourage such changes. Clearly, we don't want the legally-binding standard to discourage people from making greener choices and using renewable energy for their heating, where that is the right choice for their home.

But we do want to encourage a "fabric first" approach. No matter how you heat your home, improving your insulation and reducing draughts will make your home easier to heat, will mean less energy is wasted and could save you on your fuel bills.

So one option is to base the standard on the Energy Efficiency Rating of C as planned, but give an exemption to those properties which do not meet EPC C, despite having all appropriate fabric energy efficiency measures and a renewable or low carbon heating source (eg air source heat pump or district heating system) installed. Exemptions and abeyances are discussed more in section 1.5.3 below.

Another option is to require that the Environmental Impact Rating is not made worse by any works that are undertaken.

Questions:

1. Do you agree or disagree that there should be a legally-binding energy efficiency standard for owner-occupied housing?

2. Do you agree or disagree that EPC Energy Efficiency Rating band C is the appropriate standard to use? Please explain.

3. What are your views on the "fabric first" approach as described above?

1.1.1 Potential for misuse of EPCs

A concern around EPCs and their use in determining whether a regulatory standard has been met is the risk of potential misuse. There have been cases in the past involving the misuse of EPCs linked to funding of energy efficiency measures.

Currently, there are bodies who provide accreditation schemes for energy assessors producing EPCs. These bodies carry out a desk-based audit of a small percentage of lodged^[9] EPCs from their members. The audit ensures all energy assessors who are members of the accreditation scheme and who lodge an EPC, are subject to a minimum of one audit per year.

In addition to this, we need to ensure the EES programme can robustly monitor the quality of EPCs and ensure necessary safeguards are in place.

The quality assurance process outlined in section 2.2 should help homeowners to access reliable and accredited assessors but we are keen to hear views on how potential instances of EPC misuse can be mitigated.

Question:

4. In your view, how can we ensure that when EPCs are used to determine compliance with the standard, they are robust and not easily open to misuse?

1.1.2 Should the standard change over time?

Over the longer term, as a society we need to move away from fossil fuels as a source of energy. For housing, this will mean moving towards heating systems which use renewable or low carbon fuel sources rather than fossil fuels such as gas or oil. To help inform this, the Scottish Government will publish a Heat Decarbonisation Policy Statement in summer 2020, setting out the steps we will take to reduce greenhouse gas emissions from heating our buildings.

In addition, we have committed to ending Scotland's contribution to climate change by 2045 by reducing our greenhouse gas emissions to net-zero, with interim targets of 75% emissions reductions by 2030, and 90% by 2040^[10].

In the 2018 Route Map and previous consultations, we proposed that the standard for homes should remain the same at EPC C over the long term to 2040 (subject to normal changes over time in the underlying EPC methodology and data values). Many consultation respondents welcomed this approach because it is clear and helps with longer term planning.

But at the moment there are still many unknowns about how low carbon heating can be put in place across Scotland's homes and buildings, including awaited UK Government announcements on hydrogen and re-provisioning the gas network.

Action to improve energy efficiency – such as we are proposing in this consultation – can only help. Many renewable heating systems only work effectively in buildings which have a good level of energy efficiency. And reducing the amount of energy needed within a home, from whatever energy source, reduces bills and makes the future task of finding a cost-effective renewable heating system easier.

So we are seeking your views on whether the standard should be fixed at EPC Energy Efficiency Rating band C, or whether periodic review points should be built in, so that the standard can increase over time if necessary to respond to the global climate emergency, or change focus to further encourage uptake of renewable heating as technology and policy develops. As one example, the standard could be updated in the future to build in the EPC Environmental Impact Rating (EIR) as well or instead of the Energy Efficiency Rating (EER). Review points could also be used to assess progress.

If there is an update to the standard in future, a specific property would be subject to the standard in force at the time that property reached a trigger point.

Question:

5. Do you think the standard should be fixed, or should it be subject to periodic review and change over time? Please explain your view.

1.2 When the mandatory standard should come into force across Scotland

In the 2018 Route Map, we proposed introducing mandatory standards for owner occupiers from 2030. However, because of the global climate emergency and Scotland's new and even more ambitious climate change targets, we need to make faster progress. So we now propose that we should considering bringing in mandatory standards for owner occupied properties sooner than 2030.

We are proposing a start date of 2024. From that date onwards the standard would need to be met when defined trigger points are reached. These trigger points – point of sale, and potentially point of major renovation - are discussed below in section 1.3. At this point, we are not proposing a backstop date to cover properties which have not been caught by the trigger points by a certain date. But that may be considered in the future.

Projections^[11] suggest that around 190,000 homes which are currently below EPC C will experience at least one change in ownership in a five-year period, and 330,000 homes over a ten-year period. This is around 20 percent and 36 percent respectively of all the homes which are currently below EPC C.

If regulations are tied to point of turnover, these figures give an indication of the number of homes which will be subject to the regulatory requirement to meet an EPC C or improve the homes as much as is technically feasible and cost effective (discussed in section 1.5 and annex D).

We would aim to lay the necessary regulations far enough in advance to provide a significant lead-in time so that homeowners and industry would have time to prepare.

Question:

6. Do you agree or disagree that 2024 is the right start date for the mandatory standard to start operating? Please give your reasons, whether you agree or disagree.

1.3 When the standard should apply to an individual property

We propose that the main point at which a home would have to meet the standard would be when it changes ownership – at "point of sale".

We also intend to explore the idea of the standard applying if major refurbishment work is undertaken – at "point of major renovation".

How these two potential trigger points could work is described more below, and we are seeking your opinions on them.

1.3.1 Point of Sale

When a home is sold or transferred to a new owner, we propose that there would be a legal obligation on the owner to make sure the property meets the standard, as demonstrated by an Energy Performance Certificate (EPC). This would apply even if no money is exchanged for the home, such as between family members. There is already a legal obligation on a person selling a home to provide a home report which contains an energy report. The energy report will contain the EPC.

If the home being sold was not already at the standard, and the seller could not, or did not want to, upgrade it before selling, we propose that the legal obligation to meet the standard would fall on the buyer. This would have to be reflected in the conveyancing process. The buyer would then have a set time limit (say 12 months) in which to bring the home up to meet the standard, and demonstrate this by submitting a new Energy Performance Certificate. We expect that market forces would mean that the sale price and/or the property valuation would reflect the extra effort and cost for the buyer, who would have to bring the property up to the standard.

Questions:

7. Do you agree or disagree with point of sale as an appropriate trigger point for a property to meet the legally-binding standard?

8. Do you agree or disagree that responsibility for meeting the standard should pass to the buyer if the standard is not already met at point of sale, as described above? Please explain your views and give any evidence you have, whether you agree or disagree.

9. What, if any, unintended consequences do you think could happen as a result of these proposals? For example, any positive or negative effects on the house sales market.

1.3.2 Point of Major Renovation

In previous consultations, you have told us that the time when a homeowner is about to undertake a major refurbishment would be an appropriate time to apply an energy efficiency requirement. So we are exploring the possibility of making "point of major renovation" another trigger point which would apply in addition to the point of sale trigger.

A major renovation may be a sensible moment to take action on energy efficiency because disruption will be happening anyway within the property. It may also help to encourage mainstream construction trades to bring energy efficiency measures and awareness more fully into their standard skill set and range of services offered.

Clearly, what is meant by a "major renovation" would have to be carefully defined. Some of the possibilities and issues around this are set out at Annex B. We will need to explore more fully how compliance would be checked and enforced, and by whom. We are seeking your views on both these points.

We propose to consider point of major renovation further over the coming months, and are keen to hear any views that would help inform this work.

Questions:

10. Do you agree or disagree with point of major renovation as an appropriate trigger point for a property to meet the legally-binding standard?

11. What is your view on how "major renovation" should be defined? Should the Energy Performance of Buildings Directive definition, as described in Annex B, be used? Please explain.

12. How could a requirement to meet the energy efficiency standard at point of major renovation be checked and enforced? Who should be responsible for this?

1.4 How compliance with the standard should be checked and enforced

If legally-binding standards are brought in for owner occupied housing, there will need to be a way of checking compliance and making sure they are met.

We are now seeking views on how this could be done in a fair, appropriate and proportionate way.

Ideas that are under consideration include the creation of civil fines, or the use of fiscal measures, such as tax penalties or additional charges. Responses to our previous consultations have suggested that these options should be explored. Issues to consider include:

• Should the penalty for failing to comply with the standard be one-off or recurring? A fine or penalty could be charged once, or could be charged annually (at a flat rate or increasing) until either a new EPC is lodged for the property showing it has met the standard or a valid exemption ("abeyance" – see section 1.5.3) is in place.
• At what level, approximately, should any penalty be set? If it is set too low, there is a risk that it will not motivate people to comply with the standard – they would rather just pay the penalty than pay to carry out the necessary work on their property. If it is set too high, it may push people into poverty, and could also reduce their ability to take action to comply with the standard.
• Are there any particular groups of people who could be adversely affected by enforcement processes and charges? Or, on the other hand, are there any groups on whom a financial penalty would have little effect?
• Which body or bodies should check if the standard has been complied with at the trigger point, and should be responsible for levying any penalty? What might be the roles of central government, local government, conveyancing solicitors etc in this process? It is important that monitoring and enforcement is robust, and also that the costs of the system and process are proportionate.

Your feedback on these points will help to inform further work to determine the right enforcement process.

Questions:

13. What do you think would be a fair and appropriate method to ensure compliance, if the legally-binding standard is not met? What type of penalty system would be appropriate? Please explain.

14. Should a penalty for failing to comply with the standard be one-off or recurring?

15. At what level, approximately, should any penalty be set?

16. Are there any particular groups of people who could be adversely affected, more than others, by enforcement processes and charges?

17. Which body or bodies should check if the standard has been complied with at the trigger point, and should be responsible for levying any penalty?

1.5 What if a home cannot fully meet the standard?

We are proposing that all homes should reach at least Band C on the EPC Energy Efficiency Rating where that is technically feasible and cost effective to do.

In some cases, it will not be possible for a home to reach EPC C. This could be because there are not enough improvement measures which are technically suitable for that type of property, or the measures exist but are disproportionately expensive.

In principle, we believe that even if a home cannot meet the standard in full, it should be required to get as close as reasonably possible when one of the trigger points is reached. We are seeking your views on this principle. It mirrors the approach taken in the social housing sector, where homes must reach the standard or become "as energy efficient as practically possible within the limits of cost, technology and necessary consent".

1.5.1 Technical Feasibility

Work has been ongoing to create an assessment process which will give bespoke information to a homeowner about what can be done to their specific property. This assessment will help to determine what is technically feasible, and what measures would bring the property up to the standard (and beyond, if the homeowner chooses to improve their home to an even higher standard). This assessment will serve two functions – it will inform the homeowner about what can be done and it will be the basis for any decisions about whether any exemption can be granted.

A Short Life Working Group (SLWG) has been developing proposals for the assessment process, and has created a set of interim proposals. Part 2 of this document sets out more information about the assessment work, and Annex C lists the interim proposals.

1.5.2 Cost Effectiveness

We are also working on how to define "cost effectiveness". This is important because we have said that owners will only have to meet the standard to the extent that it is cost effective to do so.

The Scottish Government has provided, and continues to provide, substantial funding for energy efficiency works in the form of both loans and grants. Part 2 of this consultation describes the financial support that is currently available. Grant support is targeted on vulnerable people and those in fuel poverty.

Government will not be able to fund all the work needed to bring private homes up to the energy efficiency standard, and we have been clear that homeowners who are able to fund measures themselves will be expected to do so. Homeowners will often make ongoing savings on their fuel bills by carrying out energy efficiency measures but even so, it is important to think carefully about what financial upper limits should be placed on what homeowners are required to do, so that action taken is cost effective and proportionate.

Research has shown^[12] that there is not one specific single approach that is normally used to define the cost effectiveness of energy efficiency upgrades in buildings.

Some of the cost effectiveness options include a cost cap focusing on the overall cost of upgrading a dwelling. This is the approach that is being taken for the first phase of regulations in private rented housing, which come into force from April 2020. Landlords will be expected to pay up to a maximum of £5,000 to upgrade each property they let out, for each of the stages to EPC E and EPC D.

Another option is a simple payback test, which research has shown to be most widely used cost effectiveness option for dwellings. The payback test is based on estimating the fuel bill savings and calculating whether the cost of the upgrade will be paid back within its lifetime or within a maximum period.

A more complex option is a net present value approach, where future costs and benefits are discounted. This approach could potentially allow factors such future fuel prices, maintenance and replacement costs, etc. to be factored into the calculation.

Further information on cost effectiveness options and the research behind determining cost effectiveness options is contained within Annex D.

We welcome your views on the factors affecting an appropriate cost effectiveness test.

In particular, we welcome views on the trade-offs between ease of calculation and communication, the sophistication of the test, and the impact of the cost effectiveness definition on attainment rates.

Question:

18. Considering the information above and in Annex D, what are your views on the best way to approach cost effectiveness, taking into account the trade-offs between how easy to understand and how sophisticated different definitions are, and how the different definitions might affect the number of homes that actually achieve the EPC C standard?

1.5.3 Time-limited abeyances

When the trigger point is reached and the standard cannot be met because it is either not technically feasible or not cost effective, we propose that the homeowner should be able to apply for a full or partial exemption from the legal requirement to meet the standard. As well as technical feasibility and cost effectiveness, there may be a limited number of other reasons why an exemption should apply, for example because the owner cannot get permission from their co-owners to do work on the common parts of blocks of flats.

We propose that any exemption should be for a limited time only, because the technologies available are developing continuously, and the real cost of many measures may also fall over time. This means that what is not feasible or cost effective at one time, may become achievable two or three or five years later.

For the moment, we are using the term "abeyance" rather than "exemption" to emphasise its temporary nature.

We are seeking your views on both the reasons for an abeyance, and the practicalities of how they should be administered and by whom.

Questions:

19. Other than technical feasibility and cost effectiveness, are there any other reasons why a homeowner may not be able to bring their property up to EPC C at point of sale or renovation, and would need to be given an exemption or abeyance? (For example, difficulties of getting permission from other owners for common parts of buildings.) Please explain.

20. Do you agree or disagree that, even if a property can't fully meet the standard, it should be required to get as close as possible to it?

21. Do you agree or disagree that any exemptions or abeyances from the standard should be time-limited?

22. Which body or bodies should take decisions about granting abeyances? Should this be done at a local level or centrally at a national level?