£10,000. That’s the potential cost for the average household in the UK of making their homes more energy efficient and carbon-friendly according to the Climate Change Committee [1]. For those in older houses, the cost could be a whole lot more.

The recent sharp increase in the cost of energy – likely to be even more challenging given the Ukrainian conflict and western Governments’ potentially swift move away from using Russian energy – is putting into sharp relief the need for us to find more efficient and sustainable ways to use energy.

But the current shocks in the energy market, alongside the broader cost-of-living crisis, are also underlining the need to understand consumers’ attitudes towards the climate change challenge and how they can be supported to make the transition to a more carbon-friendly future in their own lives.

At Tandem we want to use our expertise and knowledge to help show where the opportunities – and challenges – lie along the pathway to a net zero future. This thought piece on the ‘green home challenge’ is the first in a series of contributions from Tandem – including a number of consumer surveys we are conducting – on the big issues facing consumers in the transition to a carbon- friendly future.

Like the rest of the world, we are grappling with the enormous challenge facing us and our future generations. The cost of reducing our carbon footprint will be huge, but the harsh reality is that the cost of doing nothing would be far greater.

How real are the dangers of climate change and what are the economic impacts?

Last year’s COP26 climate summit in Glasgow made clear just how real the dangers of climate change have become to the world as we know it.

The planet’s average surface temperature has risen by about 1 degree Celsius since the late 19th

century, driven largely by increased carbon dioxide emissions and other human activities. Most of this warming has occurred in the past 40 years, with the seven most recent years being the warmest.

2016 and 2020 are tied for the warmest years on record [2] and in 2021, in this frightening ‘new normal’, the world once again faced a series of extreme weather events which brought misery to millions and caused more than $1.5bn [3] of damage.

Extreme weather events in 2021 brought misery to millions and more than $1.5 billion of damage.

Even if we deliver on the pledges made at the COP26 summit, estimates suggest we are heading for temperature rises of 2.4°C by the end of the century. For the UK that could mean summer temperatures above 40°C and, unless we reduce our current carbon path, stark projections of rising sea levels show Buckingham Palace flooded up to its second floor.

The UK Government’s recently published Climate Change Risk Assessment analysed over 60 different climate risks. Government experts found that

a temperature rise of 2°C could cost the UK economy more than £1 billion per year by 2050 and could exceed 1% of GDP. [4]

The cost of climate change to the UK economy could exceed £1bn per year by 2050.

The projections continue to be alarming and, of course, we should have taken action sooner and our governments can and should do more.

However, action from the private sector and each of us as individuals is also required as ‘small acts, when multiplied by millions of people, can transform the world’.

Why is the challenge so big when it comes to our homes?

The UK has one of the oldest and least energy efficient housing sectors in Europe. This creates a real challenge, given that heating and powering homes makes up 23% of the nation’s harmful emissions. [5]

It is estimated that on average every home in the UK will have to reduce 3.6 tonnes of carbon emissions by 2030 to keep us on track for hitting the government’s 2050 Net Zero goal. [6]

While the government has announced plans to make new build houses greener, only 15% of UK houses have been built since 1990. There is an enormous challenge to retrofit the 29 million older homes to net zero standard with better insulation, low carbon heating systems and other energy efficiency measures. To achieve the targets we as a country have signed up to, this means we need to retrofit over 1 million houses every year between now and 2050.

At Tandem, we are glad to have already supported our customers with £230 million in green lending for home improvements, which last year alone has financed a reduction of 12,000 tonnes inCO2 emissions.

29 million homes need to be retrofitted with energy efficient measures to achieve 2050 targets, which equates to over 1 million homes a year.

Decarbonising residential heating is going to be an enormous task both in terms of the cost and complexity.

What kind of costs are homeowners looking at?

The government’s independent Committee for Climate Change estimates that approximately £250 billion needs to be invested by homeowners and landlords to decarbonise homes by 2050 – the equivalent of £9 billion every year for over 25 years. The major costs included in these figures relate to a shift from gas-fuelled heating to carbon neutral or carbon negative heating systems.

Energy firms have made enormous strides in improving the efficiency and performance of gas boilers in recent years, reducing their carbon footprint significantly but, over time, homeowners will be expected – potentially even mandated – to replace gas boilers with more carbon- friendly heating solutions. That could include solar panels, heat pumps or a more fundamental shift away from gas fuel to hydrogen.

…wider retrofitting measures will be needed to address the UK’s leaking home problem.

Along with new heating systems, homeowners will need to retrofit their homes with other measures such as loft and cavity wall insulation, improved glazing, energy efficient radiators and under-floor heating solutions. These wider retrofitting measures will be needed to address the UK’s leaking home problem. The government has estimated that £35-£65 billion of home improvements will be required by 2050 to achieve the EPC C standard for home energy performance.

They estimate that around 60% of homes in the UK will only need to spend up to £1,000 on retrofitting energy efficiency measures, but many more will need to spend several thousand pounds on energy efficiency measures alone.

New heating systems – of whatever technology – are likely to be far more costly and the truth for many households will be that the cost of new heating systems will run into the many thousands of pounds.

The Climate Change Committee has estimated that the total cost on individual homes for making the transition to more carbon-friendly home energy solutions is going to be, on average, up to £10,000 for every home. And according to research from Nationwide, this could increase to more than £25,000 for houses with an F or E energy rating. With two thirds of UK housing with an EPC ranking of D or lower, for the majority of households applying the necessary changes will be unreasonably costly. [7]

The total cost of decarbonising our homes will be, on average, £10,000, according to the independent Climate Change Committee.

This comes at a time when cost-of-living crisis is really beginning to bite households’ disposable income. Along with rising interest rates, the energy price cap will be raised from 1st April this year, increasing the average cost of gas and electricity by more than 50%. It is clear how difficult an increase of more than £700 will be for many families.

The thought of having to invest upwards of £10,000 in new energy systems and home retrofitting could be bewildering at such a time.

And how easy will it be to make the change?

The transition won’t be straightforward and homeowners face a number of complexities:

Awareness among homeowners of the challenge ahead is very low.

‍The government’s 2020 energy white paper found that the majority of the population has not heard of low carbon heating technologies and, according to Ofgem’s annual consumer engagement survey for 2020, the majority of consumers believe they are already doing all they can to save energy at home.

There is a real lack of clarity over some of the new technologies we may use instead of gas in the future.

‍We know solar and heat pumps may be part of the solution for many, especially for those off the current gas grid, but many believe we need to develop the technology surrounding hydrogen as a replacement for gas. Consumers may not want to invest until there is an understanding of new technologies and at what pace these may be developed further.

Consumers need clear information from trusted sources on how homeowners can go about making the transition.

‍Even for those looking to make the transition, there is a lack of trusted information on what low carbon heating solutions are available and the changes that consumers may have to make in their homes to install more energy efficient measures.

Tandem’s view on the priority for action

Raising awareness among consumers and building rapid momentum in the transition to more energy efficient and carbon-friendly homes.

We can’t do anything if people aren’t aware there is a problem to solve.

The Committee on Climate Change’s forecasts suggest that by the middle of this decade we need to reach a tipping point in the number of mainstream consumers who are adopting new carbon neutral technologies and other measures in their homes if we are going to stay on target to decarbonise the UK’s housing stock properly.

The time to raise awareness and motivation to act on this issue is now.

Developing a collaborative approach between government and industry to ensure a comprehensive policy and funding landscape.

This isn’t an issue any one company, group or individual can solve on their own. It’s also not something the government can wave a stick at, or pull a policy lever, and expect the problem to be solved. This is a society wide issue that we need to solve together, with deep collaboration between government and industry.

In our view the problem is so large and complex (and costly) that we need to rapidly develop a comprehensive policy and funding programme –

involving public and private funds – to help tackle this issue over multiple generations.

The government has been making positive steps with its commitments and leadership at COP26 and in the Heat & Building Strategy, but we need further, faster and more comprehensive action from government and industry to create the right conditions for mass market customers to invest the sums needed to transition to new carbon- friendly technology in their homes.

Developing finance and funding solutions that support those most in need – especially those on lower incomes and who live in the oldest housing stock or poor-quality accommodation.

‍It is critical we give consumers – especially mainstream customers and those in more difficult circumstances – clarity on how they can invest in carbon-friendly technologies and what support there is available for them.

The sheer size of the challenge means not all this finance will come from public money – the

government’s recent announcement to invest £450 million in supporting individual households most in need to make the transition is a big statement, but only serves to underline the scale of the challenge as £450 million is roughly equivalent to 0.25% of the

total amount needed to invest in greening our homes over the next 30 years.

At Tandem we have a suite of financial solutions to help consumers fund the transition to green in their homes. But to build mass adoption across all parts of the population will require financial providers like Tandem to think of even more innovative and attractive financial products and funding mechanisms that can support customers, and also government to commit to attractive public incentives that provide long-term certainty for financial providers and consumers.

No silver bullet

The green homes challenge is one of the biggest social and economic challenges facing our country over the coming decades and there is no quick silver bullet that will solve the problem in one easy step.

But we believe that with an open and collaborative effort by Government and industry – across the energy, housing, and finance sectors – we can help customers rise to the challenge ahead.

And are there any steps can I take in the short-term to green my home?

There are a whole series of quick wins that homeowners and tenants can take to reduce the carbon footprint of their home, without investing in potentially expensive retrofit work, or new heating systems:

• Turning the thermostat down by a couple of degrees in winter to reduce energy output.
• Reducing daily energy consumption by turning off lights, unplugging unused appliances and switching to energy efficient lightbulbs.
• Being smart about how people use the most energy- intensive equipment in the home – for example by unplugging chargers and doing full laundry loads instead half-loads and the same with your dishwasher.

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[1] - Development of trajectories for residential heat decarbonisation to inform the Sixth Carbon Budget (Element Energy), Climate Change Committee, April 2021: https://www.theccc.org.uk/publication/ development-of-trajectories-for-residential-heat-decarbonisation- to-inform-the-sixth-carbon-budget-element-energy/

[2] - https://climate.nasa.gov/news/3061/2020-tied-for-warmest-year- on-record-nasa-analysis-shows/

[3] - https://mediacentre.christianaid.org.uk/new-report-extreme- weather-driven-by-climate-change-cost-the-world-billions-in-2021/‍

[4] - UK’s Third Climate Change Risk Assessment (CCRA3): https://www.gov.uk/government/news/government-publishes-uks-third-climate- change-risk-assessment

[5] - Tooling up the Green Homes Industry; Financing the Retrofit Supply Chain (BNZ, GFI): https://volans.com/wp-content/uploads/2021/09/ Tooling-up-the-Green-Homes-Industry_FINAL.pdf

[6] - https://www.theccc.org.uk/wp-content/uploads/2016/07/5CB- Infographic-FINAL-.pdf

[7] - .Nationwide House Pricing Index, Nationwide, August 2021.