Major carbon reductions and billions of pounds saved for government and consumers – the opportunity with renewable liquid fuels
Decarbonising virtually all oil heated homes through heat pumps may be a noble ambition for the government, but the evidence for this approach doesn’t stack up. It’s undeniable the technology has a central role to play, but there are limits, both financial and logistical, to how widely heat pumps can realistically be deployed off the gas grid. That’s why we need renewable liquid fuels.
The world is very different to ten years ago when many of the plans for decarbonisation were set in motion. It’s more uncertain, economic growth is slow and the Labour government has announced it needs to reduce spending to tackle our growing debt. For consumers it’s a similar picture. Wages have been stagnant and everyday prices are rising. These factors can’t be ignored and, for too long we’ve only focussed on the technological solutions to achieve net-zero, not the practical, logistical and social implications.
The truth is, a successful transition to low carbon heating is about more than just technology. There are six key factors which need to be considered: potential carbon savings, upfront cost and disruption to consumers, running costs, taxpayer cost, speed of deployment and the relevant skilled workforce. Let’s look at each of these one by one with regards to the off gas grid sector.
There are an estimated 1.7m oil heated households in the UK. If we started off with a 20 per cent blend of Hydrotreated Vegetable Oil (HVO) and kerosene in these buildings, we would meet carbon budgets 4 and 5, and part of carbon budget 6 for the domestic oil heated sector. This could be achieved with minimal additional cost to the consumer of less than £50 a year and, importantly, no upfront cost. This approach also delivers no additional burden or loss of tax revenue for the Treasury and would save over 1.3bn kg of carbon dioxide per year. All of this could be achieved within one year with a few simple policy changes.
If we wanted to deliver the same carbon savings through heat pumps, it would require 347,000 to be installed immediately. For comparison, over the last 18 months, 45,000 were delivered under the scheme. If these installations were subsidised by BUS at the existing £7,500 level, it would cost the government £2.6bn in grants. The consumers would also have to pay more upfront. The government backed Electrification of Heat Demonstration Project report revealed the average heat pump installation cost in an oil heated home (mainly without installation upgrades) was £14,500. If these consumers claimed the £7,500 BUS grant, they would still have to fund an additional £2.4bn of cost due to the gap between the overall cost and the grant funding provided.
But running costs would be cheaper for a heat pump? Unfortunately not, when you analyse the Electrification of Heat Demonstration report. The average running costs of these heat pumps at £1,162 per year would be higher than the kerosene systems they replace at £926 per year. There’s also the practicalities of putting in a heat pump in these harder to treat properties. Most people replace their heating system in a distress purchase situation i.e. when the boiler breaks down. Having a survey conducted for a heat pump and going through the additional home improvements, such as upgrading radiators, takes far longer than switching out a boiler. Not to mention most people have limited disposable income they can draw from to pay for an unexpected cost.
Another challenge which is routinely overlooked is the shortage of qualified heat pump installers. There were only around 8,000 across the UK in 2023, well below the numbers needed for a mass rollout of the technology. The government is investing heavily in the Heat Pump Training Grant, again at additional cost to the taxpayer, to drive up numbers but there’s still a long way to go. In comparison, the liquid fuel heating industry is mature, built up over decades. Qualified technicians, wider supply chains and existing regulations that are well-understood and strong makes deploying renewable liquid fuels far more straightforward.
So, with regards to the carbon reductions, value for money for both the consumer and taxpayer, and the available skills to deliver a rollout, introducing an initial 20 per cent blended renewable liquid fuel is the most sensible route forward. Even better, it’s relatively straight forward for the government to make this happen.
Firstly, the Treasury needs to correct a duty anomaly with renewable liquid fuels for home heating which differs from how similar fuels are treated in other sectors. When used for home heating, this is the only time renewable liquid fuels attract a higher duty than the existing fossil fuel being used. Essentially, renewable liquid fuels for home heating should be treated the same as kerosene. Because these fuels are not widely used for home heating, this change in duty wouldn’t have a cost implication for the government, but it would reduce the cost of these fuels to consumers.
Secondly, the Department for Energy Security and Net Zero needs to create a Renewable Liquid Heating Fuel Obligation (RLHFO). This received cross party support in both houses in the last parliament. If delivered rapidly and in full, this would replicate the mechanism used to encourage the use of similar fuels in transport (Renewable Transport Fuel Obligation (RTFO). The implementation of the RLHFO would not require any further primary legislation, it could be implemented through secondary legislation with minimal parliamentary time required.
The government has a genuine opportunity to drive down carbon emissions and save billions for the Treasury and consumers by supporting the roll out of renewable liquid fuels for home heating as part of its decarbonisation strategy. It’s not a reversal or change in direction, merely adjusting course in recognition of the current economic and social landscape. The initial deployment of a 20 per cent blend could be followed up by higher blend percentages over time and can be done alongside support for heat pumps, maximising choice for consumers. We share the same ambition as the government to deliver on net-zero, reduce expenditure and keep the burden of costs down for consumers. We will continue to work proactively and positively to achieve these goals.
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