Laura Doanova contrasts the UK and Denmark to demonstrate how governments can escape carbon lock-in in the buildings sector. She outlines that doing so successfully requires an understanding of how carbon lock-in operates and the ambition to undo it.
In 2021, the operational energy-related CO2 emissions of the buildings sector reached an all-time high of approximately 10 GtCO2. Combined with the CO2 emissions from producing buildings materials and construction, it accounted for around 37% of global emissions. To decarbonise the sector, measures must be taken to improve buildings’ energy efficiency. In practice, however, this is difficult due to the existence of “carbon lock-in”.
The systemic transformations needed to reduce carbon emissions are constrained by carbon lock-in — the path-dependent process in which a reality with fossil fuel-dependent infrastructure, institutions and behaviours is created. The three components reinforce one another, which makes carbon lock-in difficult to escape.
Lock-in occurs because investments into the sector are large, and the final products are long-lasting. Escaping it would therefore require significant immediate costs, with payoffs only occurring much later. Energy-efficiency measures are not desirable for those who have to fund them, like homeowners. To escape carbon lock-in, governments must implement policies that incentivise these measures and do so at scale, through a combination of regulation and financial incentives.
The issue of overcoming carbon lock-in is especially pertinent in the UK, which has some of the most energy-inefficient homes in Europe. This does not come as a surprise as around 36.5% of its housing stock was built before 1945. In contrast, despite having a similar proportion of pre-1945 housing stock, Danish homes are some of Europe’s most energy-efficient. This suggests that where the Danish government has implemented an effective policy approach to escape carbon lock-in, the UK government has failed.
Both countries promote energy efficiency through regulation, but the UK lags behind in incentivising improvements significant enough to escape carbon lock-in. A good example is the UK’s 2018 Minimum Level of Energy Efficiency standard. Although the regulation specifies that landlords cannot let properties with an energy performance certificate (EPC) rating below E, it does not incentivise ambitious change capable of undoing carbon lock-in, as it only sets the minimum standard.
In contrast, special provisions under Denmark’s Housing Regulations Act provide a direct incentive for landlords to carry out energy-efficiency upgrades. The idea of the “green incentive” is that landlords may circumvent a five-year waiting period — during which they cannot increase rents even if they renovate the property — if they significantly raise the property’s energy-efficiency rating. The Danish government clearly understood that escaping carbon lock-in requires making such change desirable.
Secondly, although the UK government encourages energy-efficiency upgrades through financial incentives, the funding is insufficient. The recently introduced £450 million Boiler Upgrade Scheme, which provides grants to help with the costs of heat pumps and biomass boilers installation, is the equivalent of £6.50 per capita and only has enough funding to cover 90,000 heat pumps. This is despite the yearly target of 600,000 heat pumps by 2028. It is also the only significant financial instrument which targets all households, not just low-income ones.
In contrast, the Danish government implemented a combination of measures, including tax deductions and subsidy schemes, as well as a DKK 80 million (approx. £95 million) programme to support the replacement of oil heating systems with heat pumps, equivalent to approximately £16 per capita. With such ambitious programmes, it is no accident that Denmark has about 18 times as many heat pumps per 100,000 people as the UK.
To decarbonise the buildings sector, governments must incentivise energy-efficiency upgrades and commit to escaping carbon lock-in. More specifically, governments should use regulation to incentivise property owners into making efficiency improvements. Committing to escaping carbon lock-in will motivate governments to implement ambitious policies with a real capacity to undo it.
Note: this article gives the views of the authors, and not the position of the LSE Department of Government, nor of the London School of Economics.
Image credit: Richard Bell