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The plan for boiler manufacturers to install heat pumps isn't perfect, but it’s the right direction

If this policy is adopted, companies that sell boilers to homes in the UK will have to sell a quota of heat pumps for every boiler they sell. In the first year, it will be four heat pumps for every hundred boilers, rising gradually over time. If they don’t meet these targets they can either buy credits from companies that sell extra heat pumps or, as a last resort, pay a fine. This would be set at £5,000 for every heat pump that they were required to install under their quota but didn’t.

While the Market Mechanism - which is inspired by similar successful policies on renewables and electric vehicles - isn’t the most eye-catching it will play an important role in the UK’s switch to low-carbon heating. The UK has, like many other countries, pencilled in a phase-out date for new gas boilers in 2035. It is vital that the industry is given time to scale up low-carbon alternatives to boilers - particularly heat pumps - to avoid a cliff edge around the phase-out date. By gradually pushing boiler manufacturers to switch to heat pumps the Market Mechanism should ease that transition.

However, not everyone agrees with the policy. Parts of the boiler-making industry are reportedly “up in arms” about the Clean Heat Market Mechanism, framing it as imposing fines on manufacturers while leaving them with little control over heat pump sales.

The policy is ultimately designed to help, rather than harm an industry that faces its own existential threat from climate change. To be blunt, gas boilers are likely to become obsolete in just over a decade. Burning gas to heat our homes accounts for around 15% of the UK’s carbon emissions and continuing to sell boilers indefinitely is simply incompatible with reaching net zero emissions.

The 2035 date means that gas boilers have a clearly marked shelf-life and in fact some people, notably the MP Chris Skidmore, have called for this date to be brought forward. If boiler manufacturers can’t start producing clean alternatives to boilers they risk not having a product to produce after that.

Of course, some boiler manufacturers are hoping that a large-scale switch to using hydrogen for home heating will secure their future. But given the various doubts over hydrogen’s suitability for home heating - not least the much higher clean energy requirements for green hydrogen - there is a very significant risk this won’t happen. If manufacturers pin their whole future on hydrogen that risk could become existential for them. If hydrogen for home heating fails to take off, manufacturers who bet everything on it will be left without a viable product. In the face of this, diversifying into heat pumps seems like a wise option - and one that most boiler manufacturers are taking.

Heat pumps are a viable and already available alternative to gas heating in almost all UK homes, existing and new. A study by BEIS revealed that no property type was unsuitable for a heat pump and our recent research found satisfaction with heat pumps is as high in older properties as newer ones. In fact, Nesta also found that satisfaction with heat pumps is in line with satisfaction with boilers. Finally, we know there is potential consumer demand as a study by Nesta and BIT demonstrated high levels of willingness to pay at current prices and specialist heat pump installers report being inundated with work.

The positive reception to heat pumps shows where the Market Mechanism, while more stick than carrot, could be an opportunity for home heating manufacturers to make earlier changes to start addressing this consumer growth area. New homes will have low-carbon heating installed by default following the 2025 Future Homes Standard and there is work to do in transitioning our existing homes.

That said, there are some grounds for complaint on the part of the boiler industry. Boiler makers may argue that they are on the hook for the new government policy, while other heat pump makers with no history in boilers - such as Mitsubishi and Daikin - are not. This may confer some competitive advantage on these firms.

But the reason that boiler manufacturers face this policy is that they make devices which significantly contribute to climate change while others do not. In this respect, the Market Mechanism follows the ‘polluter pays’ principle. Manufacturers may argue, with reason, that other organisations such as consumers and companies that sell and deliver gas are exempt from the policy. Ultimately though, successive UK Governments have been unwilling to place a carbon tax directly on gas for end users. In our response to an earlier consultation we did suggest applying the Market Mechanism to energy suppliers as well as manufacturers to spread the burden. This has not been taken forward, perhaps understandably given the many obligations on energy suppliers.

Manufacturers can also point to the shortage of skilled heat pump installers to actually fit them in homes. It is true that governments in the UK have been slow to address the workforce side of the transition, and that manufacturers mostly don’t employ installers directly. But they do have a big influence over installers and so are not blameless on this front. Because the Clean Heat Market Mechanism affects retrofit instals only, one of the knock-on effects of this policy could be that manufacturers are nudged to play a more active role in installer skills to the overall benefit of their business.

Ultimately, this scheme is a perfectly normal intervention into the market by the government to nudge companies towards important social or environmental goals. It has worked in other sectors, such as a similar scheme for electric vehicles. For such schemes to be most effective, targets must be set in advance to allow manufacturers to plan. And plan in advance they should - if boiler manufacturers can’t rise to the challenge of pivoting their industry to low-carbon heating, they may soon find themselves with no product to sell.


Oliver Zanetti

Oliver Zanetti

Oliver Zanetti

Senior Mission Manager, sustainable future mission

Oliver Zanetti is mission manager for Nesta’s sustainable future mission, which focuses on home decarbonisation and economic recovery.

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Andrew Sissons

Andrew Sissons

Andrew Sissons

Deputy Director, sustainable future mission

Andrew is deputy director on Nesta's mission to create a sustainable future, which focuses on decarbonisation and economic recovery.

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