Killip - Innovation in service provision for a low-carbon future

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Killip - Innovation in service provision for a low-carbon future

    Energy transitions in an interdependent world: what and where are the future social science research agendas?’ conference, SPRU,

    University of Sussex, 24 25 February 2010

Author: Gavin Killip

    Affiliation: Environmental Change Institute, University of Oxford

    Contact: ECI, University of Oxford, OUCE Dyson Perrins Building, South Parks Road, Oxford OX1 3QY

    Tel: +(0)1865 285162


    Innovation in service markets for a low-carbon future and the privileged status of policy in shaping socio-technical change: lessons from housing

    refurbishment in the UK


    A socio-technical systems approach is taken to current debates about the future of UK housing, specifically how it might be refurbished in the context of the government target to reduce greenhouse gas emissions by 80% over 1990 levels by 2050. Terms and concepts from the Transitions literature are used to frame the discussion, particularly the roles of regime and niche actors in the multi-level perspective. Given the acknowledged bias towards historic case studies and the scarcity of work on target-driven transitions in the literature, the current situation with UK housing is presented as a potential ‘transition in the making’. The shift from current policy, built around a measures-based approach, to a more holistic, ‘whole home’ approach is

    necessary from a technical viewpoint, but it provides a real challenge for the existing institutional and policy framework.

    Lessons from product policy (Market Transformation) are then reviewed to examine how they might be adapted to apply to a market for low-carbon refurbishment services. By focusing on objectives rather specific tools, a case is made for achieving this, with the important proviso that the initial market conditions need to be fully understood first.

    A thematic framework for target-driven, market-based transitions is presented, which is intended to capture the generality of both product and service markets. Additional case study evidence would be needed to test and refine this framework.

    Finally, four topics are suggested for the future social science research agenda in the context of energy transitions in an interdependent world. These four topics seek to steer research towards a stronger focus on target-driven transitions, investigating how policy can provide robust frameworks for different kinds of markets, but also suggesting that the approach could be extended beyond markets towards questions of social innovation and behaviour change.

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    Killip: Innovation in service markets: lessons from UK housing refurbishment 1. Introduction

The UK's 25 million homes are responsible for some 27% of national CO emissions 2

    (Boardman et al. 2005). With the Climate Change Act in 2009, the UK has committed itself to an 80% reduction in all greenhouse gases by 2050 over 1990 levels (H M Government 2008). Whatever happens with energy supply, energy efficiency remains a key part of a low-carbon strategy (Anderson et al. 2006).

This paper summarises some recent research into housing refurbishment in the UK a

    topic which combines the technical and the social in a classic ‘seamless web’ (Hughes

    1986). The approach taken has been to view this field as a socio-technical system which, as a fairly direct result of UK climate change targets, is currently experiencing an intense period of debate, as a precursor to potentially profound system change. Whether the observed activity truly amounts to a transition is open to question, but it seems worthwhile examining it from a Transitions perspective for a number of reasons. Firstly, the multi-level perspective (MLP) provides a conceptual framework which describes the dynamic, uncertain and complex nature of change in socio-technical systems (Geels 2002). The activity observed during this work fits quite well within the broad sweep of the MLP. Secondly, the Transitions literature has developed its key concepts on evidence from primarily historical case studies, with an acknowledgement that the target-driven transitions are still under-represented (Schot, Geels 2008). The case study presented here might help to redress that balance.

    The research also draws on a well-documented history of Market Transformation policy interventions to improve the energy performance of stocks of household appliances, and explores how lessons from past (and ongoing) activity in these product markets might be applied to the rather different context of housing refurbishment.

    The focus here is on markets, not the wider context of social innovation, ethical values, pro-environmental behaviour, and the social construction of consumption. This is not to say that such issues are unimportant, but merely to assert that positive change can also be mediated through economic transactions, and that policy and programme design to guide these markets needs to be done well, ie in full recognition of the dynamic, uncertain and complex nature of the question in hand.

2. Low-carbon housing in context

    2.1 Housing stock and potential for improvement

    Housing ownership is divided between three different tenures. In 2009 there were 16.5 million owner-occupied homes (67 % of total), 4.5 million (18 %) rented in the social sector (ie from local authorities or housing associations), and 3.8 million (15 %) rented from private landlords, with a gradual decline in social housing numbers in recent years and growth in the private rented sector, largely as a result of dynamics in the housing market generally and an upturn in the number of buy-to-let mortgages (Office for National Statistics 2009). Each tenure has its own characteristics. For example, privately owned and privately rented property are sold and rented in markets,

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    Killip: Innovation in service markets: lessons from UK housing refurbishment but the social rented sector is effectively an extension of the welfare state and not a market (Fawcett, Boardman 2009).

    The technical potential for energy efficiency improvements in existing UK homes is large and well-known with evidence from models and scenarios (Boardman et al. 2005, Johnston, Lowe & Bell 2005, Centre for Sustainable Energy et al. 2008) and real-life case studies (Olivier, Willoughby 1996, Sustainable Energy Academy 2007). At a technical level, solutions are project-specific but generally comprise a combination of the following: demand reduction measures (insulation, improved air tightness, efficient lights and appliances); passive design features (e.g. allowing solar heat gains in winter and shading in summer); more efficient fossil energy conversion (boilers, combined heat and power, heat pumps); and building integrated renewable energy technologies (e.g. solar panels, wood-fired boilers). The energy supply technologies for individual homes or neighbourhoods have been termed collectively low- and zero-carbon technologies, or LZCs (Boardman et al. 2005).

2.2 Current policy for low-carbon housing

    Building regulations for the conservation of heat and power have been in place for new construction from the mid-1970s, with standards getting tighter ever since. The 2006 revision to the regulations (part L in England and Wales) made provision for standards to apply to major refurbishments for the first time. These consequential

    improvements apply at the level of the building element (floor, wall, roof) and require a thermal upgrade to the entire element if a significant part of that element is to be altered in any way during the refurbishment. For example, if an external wall needs to be re-plastered and more than 25% of the wall area is affected, ‘reasonable

    provision’ has to be made to bring the entire wall up to the specified standard of thermal performance (Office of the Deputy Prime Minister 2006).

    Existing energy efficiency policy in UK housing is largely paid for through the Carbon Emissions Reduction Target (CERT), which places an obligation on energy suppliers to achieve savings, which they typically do by installing relatively quick, cheap measures with favourable cost benefit analyses (low energy light bulbs, cavity wall and loft insulation). The budget for CERT is approximately ?800 million a year.

    Other policies are targeted specifically at the vulnerable, with Decent Homes and Warm Front (plus variants in Scotland and Northern Ireland) providing investment in property improvements for disadvantaged groups. These programmes were worth some ?350m in 2007/2008, although CERT also contributed ?190m towards improving the homes of the most vulnerable, making a total of ?640m (Boardman 2007).

    Winter fuel payments (WFP) are paid every year to all UK pensioners (regardless of their means), in recognition of the fact that the elderly are particularly at risk from the ill effects of cold. In the 2008 Budget, the winter fuel payment (WFP) was increased from ?200 to ?250 for the over 60s and from ?300 to ?400 for the over 80s, representing an increase in annual cost to the taxpayer from ?2bn to ?2.7bn (Environment, Food and Rural Affairs Select Committee 2009). The size of the WFP dwarfs the size of the means-tested cold weather payment (CWP), which is a sum of ?25 paid to households on certain benefits when the average temperature falls to zero

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    Killip: Innovation in service markets: lessons from UK housing refurbishment or blow for seven consecutive days. The cost of the CWP for the winter 2008 -2009 was estimated to be ?209 (Environment, Food and Rural Affairs Select Committee 2009). The WFP has been criticised for its wastefulness in targeting the fuel poor, effectively granting the money to the affluent and the needy alike, with mixed results:

    ‘[I]n 2005, 50% of all the fuel poor were pensioners, but these households

    only represented 12% of pensioners. Hence, focusing on pensioners does

    tackle fuel poverty, but 88% of the [WFP] expenditure is going on non-fuel

    poor households. […] There is clearly a strong argument that this massive

    funding level would have been better utilised on heating and insulation


    (Environment, Food and Rural Affairs Select Committee 2009, p. 16)

    Micro-generation technologies for the domestic sector have been supported through grants programmes for many years, although the low level of funding and the stop-start nature of the latest scheme, the Low Carbon Buildings Programme, led to widespread criticism (Bergman, Jardine 2009). The new feed-in tariff is expected to be a more effective policy, but it is too early to say how much investment it will stimulate.

    A comparison of the sums spent on the different programmes shows that the Winter Fuel Payment is dominant, and yet it is not very effective at improving energy efficiency or helping the disadvantaged. The CERT scheme, whilst undoubtedly effective at targeting the most cost-effective measures, is limited in two important respects: the measures it supports will reach their full potential before 2020, and the savings it can make are inadequate in the context of the longer-term CO emissions 2

    reduction target. It is in this context that recent policy debates and industry lobbying have shifted towards what has become known as the ‘whole-home’ approach. In other

    words, it is time to move away from prescribing measures and towards seeking ways of getting closer to the technical potential by looking beyond a narrow definition of ‘cost effective’ upgrades. This shift is (at least partly) reflected in two recent

    government consultations. The heat and energy saving strategy (HESS) recognises the need for a policy beyond what CERT can deliver (Department for Energy and Climate Change 2009b), while the community energy saving plan (CESP) proposed a new set of local partnerships to deliver whole home retro-fits ‘house by house and street by

    street’ (Department for Energy and Climate Change 2009a).

    Energy Performance Certificates (EPCs) rate the modelled energy performance and COemissions of the home on an A to G scale, and are required each time a domestic 2

    property is sold or rented (Figure 1). The theory here is that clear, credible information on energy performance is one important part of a policy package, which aims to shift the energy performance of a stock of appliances or buildings over time. When coupled with a minimum energy standard, this can be a powerful policy tool, at least in markets for electrical appliances (International Energy Agency 2000).

    The EPC provides information to the market on a significant scale (Killip 2008a), and has the potential to cover the full technical potential of improvement through refurbishment. However, its current implementation uses a model (the ‘reduced data Standard Assessment Procedure’, rdSAP) which is not best suited to highly innovative

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    Killip: Innovation in service markets: lessons from UK housing refurbishment refurbishment projects, and the ‘potential’ highlighted on the A to G scale is in fact no more than the potential of measures supported under CERT (National Energy Foundation 2009, Banks 2008). This means that EPCs in their current guise are putting information into the market which seriously understates the technical potential for improvement. A fuller statement of technical potential is included in the accompanying report, but not on the label, which is the most visible part of the EPC system.

Figure 1 Energy Performance Certificate

2.3 Cost estimates for low-carbon refurbishment of UK housing

    Costs for achieving a low carbon housing stock through major refurbishment have been estimated in various reports, although the methods, assumptions, and CO 2

    emissions reductions are all different, making comparisons difficult (

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    Killip: Innovation in service markets: lessons from UK housing refurbishment Table 1). Nonetheless, it seems reasonable to conclude that each home requires, on average, over ?10,000 of investment, which equates to several billion pounds of investment every year across the country, assuming that 500,000 homes need to be refurbished to this standard every year for over 40 years (Killip 2008a).

    The high costs of low carbon refurbishment present a challenge to policymakers, who have sought to find ways to overcome the problem of long payback periods. Since 2008 the idea of placing a legal charge on the property (ie not a financial burden on the individual householder) has gained currency, with government funding an intensive round of industry consultations, which led to the publication of a report on a ‘pay as you save’ scheme (PAYS) (UK Green Building Council 2009) .

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    Killip: Innovation in service markets: lessons from UK housing refurbishment Table 1 summary of cost estimates and key assumptions for low carbon refurbishment of housing in three recent reports

    Report Cost CO Methodology Comments 2

    estimate reduction

    (?bn/yr) by 2050

    ‘Home 9.9 -80% CO Sum of estimates for ?12.9bn/year from 2

    Truths’ 12.9 by 2050 proposed investment 2008;

    (Boardman programmes and tax ?9.9 10.4bn/year

    2007) reform from 2017 to 2050.

    ‘Building a 3.5 6.5 -60 65% Extrapolation of Marginal costs for

    Greener CO by marginal costs from 2 low-carbon work 2

    Britain’ 2050 recent case studies were 13 15% of

    (Killip total costs


    ‘How low?’ 2.6 3.5 -80% COModel of installation Excludes cost of 2

    (Centre for by 2050 rates, technology unit assumed 60%

    Sustainable costs, discount rates. reduction in carbon

    Energy et al. Lower estimate intensity of grid

    2008) includes technology electricity by 2050

    learning for LZCs.

2.4 Markets and intervention points

    Understanding how the various markets operate provides some justification for proposing certain kinds of change at certain key moments. An ‘intervention point’ in a

    market is a moment where there is a significant opportunity to integrate low-carbon works into other works that are being undertaken anyway (regardless of the low-carbon agenda). These intervention points can be assessed for their likely impact through background research on the scale of opportunity that each represents.

    Refurbishment is a common activity following property sales, with one recent survey of 300 homebuyers revealing that 37% were actively considering some kind of refurbishment in the first 12 months (National Energy Foundation 2009). In England, people move home on average once in 14 years, although that average figure hides the fact that there is much faster turnover in the private rented market, and a significant ‘long tail’ in the distribution of households in the owner-occupied and social rented sectors, who move much less often (Boardman 2007). An EPC at point of sale or rental will miss this long tail.

    The existing market for repair, maintenance and improvement (RMI) in UK housing is some ?24bn per year (Office for National Statistics 2008). This sum includes minor works such as re-decorating, but also major renovations, extensions and conversions. There are hundreds of different types of project undertaken, and it would be valuable to know in more detail the number of each project type undertaken in a typical year, and the potential that each represents for low-carbon works to be incorporated. Unfortunately, market data is not collected in enough detail to support this level of analysis (Ormerod 2009) but it is clear that there is significant potential to integrate low-carbon works in such a way that it goes ‘with the grain’ of an existing, mature market.

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    Killip: Innovation in service markets: lessons from UK housing refurbishment

This concept of ‘intervention point’ is, however, largely ignored in the day-to-day

    administration of housing and energy efficiency programmes, which are geared to a limited set of measures and technical interventions deemed to be cost-effective. Promotion and implementation of these measures is supported by grants and advice services (eg so-called ‘one-stop shops’), which focus exclusively on the measures on

    the list, ignoring the more complex reality of decisions that property owners might be making about RMI work. So, for example, it is possible to have a loft insulated by an approved installer with a subsidy towards the cost, but installers working on this government-backed programme are uninterested in incorporating the insulation work into other works. If the householder wants, say, to fit a floor to the joists in the loft so that the space can better be used (eg for storage), the subsidised insulation service will not do the carpentry, nor collaborate with a carpenter hired by the householder to create an insulated floor.

    In the social rented sector (i.e. housing provided by councils and housing associations), there are other intervention points. Housing managers have a duty to keep these public-sector buildings in a good state of repair, which means that there are fairly prescriptive cycles of maintenance (eg re-wiring every thirty years). They also engage in works to upgrade kitchens and bathrooms (and do minimal insulation works) through a government-funded programme, Decent Homes. Good management and the timely availability of additional finance can mean the difference between a largely cosmetic upgrade to a property, and one which also makes radical improvements to the energy performance and carbon impacts of the building. If scaffolding is needed for roof repairs, solar panels could be installed at the same time at a relatively small additional marginal cost. In fact, these opportunities are typically missed, largely due to a lack of funds at the right time. Some housing associations argue that they could deliver low-carbon refurbishment more effectively if they could increase rents above the government’s maximum cap, thereby allowing them to invest for the future and recoup the costs from tenants, who would also be better protected from rising energy prices and could have lower energy bills. However, the rent cap, which is in place to keep housing affordable, is a strongly embedded principle in social housing (Housing Corporation 2007).

    In the social rented and private rented sector a key opportunity for refurbishment is presented whenever a property is empty between tenancies (‘voids’). There are also

    other potential intervention points, which could apply across the board (e.g. requiring so-called ‘consequential works’ under the building regulations whenever planning permission is sought for major improvements).

    2.5 Innovations and debates

    The prospect of incorporating low-carbon works into the RMI market is quite a radical departure from existing practice in the energy efficiency policy world. The institutions and businesses which have evolved to support the measures-based approach are not necessarily best placed to be the supporting actors for a new, whole-home approach. There is a kind of techno-institutional ‘lock-in’ in operation here,

    sharing some of the features of other kinds of lock-in that have been identified (Foxon 2007, Unruh 2000): the ambition of the climate change target, translated into the design and implementation of actual refurbishment projects, means that the shift required is profound and systemic.

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    Killip: Innovation in service markets: lessons from UK housing refurbishment

    In 2007 the government announced a future standard for housebuilding for the first time -- all new homes to be zero carbon by 2016, with interim revisions to the

    standard along the way in 2010 and 2013 (Department for Communities and Local Government 2007). There has been intense industry focus ever since, and the precise definition of zero carbon has been hotly contested (Department for Communities

    and Local Government 2009). At the same time, there has been a growing awareness that tighter standards for new build housing, welcome as they are, can do nothing to reduce the emissions from the existing stock; and that refurbishment of housing is an important part of any future emissions reductions strategy (Royal Commission on Environmental Pollution 2007). The announcement of a future standard could also be applied to housing refurbishment, although there is no precedent for a mandatory standard to be applied to refurbishment in this way. In its ‘heating and energy saving

    strategy’ consultation document, regulation of this kind was mentioned in a government document for the first time, although a decision on whether this would be implemented was deferred to 2012 (Department for Energy and Climate Change 2009). This policy innovation has been greeted both as a welcome significant ‘first’ (in that a mandatory standard for refurbishment has at least been aired officially) and as a missed opportunity (in that time is of the essence, with several years required for industry and institutions to adapt following any announcement of a future standard).

The introduction of the consequential improvements policy with the 2006 revision to

    the building regulations is widely seen as a watered down version of a more ambitious consequential works policy, which appeared in the draft consultation document but not in the final version. Where consequential improvements only applies to an

    individual building element, the concept of consequential works was to require a

    thermal upgrade to the pre-existing building when other major works were being undertaken. For example, a loft conversion or kitchen extension would only be passed by Building Control if the entire house had extra work done to improve its thermal performance (e.g. cavity wall insulation, loft insulation). One local authority, Uttlesford Council in Essex, has since introduced a version of ‘consequential works’

    through its own local Planning policy, but this is open to challenge and is therefore a less robust policy vehicle than Building Regulations. Nonetheless, the introduction of the policy did not lead to a reduction in Planning applications or a decline in the local building industry: the state of the local housing market and the wider economy seem to have a much larger influence on home-owners’ refurbishment plans than

    requirements to do energy efficiency improvements at the same time (Killip 2008a).

    The economic potential of the emerging low-carbon agenda is not lost on the industry. The housing RMI sector is dominated by SMEs in construction, mainly micro-businesses, and their trade associations see the value of this agenda to their members in terms of extra work and job creation (Killip 2008a). There are also a number of new entrants to this field, typically start-up companies aiming to project manage subcontractors and deliver good quality customer service. Some, but not all, of these new entrants aim to train the subcontractors they work with. The need for training is very real, however, if work is to be done to a high enough standard, with good integration of the efforts of what can be a highly fragmented group of contractors and sub-contractors on-site.

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    Killip: Innovation in service markets: lessons from UK housing refurbishment Vocational training in the UK is structured and financed with a strong lead from industry, through various Sector Skills Councils (SSCs). In relation to construction training, there are various relevant SSCs, but the dominant one in this sector is ConstructionSkills. ConstructionSkills is unusual in that a significant part of the money that it administers for training comes from a levy paid by all but the smallest firms in the industry. This means that the development of specific low carbon skills and knowledge in the construction sector will not become mainstream until the industry has confidence that the new skills and knowledge will have some benefit in the market (Killip 2008a). This observation is borne out on the ground: when pilot training courses have been set up by pioneering construction colleges, they have found it difficult to recruit enough trainees to make the courses viable: the market for skills and knowledge in vocational education is secondary to the market for employment.

    The UK government is exploring innovation through two of its agencies. The Retrofit for the Future competition, coordinated by the Technology Strategy Board is a ?17 million fund, which aims to create, monitor and evaluate 100 demonstration projects

     per square in the social rented sector, targeting maximum emissions of 17 kg CO2

    metre per year (broadly consistent with an 80% reduction target). Refurbishments are expected to be completed by the end of 2010, with monitoring to 2012. The Energy Technologies Institute has announced a review programme entitled

    ‘Optimising Thermal Efficiency of Domestic Housing’, which aims, among other things, to analyse how ‘intervention strategies for whole house conversions can be optimised by applying some of the tools and principles of high volume lean manufacturing and robust systems engineering’ (Energy Technologies Institute 2009).

    The ETI’s ‘lean manufacturing’ approach is just one of several new perspectives that are being brought to bear in the current debate. Others include a focus on economies of scale and community solutions, such as combined heat and power (CHP) by adopting a ‘neighbourhood approach’.

    3. Low-carbon housing refurbishment: a target led transition in the making?

    Is the case of low carbon housing refurbishment in the UK an example of a target-driven transition in the making? It certainly has some of the key ingredients, notably, a quantified target (-80% greenhouse gas emissions over 1990 levels by 2050 across the whole economy), and a fair degree of activity and debate on the subject. It is also worth highlighting that, in the terms of the MLP, this activity is spread among niche and regime actors, with plenty of dialogue between the micro and meso levels.

    A transition is, by definition, only truly identifiable after it has finished (Rotmans, Kemp & van Asselt 2001) and this is one of the inherently messy characteristics of tackling current problems in the context of future policy goals: how can we be sure that any of this activity will lead to positive results in real life? Rotmans also proposes a categorisation of transitions using three key features: firstly, he distinguishes between teleological (target-driven) and emergent transitions, observing that much

    of the early work in this field focused on emerging transitions, based on historical case studies (Rotmans 2005). Target-driven transitions are a significant, well-known gap in the work done to date in this field (Schot, Geels 2008). The second criterion in

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