The conclusion of the previous article was clear: if we could reduce to zero the total CO2 emissions of every household in Britain, we would wipe out 131 millions of tCO2 per year.

The British government has set out an ambitious target: to reduce the total amount of British emissions by 60% by 2050. According to the British House of Commons, in 2004 residential emissions contributed around 30% to UK total carbon emission. The emissions from the existing 25 million dwellings in the UK in 2004 were estimated at 40 Mtonnes of carbon (MtC) a year.

My estimate regarding 26.2 millions dwellings in 2011 is about three times as much as the House of Commons’ estimate. It is fair to say that I worked out the estimate considering just very old semidetached houses, while the housing stock in Britain is formed by a number of newer houses and small apartments in blocks of flats as well. However, I wouldn’t be as optimistic as the House of Commons and I would say that probably we could set the figure half way in between the two, say 80 millions of tCO2.

Figure 4 - Typical British Victorian terraced houses

In any case it is well clear that this huge amount of carbon dioxide doesn't disappear just joining thousands of good-will campaigns (which are all important anyway) and without a great commitment, an extraordinary leadership and a number of unpopular choices.

We need to have this picture very clear in mind: this target is not going to be achieved if we want to make everyone happy. Either we are serious about it and we fight our way through, making unpopular decisions, or we give up now.

After this necessary introduction, let's deal with the main of our problems: how to radically renew the British housing stock, i.e. the poorest and most energy inefficient in Europe.

Ideally, we should tear down every old residential building across the UK and replace it with a zero carbon PassivHaus building powered only by electricity generated on-site from renewable resources, in order to amazingly bring to zero the annual carbon emissions. Everybody knows that this is not possible for a number of reasons, such as the following:

  • People are generally worried about the external look of these new energy efficient buildings; they tend to think about a modern house like a technological monster, a kind of residential metal-pillar spacecraft which looks ugly and chunky compared to a nice and elegant Victorian house;
  • There are some listed buildings which can’t be removed or radically refurbished because they are historic buildings and they belong to the British heritage;
  • There is no real incentive at the moment to tear down a Victorian detached house and construct an energy efficient house in its place; it is much more expensive to demolish a house and build a new one then refurbishing it a little here and there, or even not changing it at all;
  • The little benefit that people can get from paying slightly less on their energy bill is overwhelmed by the costs involved in doing major works, installing solar panels or even rebuilding a house.

Let’s go through this list of objections. The fact that a modern highly efficient building is a civil engineering monster is actually just a myth. There is plenty of modern constructions that fit very well into their surroundings; in fact, it is possible to build a PassivHaus using pretty much any construction material and giving to it any look we may like: modern, retro, medieval, Victorian and so on. The fact that a building is well constructed doesn’t mean that it must be futuristic or all metal and concrete. What really matters is the technology that we use behind the scene to make it a good house, which doesn’t interfere with the external look.

It is actually true that a number of listed buildings (i.e. buildings that have been placed on the British Statutory List of Buildings of Special Architectural or Historic Interest) can’t be demolished or radically changed and they need to be refurbished complying with strict regulation in order to preserve their original characteristics; these buildings are part of the history of a country and they must be considered as special cases.

What is the proportion of these buildings in relation to the total number of residential houses? It’s been estimated that the number of listed buildings in Britain is less then 500,000 in total. They are categorized in three different Grades, depending on the importance of the buildings, and the vast majority of them are in the less restrictive Grade, which permits a good level of refurbishment. The buildings in the more regulated categories are mainly religious buildings, historic bridges or ancient castles. Are they really going to impact on any action we decide to take regarding the 26.2 millions households in Britain, in terms of carbon reduction? I don’t think so.

Let’s get to the hot topics now: economic incentive. Why should people care too much about dramatically refurbishing their homes, installing solar panels or even building new efficient houses? Where are the economic advantages in doing such things?

Someone will say: of course there are. Install a batch of solar panels, pay them £15K, and wait for an unknown number of years until you get your money back; or turn down your thermostat by one degree, so that you’ll reduce your £500 winter energy bill by £20 and you’ll be better off for your holiday to the Caribbean islands; or pay other £15K for a full wall insulation (i.e. combined external, internal and cavity wall insulation, the only option that really gives tangible results), to get your money back in an unknown number of years.

I think that people are not generally ready to pay a lot of money upfront to get some uncertain economic benefits after an unspecified number of years. This is the well known problem of the stick and the carrot. Although I think that a good amount of carrot is necessary, I don’t think the carrot alone is enough to instigate a revolution. Here we are not talking about a little tweaking here and there, just to make things a little better. Here we are talking about sweeping away 60% of 80 millions tons of CO2 (i.e. about 48 millions of tCO2) by 2050.

A report by the University College London Environment Institute in 2007 suggested that current government policies would achieve a reduction in greenhouse gases of between 12 and 17% by 2020, compared to an implied target of up to 30%. The report states that the overriding block to achieving 30% is that nearly all the government's targets are voluntary. Do we really think we can achieve the carbon emission targets by just gently suggesting people should be more responsible and hoping that everyone will save the world?

It seems that the British government don’t quite believe so as far as commercial activities concerns. The CRC Energy Efficiency Scheme has been set out bearing in mind that a clear guide from the central government was necessary. Yet maintaining a strong market driven approach, the scheme facilitates (and, to a certain extent, forces) the reduction of carbon emissions generated by the major British commercial polluters, by introducing a CRC allowance trading scheme between the government, the participating organizations and independent CRC allowance traders. The fines for the organizations not complying with the rules are very expensive. I would say: a lot of stick and very little carrot, but still within a genuinely market driven implementation.

Figure 2 - The CRC Energy Efficiency Scheme cycle

More information on the scheme is available on the Department of Energy and Climate Change web site.

Could we think about something similar for residential houses? I believe that the real problem lies subtly hidden under another huge British issue: the unjustified price of British houses. If we want the free market to work properly, it is essential that the products traded within this market have the right value. Someone will say: it is the market itself that regulates the value of the products, depending on the offer-demand rules and the importance that the market players give to different characteristics of the products. This is right, but everybody knows that, under particular circumstances, something can go not exactly as expected.

The problem is that in this free market, very few give to carbon dioxide the right price. It may happen that, although a product generates thousands of tons of CO2 in a year, if people like it and don’t consider the generated CO2 a problem, this product may easily cost as much as or more than a similar product that generates half the amount of CO2, or even no CO2 at all.

This is exactly what happens with British houses: even though the vast majority of them are very poor quality and, because of their extreme energy inefficiency, they contribute to the generation of millions of tons of CO2 per year, they still cost a fortune.

Let me put it this way: would anybody pay a lot for a 20 year-old car, which is ready for its last journey to the junkyard? Nonetheless, people are ready to pay hundreds of thousands of pounds for houses that in terms of construction quality have very little value.

Figure 3 - Would you pay a lot for this car?

This is because it seems there is no effective method to measure and assess the real quality of British houses: when a property surveyor comes along for an assessment of a house, they look at many things, such as the number of bedrooms, if everything is OK with the electric and gas systems, the size of the back garden, the location etc., but does everybody estimate the “real” value of the property, such as the quality of the construction materials, the technology used, the energy efficiency, the age and in general all the things that are actually concerning the intrinsic value of the product? Would anybody pay a lot for a rusty car, with worn out seats, a flat battery and a squeaking clutch? Would you buy the same car if the seller just made it “look” better, by painting a bit the bodywork, put some grease on the clutch pedal and charged the battery just to make it turn on?

This is actually what happens with houses: the seller repaints the walls, and everything shines again. But, look at that damp and patchy mould coming out after a year of two in that corner over there! This happens because the walls are so rotten or badly constructed that the rain filters through invisible creeks hidden under the last shiny white layer of paint.

The Home Information Pack (HIP) was an attempt to go in that direction. This was mandatory information about several things regarding the quality of the house on sale and this information included a table showing in which energy efficiency category the building was in. Although the HIP has been scrapped by the current government which considered this measure “expensive and unnecessary”, sellers will still be required to produce an energy performance certificate (EPC), showing how energy efficient a property is. The trouble is that very few people look at that information seriously, giving it the real value. And even if anybody was concerned about the fact that the home they are about to buy is an old piece of rubbish in terms of carbon emissions, there wouldn’t be much choice: that is the market price of that kind of property in that specific location, regardless of its carbon emissions, take it or leave it. There is no actual mechanism in place which can drive down the price of old inefficient houses. The fact that HIP has been scrapped could make sense, but it must be replaced by something else that can have an effective impact on house prices.

Of course, no local or central authority can put a cap on house prices or impose a price range on products traded within the context of a free market. What the government can do though is to apply a scheme very similar to the CSR Energy Efficiency Scheme which is in force for big industrial polluters. This scheme would have as main goal to give the right value to the CO2 generated by British houses.

The high level idea is that the more CO2 a house emits, the less its quality hence the less it should cost. A way to drive this process towards the right direction would be to distribute the amount of local taxes paid by households depending on how much CO2 they generate. The concept is that the more CO2 a household emits, the more it should be responsible towards the local community.

As of today, we pay the council tax depending on the council tax band our property is in. What people probably don’t know is that bands are based on assessments of homes taken by the Valuation Office Agency (VOA) in England and Wales, and the Scottish Assessors Association (SAA) in Scotland in 1991, which is 20 years ago! In 20 years properties could have been radically transformed and a decent house could have become a heap of ruins. The situation needs to be rectified.

Let’s assume in 2010 the fictitious borough of Carbonia collects a total of 1000 units through the local council tax. For 2011, the council decides that they want to impose the council tax differently. Instead of charging just for the size of the property and its location, they want to asses properties in terms of carbon emissions. During 2011, they collect data about the electricity and gas consumption of local properties and they convert this information into corresponding CO2 emissions. After this preliminary phase, a full property emission table will be worked out. There will be the best of the list on top and the worst at the bottom and the list will be publicly available for everyone to look up.

From 2012, things start changing. The 1000 units that the council wants to collect in a year will be collected applying gradually a CO2 weight to the existing bands. This will be gradual, which means that in 2012 households that live in a highly inefficient building will not be punished and hit at once because of their situation. The first year the increase will be very little, just to give notice to the household that something needs to be done and that the carbon dioxide they are generating has a social price. This process will be very long and the worst of the list will see their council tax increase gradually year by year. This is to give time to households that live in very old houses to do something about their problem: improving the house or selling it out.

Conversely, virtuous households, which will be on top of the list, will see their council tax gradually reduce. But they can’t rest on their laurel: someone else could improve their home so much that they may slide down the list in the future, which means that further improvement can be carried out.

The pay-as-you-burn council tax transition phases are described by the diagrams in figure 5. Considering 1000 units of tax collected each year, they will be split across 20 different emission bands. With the time, the most energy efficient households will pay less and the least efficient will pay more.

Figure 5 - The pay-as-you-burn council tax transition phases (click on the image to enlarge)

It is foreseeable that in the first years of the scheme the quality of the local housing stock is so bad that the council could actually collect more than the usual 1000 units. If they manage to collect 1100 units, the surplus 100 units will be redistributed to the local households to help them refurbish their homes. This way, even if the worst of the list will pay more in a first instance, if (and only if) they decide to make a move and improve the quality of their house, they may get money back to climb the list towards the top and pay less. This is a virtuous cycle that will draw the quality of houses towards a better housing stock.

What happens is somebody who lives in a very bad property simply doesn’t care? Their house will be constantly rated at the bottom of the list, which means that they will pay more and more council tax with the time. After a number of years (during which they have had a lot of time to improve their property and exploit the incentives from the local authority) they will realize that they can’t go on paying so much council tax and they will decide to sell their house. They will try to sell their property starting from a high asking price (after all, this property is a nice Victorian three-bedroom semi-detached house, with the wall paper just repainted and the carpet replaced!), but after a number of months they understand that nobody is ready to pay that price because the council tax has spun out of control. Therefore the sellers will be forced to reduce a lot their asking price and the property will have finally reached its real market value, which is the value worked out considering its carbon price, regulated through the pay-as-you-burn council tax.

If nobody does anything to refurbish that property in the long term, its value will fall so much that a clever developer will spot a bargain: they will buy the property for very little money, they will tear it down and build a new highly energy efficient building, which will be on top of the carbon list and very well placed on the market. Mission accomplished.