More than £2bn ($2.39bn) of funding committed to energy efficiency and decarbonising heat, or home retrofits, has not yet been spent by the UK government, according to new analysis from the think tank E3G published last week. The unallocated funding totals one-third of the £6.6bn that is supposed to be used between 2020 and 2025.

In the 2019 Conservative Party manifesto, the party pledged to spend £9.2bn out to 2030, of which £6.6bn was due this parliamentary term.

Energy efficiency and decarbonising heat are essential to reduce energy demand and bring down energy bills for consumers. The UK aims to reduce energy demand by 15% by 2030. Following the energy crisis, electricity and gas prices for British people soared by 66.8% and 129.4% respectively in the 12 months to January 2023. According to ONS data, almost six in ten adults use less fuel in their homes because of the rising costs.

Insulation and moving from gas boilers to heat pumps could help UK residents save money, but the upfront costs are out of reach for many without state support. While government schemes typically target social housing, public buildings and lowest-income households – like the Social Housing Decarbonisation Fund and the Public Sector Decarbonisation Scheme in the manifesto – many other households are left out in the cold.

A week before the E3G analysis was published, a UK parliamentary report concluded that a different scheme, designed to encourage British households to replace gas boilers with heat pumps, has failed. The scheme saw “a disappointingly low take-up of grants”, due in part to "very limited public awareness of low-carbon heating systems". A survey from the British Department for Business, Energy and Industrial Strategy shows that more than 80% of people know "little", "hardly anything", or “have never heard" of heat pumps. It is hardly surprising then that the UK has some of the lowest heat pump instalment rates among its European peers.

One of the main recommendations from E3G is to end unequal access to public funding by making schemes nationally available. Currently, under the Home Upgrade Grant, local authorities compete for funding. In practice, this means that well-organised and competent authorities are most likely to win access, while households living in struggling areas are left behind – a “warm homes postcode lottery”, in the words of E3G.

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If the UK wants to be on track to reach its climate targets, it will have to invest more in home retrofits and energy efficiency. To meet its fourth carbon budget, which sets a greenhouse gas emissions cap of 1,950 million tonnes of CO2-equivalent for 2023–27, the UK needs to reduce its emissions by 51% below 1990 levels by 2025. Currently, the country is not on track to meet that target, according to the UK's Climate Change Committee. E3G calculates there are investment gaps of £3.34bn and £5.24bn for decarbonising heat and energy efficiency, respectively, within this parliamentary term, on top of the funding that has been spent.

“Getting on track for UK climate and energy security targets will require a significant step-up from today’s level of investment in energy efficiency and heat pumps,” said Juliet Phillips, senior policy advisor at E3G, in a press release. “In the global race to spur investment in clean industries, the UK can gain a competitive edge by ramping up long-term support for this vital sector by providing the right set of policies and economic incentives. The forthcoming Spring Budget provides a platform for the government to launch a decade-long programme to support warmer homes, green industries and good jobs across the whole of the UK.”