Sussex Energy Group at SPRU

As part of a project on green industrial policy, I recently visited a factory in the East Midlands making air-source heat pumps (ASHPs). This is an example of just the sort of thing the government wants to see more of, at least according to the Modern Industrial Strategy (MIS) white paper that came out last summer. The MIS picks out 8 sectors where the UK has or could have internationally competitive industries; one of these is termed ‘clean energy technologies’ and these include heat pumps.

For the uninitiated, ASHP technology has been around for a long time, at least since the 1850s. So it is a mature technology, but at the same time a clever one, with cutting edge efficiency. ASHPs use fluids that boil into a gas at low temperatures. This can then be compressed into a liquid, releasing energy in the process, ASHPs effectively capture ambient heat from the air, even when it is below freezing outside.

The manufacturing on show at the East Midlands plant was also cutting edge. Autonomous self-driving trolleys trundle back and forth between a just-in-time parts warehouse and the shop floor. Most assembly is done by hand but each single component is tracked in the process, so for each finished heat pump, the company knows that each screw and bolt has been put in at the right angle with the right amount of torque. There are several rounds of machine-assisted testing, one of which ensures that the brazing work undertaken by highly skilled workers will not leak. The production process generates huge amounts of data for each individual unit, which can then be drawn on when it comes to maintenance and repair. It is easy to see why the government sees this as a competitive UK industry.

But the question is, who will buy the ASHPs coming off the production line? Workers in the plant are making a new heat pump every 90 minutes. But UK demand is so far underwhelming. Back in 2021, the Heat and Buildings Strategy had a target of 600,000 heat pumps a year being installed by 2028 (of which 300,000 should be manufactured in the UK) and 1.6m installations annually by 2035. In 2025, the Climate Change Committee called for a less ambitious 450,000 a year by 2030 and around 1.5 million by 2035. But in 2025, sales of ASHPs were around 105,000, a fraction of those targets. Just the plant I visited alone has the capacity to expand production to over 100,000 units a year, and this is one of several based in the UK. Demand remains the key constraint.

What will grow the heat pump market? The previous government had a phase-out date for new boilers, but this seems to have been dropped. The new Warm Homes Plan does extend and expand the £7,500 grant, but many installations will cost more than this, so at the moment it is mainly the wealthy who taking up the subsidy. The new Future Homes Standard means that new build housing will no longer have gas heating from 2028, but this again is small beer relative to the millions of existing homes that still have gas boilers.

The single most important thing the government could do to drive the UK ASHP market would be to reduce the gap between the cost of gas and the cost of electricity. For context, heat pumps in the UK produce around 3 units of heat energy per unit of electricity used, whereas gas boilers produce about 0.9 units of heat for each unit of gas. This means that when the ratio between electricity and gas prices starts to get down towards 3, heat pumps begin to become cheaper to run than boilers. At the moment, that ratio is over 4.5. The war on Iran and crisis in the Gulf will not help because electricity in the UK is still quite tightly linked to gas prices in wholesale markets. Over time, the big build out of new wind and solar should slowly break that link, but it will not have a major impact until the 2030s. There is no shortage of proposals on offer for getting electricity prices down before then, but it is still unclear what the government might do, if anything. The Modern Industrial Strategy makes passing reference to “ongoing work to consider how to address the price disparity between  electricity and gas” but this has been on the agenda since 2021. The point is that until this disparity is reduced, the ASHP market will not get anywhere near those ambitions of the early 2020s. And a potential growth industry in the UK will not have the chance to realise that potential.

In 2013 I published an article called “The political sustainability of climate policy: The case of the UK Climate Change Act.” I concluded  that the political future of the Act was uncertain. For many years that seemed unduly pessimistic, and both the Act and the Climate Change Committee that it created were held up as models for other countries, many of which adopted at least superficially similar legislation. Through the political turmoil of the post-Brexit years, the consensus in favour of the Act seemed to hold.

That consensus began to erode under Rishi Sunak, and today Kemi Badenoch announced that that a Conservative government would repeal the Act. Reform have already said they would scrap the net zero target that is enshrined in the 2019 amendment of the Act and which was endorsed by the CCC. Parties collectively polling at 48% of the vote, one of which may well win the next election, are now an existential threat to the Act.

Why is this? Why is it that a model that appeared to work so well for so long is now facing such headwinds?

The 2013 article framed the challenge for the Act as one of policy feedback, i.e., the need for a policy to itself create effects that would strengthen political support for the continuation of the policy, and to avoid creating ‘negative feedback’ that would strengthen opponents.

One problem was that the design of the Act and the nature of its key institution, the CCC, were primarily technocratic. Some commentators, seeing political consensus on climate through the 2010s and early 2020s, took the view that the Act underpinnned and helped create and maintain this consensus. However, I have always see the relationship as the other way round; it was the consensus on climate change up to 2023 that meant that challenges to Act were relatively minor, making it look more robust than it was.

In fact, technocratic bodies are always reliant on external constituencies to defend them, as Adam Posen points out in the case of central banks (also increasingly under attack):

The only way that central banks can credibly commit to price stability over the long-term is to maintain a political constituency in civil society supportive of such a policy regime. That support from civil society, not any legal statute, is what protects central banks when they make a hard decision that angers politicians. Absent that support, laws regarding central banks can be changed or threatened to be changed until monetary policy is changed. Central bank independence is endogenous to that support, and it will be curtailed when such support is lost.

The same is very much the case with the CCC and the Act itself.

So what have been the policy feedback effects in play over the last 17 years since the Act was passed?

On the negative side, what appears to be a negative interpretive effect – whereby the stance a politician or a member of the public takes in relation to an issue becomes bound up closely with their political identity – seems to have strengthened.

In my 2013 analysis, I noted that despite the apparent consensus at the time the Act was passed, with only a handful of votes against, this masked dissent on the backbenches of the Conservative party. A survey of Tory MPs in July 2008 indicated that one third of Conservative MPs were not convinced about man-made climate change. A survey of 141 prospective parliamentary candidates in January 2010 found that they collectively ranked reducing Britain’s carbon footprint as the lowest out of 19 policy priorities. The late 2000s and early 2010s saw increasing resistance to onshore wind energy in primarily Conservative-voting rural areas, leading to pressure on MPs, 100 of whom wrote to the then Prime Minister David Cameron in 2012 demanding an end to the programme (which followed in 2016). The pressure on the Conservatives to move away from consensus increased with the rise of UKIP on the right through the middle of the decade. For a while, in the wake of the Brexit vote, this pressure went away, but of course has now reappeared far more strongly with the rise of Reform. Reform is an authoritarian, socially conservative and nationalist populist party, and it now well-documented that such parties are hostile to the climate agenda, primarily on ideological grounds. Climate change is seen by populists as a cosmopolitan, liberal concern that has captured the elite and which imposes costs on the people. The Conservatives had already moved to the right with the expulsion or loss of more moderate one nation Tories in 2019, but in recent years have moved further towards more populist positions in a (so far ineffective) attempt to stave off the challenge on the right.

It is true that on the political centre and left, amongst the Labour party, the Liberal Democrats, Greens and the nationalist parties in Scotland and Wales, the commitment to climate policy remains strong, and if anything has also strengthened over the last 17 years as the impacts of climate change have become clearer. But it remains the case that there is a real possibility that the next election might be won by Reform outright, or possibly by a coalition of Reform and the Conservatives. To survive under these circumstances, the Act will have needed to generate some strong positive feedback effects. The most important of these are probably the creation of jobs and investment through climate policy, and a move to cheaper energy, and for both of these effects to generate political constituencies which will be able to stave off attempts to axe the Act.

Both government – see Ed Miliband’s recent speech at the Labour party conference – and business – see the response of Rain Newton-Smith of the CBI on the Tory announcement – use the jobs and investment argument. It is potentially powerful, but go beneath the headlines and the picture is a bit more complex and mixed. There are some areas (for example offshore wind in Humberside) where new jobs easily linkable to climate policy are very visible. But more broadly, the effects of decarbonization will largely be to ‘green’ existing jobs, rather than the ending of ‘brown’ jobs and the creation of new ‘green’ jobs. There is also a tendency to focus on manufacturing jobs, but there are some issues with this in a UK context. Manufacturing has become increasingly automated in the last few decades, and now provides relatively few, albeit higher skilled and higher paid jobs. The UK is overwhelmingly a service economy – we are not Germany. Perhaps particularly important for a political defense of the Act, trade unions are somewhat ambivalent on the issue of green jobs. Unions are broadly supportive of the transition in principle, but point out, rightly, that new green jobs tend to be less unionized and have worse working conditions than the old high-carbon jobs (for example in the switch from offshore working in oil and gas to wind).

The other potential important area of positive feedback is the cost of energy, and in particular electricity. The UK has been a success story for the ending of coal-fired power generation and the rise of renewables, especially solar and wind. Supporters of climate policy will rightly say that the costs of these new forms of electricity generation are now cheaper than fossil fuels. However, this was not always the case and electricity consumers (especially households and small businesses as some large energy intensive industries are exempt) are still carrying the legacy costs of a major subsidy programme in the 2000s and 2010s. At the same time, the lower costs of renewables do not yet fully benefit those consumers because of the design of wholesale electricity markets. This design means that despite the spread of renewables, gas-fired power generation still sets the price for a large proportion of the time. The current government’s clean power plan may eventually lead to big savings on bills (£300 a year has been promised), this will probably not happen until the early-mid 2030s, and in the meantime, the price cap for consumers has actually gone up in the last year.

What is the overall lesson here? First, that while building institutional and legislative structures around climate change is important, policy has to lean into the politics. A Climate Change Act is insufficient on its own, as it is does not insulate you against political change. The advice of the CCC is merely advice (with only a rather fragile requirement by government to report to Parliament on progress or lack thereof). In the end, like all other climate policy, it’s only as good as the political consensus on climate change. Moreover, the technocratic nature of the Act and the Committee has meant that insufficient attention has been given to the strengthening that consensus through policy feedback. As long as right wing populism remained under the surface of British politics, this was less of a problem, but this situation also masked a weakness in the absence of strong positive policy feedback effects.

There are now two urgent and important tasks needed to address this situation. First, build a much stronger political coalition around the jobs and investment benefits of climate policy, which can be done only by bringing unions on board and hence addressing their concerns. Second, by doing something to cut electricity bills in the short-term, and visibly presenting this as a glide path to permanently low bills in a new low carbon world. Without doing these, the risk is that the Climate Change Act will not survive into the next decade.