Scots could be financially “penalised” for failing to upgrade heating systems such as installing heat pumps, a stark report led by Patrick Harvie into the struggling strategy to pay a £33 billion bill for the green transition has warned.

Mr Harvie, the Scottish Government’s zero carbon buildings minister, is set to launch a consultation on his long-awaited draft heat in buildings legislation this week – which could set out when people are required to replace boilers with systems that do not burn fossil fuels.

The strategy is set to make energy efficiency requirements for reformed EPC standards that will take into account the heating system, as well as other factors.

Back in 2021, Mr Harvie set out his aims and admitted that the strategy to clean up how buildings are heated will cost at least £33 billion, but the Scottish Government has only committed £1.8 billion of public funding to the strategy.

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Mr Harvie, who is also the co-leader of the Scottish Greens, is also leading the green heat finance taskforce, which has published its recommendations ahead of the consultation being launched this week.

The taskforce, co-chaired by Mr Harvie, has suggested a strategy to “encourage investment by providing monetary benefits to undertake works”, as well as to “alternatively penalise those who do not adhere to the encouraged behaviour”.

It adds that financial penalties to those that do not undertake the work could “potentially then provide funding to subsidise retrofit programmes”.

The taskforce has also pointed to “taxation powers such as land and building transition tax for domestic properties or non-domestic rates for non-domestic properties” as fiscal policies to unlock funding for the strategy.

It adds: “The taskforce would therefore like to see the Scottish Government explore those areas where it does have devolved powers (e.g. LBTT) more fully, where it is able to do so, as well as to work with the UK Government to look at other areas, such as VAT or capital allowances, that are reserved.”

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One of the key recommendations suggests that the “Scottish Government should review and publish, by the end of 2024, the potential of incentivising domestic property owners to increase levels of retrofit works through fiscal and taxation policy”.

The report adds: “Penalties could also be charged and levied on those who do not wish to undertake the measures.

“Such fiscal measures could be developed either/or at a national, or local authority level, and could be combined. The receipt of penalty payments could be used to subsidise some of the costs of funding a programme.”

It adds that council tax levels could also be varied, depending on the energy efficiency rating of a property.

The report sets out that “discounts and premiums could be applied to building rates” for domestic and non-domestic properties by local councils, “depending on their net zero performance”.

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It adds: “Premiums could be used to support private investment and fund works for a systematic programme of net zero measures, e.g. building by building, across a local authority area.”

Time to upgrade thousands of homes is running out, with both Edinburgh and Glasgow remaining committed to a 2030 net zero pledge.

But the interim report warns that “there are serious barriers to completing retrofit works”.

It says: “We recognise that key amongst them are the complexity for consumers in identifying the right technology and financing option for their property, and the nervousness many people have about physical disruption that may occur while the works are underway, as well as concerns that property value enhancement from installation of new heating systems may not be fully reflective of installation costs.”

The report concludes that while the market for financing green heating and insulation measures is currently immature, it is expanding – with green mortgages increasing from four to over 60 products in the past four years - and that there is substantial future growth potential as the demand for clean heating systems increases.

The Herald: Green zero carbon buildings minister Patrick HarvieGreen zero carbon buildings minister Patrick Harvie (Image: PA)

The report calls on the Scottish Government to co-ordinate the development of a “menu” of private financing products to help consumers choose how to finance the up-front costs of installing clean heating systems.

Under initial plans, the Scottish Government’s new build heat standards will come into effect next April, banning gas boilers being installed in new homes.

By 2033, all domestic homes will be required to meet the reformed EPC band C standards and by 2045, all buildings in Scotland will be on zero direct emissions heating systems.

But concerns have been raised over the ability to pay for the strategy - with heat pumps costing thousands to install and often requiring additional home insulation works as well.

Scottish Conservative shadow net zero secretary, Douglas Lumsden, said: “This smacks of total desperation by the SNP-Green Government.

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“After ditching previous plans – such as making it illegal to sell your house if it had a boiler – as unrealistic and unaffordable, they’re now peddling this equally daft scheme.”

He added: “Trying to finance subsidies to fit heat pumps by fining people who don’t fit heat pumps is bonkers. And Scottish taxpayers foot the bill either way round.

“Imposing eye-watering costs and absurd targets on struggling households actually hinders the journey to net zero. It’s clear this government isn’t serious about finding workable, balanced measures for that, or for helping Scottish families.”

Scottish Labour’s net zero spokesperson, Sarah Boyack, said: “We are in a cost of living crisis so the focus should be on how people get support and advice they need to make their homes more energy efficient and affordable to heat.

“Not only is the SNP failing on their net zero targets, they have no plans to give support to make this transition smoother for the public.

“Only Scottish Labour has a serious plan to achieve net zero in a way that will bring more jobs, lower bills, and a just green transition to Scotland.”

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The Scottish LibDems’s climate emergency spokesperson, Liam McArthur, has claimed SNP and Green ministers are “moving too slowly when it comes to decarbonising homes and reducing fuel poverty”.

He added: “However, encouraging people to shift to climate friendly methods of heating is an area where the carrot is much more powerful than the stick.

"Installing heat pumps and phasing out gas boilers will be vital to enhancing energy efficiency and bringing down bills but when households are hard-pressed they need to be supported to make the change.

“The Government also needs to urgently ramp up training to create good green jobs because the scale of the task is huge and people need to know that they can find trusted installers, otherwise all plans will fall flat.

“SNP and Green ministers need to set out a detailed plan for how they will meet our net zero targets while taking the public along with us."

The taskforce has set out other key recommendations for the Scottish Government to consider.

Read more: SNP-Greens to penalise gas boilers to 'encourage' heat pumps take-up

Ministers have been urged to “review and publish, by the end of 2024, analysis of how non-domestic rates reliefs can better support and encourage investment” in the strategy.

From early next year, ministers have been urged to work with the Green Finance Institute, the Scottish Financial Enterprise to “expand current market engagement” and provide “greater public awareness” of products like green mortgages.

The Scottish Government has also been recommended it investigate “co-investment vehicles” to blend private and public funding “with the support of the Scottish National Investment Bank” and the Scottish Financial Enterprise and Scottish Futures Trust.

The Scottish Government has been urged to “seek to mitigate the split incentive issue by researching and piloting, by early 2025, the potential for green rental agreements, to encourage retrofitting in rented properties” aid concerns over landlords being required to pay for upgrades but lacking enthusiasm because they are not living in the properties.

Mr Harvie said: “I am very grateful for the considerable effort, expertise and insight provided by the Taskforce.

“The report sets out very clearly the steps we need to take - not only as a government but by collaborating with industry and wider society - to improve access to finance and to give people and businesses the confidence and assurance they need to act and make their properties greener and warmer.

“The products identified by the taskforce in this first report are primarily suitable for people who can afford the repayment costs over time.

“Of course, we know some people may not be able to afford such repayment costs and I therefore anticipate a mix of public and private financing in various combinations will be required as we transition to clean heat at scale.

“I am hugely encouraged that the report recognises the substantial growth potential for green finance products. The report also makes clear that greener homes can play a major role in improving health by making properties warm and dry.

“We will respond to the recommendations following publication of the taskforce’s second report next year.”