The Climate Change Committee has recently released its seventh carbon budget, and this is how it could affect your property portfolio.
Carbon budgets get released every five years by the Climate Change Committee (CCC) to advise the Government on the necessary targets to achieve Net Zero greenhouse gas (GHG) emissions by 2050. The UK’s Climate Change Act (2008) requires the Government to set these legally binding targets, which get proposed to Parliament before being set in law. This carbon budget was published in February 2025 for the five-year period 2038-2042 and Parliament are required to respond by June 2026 [1]. Carbon budgets, even if not set in law, are valuable indicators for policymakers and businesses to reduce emissions and foresee the future direction.
According to the CCC the UK’s best path to Net Zero by 2050 is the updated ‘Balanced Pathway’. It provides a deliverable pathway that has determined credible emission reductions for each sector of the UK’s emissions. This article will focus on the residential and non-residential building sectors – beneficial for businesses with a property portfolio.
The CCC recommends the Seventh Carbon Budget to be set at 535MtCO2e for 2038 to 2042. This requires a 75% reduction in emissions compared to today’s GHG levels. Residential buildings will account for 14% of emissions reduction by 2040, 12% from electricity supply and 24% from other sectors, including non-residential buildings. Electrification and low-carbon electricity supply is proposed as the best way forward, with both residential and non-residential sectors able to almost completely decarbonise by 2050 as electric alternatives are readily available.
Residential buildings is the second highest emitting sector in the UK economy and non-residential is the 9th, accounting for 12% and 5% UK emissions in 2023, respectively. Buildings are a priority sector that need to reduce emissions by 66% for residential and 87% for non-residential, by 2040. However, to meet Net Zero targets, businesses like housing associations should also consider the households sector to account for how residents are using the buildings.
Residential Buildings
Fossil fuel heating and hot water is the largest source of emissions in residential homes (96%), gas accounting for 80%. The pathway proposes for low-carbon heating to be installed in 68% of homes by 2040 and 100% of homes by 2050 through installing:
- 75% of individual heat pumps
- 3% of communal heat pumps (for flats and terraced houses)
- 9% of low carbon heat networks
- 13% of direct electric heating (for those with lower heat demand)
Energy efficiency measures, such as draught proofing, loft/floor insulation, cavity/solid wall insulation, accounts for 10% emissions reduction by 2040, and 9% for energy saving practices. All new homes are expected to be highly efficient with low carbon heating systems, reducing emissions by 14%.
Non-residential Buildings
Individual heat pumps are suitable for most non-residential buildings or the use of a heat network for distribution to multiple buildings, reducing 49% of emissions by 2040. All cost-effective energy efficiency measures should be taken up by 2032, to save 31% of energy in public buildings and 22% in commercial by 2050. These will include using energy management systems, zone/timing controls and insulation. The electrification of catering by replacing gas and oil equipment with electric alternatives is expected by 2040 to reduce 9% of emissions. Fossil fuel use in hospitals and leisure facilities should also be fully electrified by 2045.
Households
Households adapting and choosing low carbon heating and energy efficiency measures can reduce 30% and 4% of emissions by 2040, respectively. Energy saving practices such as reducing waste and switching to electric appliances can also save 8% of emissions.
Implementation
All the transitions above will reduce energy demand and therefore reduce household bills. Low carbon heating systems will require a higher upfront cost, but the savings thereafter will provide a cost neutral or a cost-effective pathway. The CCC convened a citizens panel where the majority were in favour of the transitions, provided that appropriate policies were in place and low-income households and farmers were protected. The Committee suggest the government and business work together to make these choices accessible.
The CCC have created 43 priority recommendations to deliver the seventh carbon budget, which cover the following themes:
- Making electricity cheaper
- Removing barriers – enable rapid deployment of low carbon technologies
- Provide certainty – set clear, timely decisions
- Support households – provide information and incentivised support
- Support businesses
- Enable growth for workforces and support workers
The specific recommendations for buildings include no new properties completed from 2026 to be connected to the gas grid, all heating systems installations to be low carbon after 2035, long-term funding for social housing for energy efficiency improvements – aimed at poorly insulated homes.
Benefits
These transitions will provide improved health through better air quality, stable energy bills, better insulated homes and improvements in workforce diversity in growing sectors. Phasing out fossil fuels reduces indoor exposure to pollutants with health risks and the alternatives will provide warmer, less damp homes and reduce fuel poverty, provided correct installations. An estimated 120,000-230,000 jobs will be created by 2030 to support the essential deployment of low carbon heating.
The UK outperformed the first three carbon budgets, covering the period 2008-2022, by a total of 811 MtCO2e and is also on track to overachieve the fourth carbon budget [2]. This carbon budget is ambitious but achievable and will help us reduce the severity of future climate change effects in the UK.
If you require guidance on low carbon strategies and environmental reporting, then please get in touch – [email protected]
[1] The Seventh Carbon Budget – Climate Change Committee
[2] UK overachieves another carbon emissions target and rejects rollover – GOV.UK
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