What the UK carbon budget delivery plan means for real estate

The CBGDP (238-page / 1.74MB PDF), together with the government’s response (92-page / 649KB PDF) to the June 2025 progress report issued by the independent Climate Change Committee (CCC), contains details of new policies and proposals that businesses active in the real estate sector can expect to materialise in the months and years ahead – and provides a status update on a range of existing initiatives.

The context

The UK government has a legal obligation, under the Climate Change Act 2008, to deliver a net zero economy by 2050.

Under the Act, the government is further required to set five-yearly carbon ‘budgets’ that align with the net zero goal. After each budget is approved by parliament, the government must set out the proposals and policies it has or will develop for meeting that and future carbon budgets. The CBGDP represents the government’s latest attempt to meet that reporting obligation – earlier versions of the report were ruled unlawful.

In the CBGDP, the government highlighted how the UK has “already met, and overachieved” against the first three carbon budgets that were set, which covered the period from 2008 to 2022. The UK is “on track to meet the fourth”, which applies to the period for 2023 to 2027, it added. The UK’s fifth and sixth carbon budgets have already been set. The government is due to outline the seventh carbon budget by June 2026 – it will cover the period from 2038 to 2042.

While the CBGDP has cross-economy relevance – and includes details of policy and proposals relevant to sectors ranging from aviation and other transport to power, waste and agriculture – a significant section of the report focuses on measures to reduce emissions associated with buildings.

Around 17% of UK greenhouse gas emissions in 2023 were buildings emissions. This does not take account of the further emissions from the industrial sector which relate to building materials. According to the UK’s Green Building Council, around 80% of buildings that will be in use in the UK in 2050 have already been built. As it has highlighted, this puts a major emphasis on decarbonising existing stock if the UK’s net zero target is to be met. This means making buildings more energy efficient and transitioning towards lower carbon heating and cooling solutions, particularly.

The link between cheaper clean electricity and real estate decarbonisation

In its June 2025 report, the CCC, which advises the government on setting its carbon budgets, called on the government to put “making electricity cheaper” top of its net zero agenda priority list. This is because, it said, “the UK’s electricity-to-gas price ratio remains too high” to incentivise homeowners and businesses to take up low-carbon options for heating buildings. It called on the government to remove “policy costs from electricity” to incentivise the switch to “efficient electric technologies”.

In the CBGDP, the government has made the clearest statement yet that it will act on this.

“Over this parliament the government will be working relentlessly to translate the much cheaper wholesale costs of clean power into lower bills for consumers,” it said. “This will be core to every decision we make. We will set out our plans in due course.”

Woven through the CBGDP, and in its response to the CCC, are acknowledgements from the government of the fact the high cost of electricity relative to gas is an obstacle to achieving emissions reductions.

For example, it has acknowledged that the costs of operating heat pumps in residential properties are higher than they could be owing to the fact that electricity prices in Britain are linked to wholesale gas prices, which come in higher than the wholesale price of clean energy. This, it has admitted, can put people off from switching out traditional gas boilers for heat pumps – even with financial schemes in place to support with upfront costs.

Similarly, in the context of non-residential property, the government said it is “working to reduce electricity costs for those who invest in electrification” and “will continue to develop the right balance of incentives to support buildings to choose to move to clean heat in non-domestic buildings and will consult on these in due course”.  Its stated aim is that, by 2035, “clean heat will be the rational choice for building owners and will represent the majority of heating systems in non-domestic buildings”.

The impact of barriers to the take of low carbon solutions like heat pumps on decarbonisation efforts in UK real estate is potentially significant.

According to the government’s own figures, around 84,000 heat pumps have already been sold in the UK. While that represents a tripling of sales since 2019, the government has said that to align with its targets for reducing emissions relating to heat and buildings, there will need to be 2.5 million domestic installations of heat pumps by 2030 and 9.3 million such installations by 2035.

The rate at which further energy efficiency measures are applied and at which commercial buildings transition to low carbon fuel consumption and heat network heating also needs to accelerate, it said.

“We need to ensure that consumers can be confident in choosing clean heat and other low-carbon technologies if we are to drive emission savings,” the government said. “There are risks that these choices may not be taken due to several factors, including consumer concerns around whether low carbon technologies will be suitable for their home and uncertainty around which sources of information consumers can trust. Should these risks fail to be mitigated against, this could mean there would not be widespread adoption of technologies critical to decarbonising buildings.”

The eagerly anticipated ‘Warm Homes Plan’, which will cover all property types, is expected to provide some details of the government’s plans to deliver on lowering energy bills while enabling decarbonisation. That plan had been expected in October but will now, the government confirmed, follow “shortly”.

“The positive interventions that will be set out in the Warm Homes Plan will look to reduce the upfront and running costs of a heat pump, support the heating industry to invest in low-carbon heating, improve the consumer journey and ensure that a range of low-carbon technologies are available to consumers,” the government said. A “core pillar” of the warm homes plan, it added, “will be to electrify homes and buildings with clean technology such as rooftop solar, heat pumps and home batteries”. The government has set aside £13.2 billion of public funds to support the plan.

Other new policy announcements

Beyond confirming its plans to address the price disparity between electricity and gas to facilitate the transition to clean technologies, the government made a series of other new policy announcements in the CBGDP.

Carbon pricing

The government said it does not intend to introduce further carbon pricing to industry or buildings in the UK before the end of the decade, beyond existing trailed plans to extend the scope of the UK’s Emissions Trading Scheme (ETS) and its linking with other schemes, such as the EU’s ETS.

Electric vehicle charging

Among early-stage proposals listed were plans for a consultation to be launched on rules relevant to the installation of electric vehicle chargepoints. That consultation, it said, will explore the removal of barriers to chargepoint roll out for those in rented and leasehold properties, as well as the removal of an existing exemption from building regulations on chargepoints in covered car parks. New measures to prevent landlords from overcharging tenants for using their electric vehicle chargepoints are also to be explored.

Owner-occupied non-domestic property

The government has confirmed that a full suite of policy measures to further support greater energy efficiency in owner-occupied non-domestic buildings from 2031 is under investigation. One proposal that was referred to in the 2021 carbon budget delivery plan was to extend minimum energy efficiency standards (MEES) – which currently apply to the letting of private residential property in England and Wales – to such properties.

Existing policy initiatives

The CBGDP also provided an update on a series of ongoing policy initiatives relevant to decarbonisation of UK real estate.

Residential

The government confirmed that the Future Homes Standard will be published “in the next few months”. Under the new standard, “new homes will have low-carbon heating, such as heat pumps and high levels of energy efficiency”, it said, adding that “solar panels will also be included in the FHS for the majority of new homes”.

The government has also confirmed its intention to publish its response to the domestic MEES consultation “this year”. The consultation explored options to raise energy efficiency standards in the domestic private rented sector, to make homes easier to heat, tackle fuel poverty, and lower carbon emissions. The government said it will also respond to a separate consultation, in which it proposed setting MEES for social housing for the first time, “in due course”.

The CBGDP also refers to the government’s consultation on reform to the current system of energy performance certificates (EPCs), which mainly impacts residential EPCs. However, while the document shows the government continues to work on an assumption that reform will take effect in 2026, it does not provide a timeline for the government’s response to its consultation.

Commercial

The Future Buildings Standard will be “published in the next few months”, the government said. This “will set our new buildings on a path that moves away from relying on volatile fossil fuel markets and ensures they are fit for a net zero future, highly efficient with low carbon heating”. It said it expects new non-domestic buildings under the FBS to be built with solar panels.

In addition, the government said it “aims” to publish a response this year to the consultations the previous government held in 2020 and 2021 on tightening MEES for non‑domestic, commercial, buildings.

Heat networks

The CBDGP confirms that regulation to regulate heat networks for consumer protection reasons and to grow low carbon networks will be introduced. The government is working to an assumption this will be effective from 2027. It also confirmed plans for heat network zoning and that the government will support 10 of the biggest English towns and cities to establish zones once the zoning regulations are live. The assumed date for impact from zoning is given as 2029. 

Fossil fuel phase out and hydrogen

The CBGDP re-affirms the intention not to mandate a phase out of fossil fuel boilers but instead to make low carbon heating the “rational choice”.

While there are no current plans to facilitate hydrogen-based home heating, it has not ruled out intervention in this area in future. It said: “We will consult in due course on our assessment of whether hydrogen should play a role in home heating as an additional option to other low carbon heat technologies such as heat pumps and heat networks. As hydrogen is not yet a proven technology for home heating, any role would come much later and would likely be limited. If we conclude that hydrogen could play a role then some of the savings to be delivered by heat pump deployment in on gas grid homes could instead be delivered through hydrogen heating.”

Solar in car parks

Earlier this year, the government opened a call for evidence with a view to gathering views on proposals to mandate solar canopy installation in car parks in England, Wales and Northern Ireland, to bolster renewable energy generation and provide “localised power” for charging electric vehicles. In the CBGDP, the government said it is considering its policy options.

Other enablers of decarbonisation

Running to some 238 pages, the CDGBP devotes considerable attention to tackling a series of issues of concern to the real estate sector, such as those relating to electricity supply and grid issues, skills and training, and reporting obligations – seen as investment enablers.

There is specific acknowledgement in the document of the role that building materials have to play in the context of decarbonisation.

With the expectation that steel production will be electrified by the 2030s, the government has confirmed that it plans to publish a steel strategy this year.

Reference is also made to the cross government and industry working group on timber in construction, which is exploring how use of timber in construction can be increased in a sustainable way.

The document also highlights the role that the UK’s Carbon Border Adjustment Mechanism (CBAM) can play in addressing ‘carbon leakage’ – where emissions cuts in the UK are in practice off-shored, owing to factors such as regulation and more sustainable practices in the UK.

The CBAM, due to be introduced from 1 January 2027, will effectively impose a levy on certain goods that are imported to the UK from jurisdictions where there are no or lower carbon prices than those in the UK.  The import of steel, iron, cement and aluminium products will be covered by the scheme.

Whole life carbon

The CBGDP includes a stated intention of the government to encourage the use of whole-life carbon assessments to measure  carbon emissions across a building’s lifecycle – from material extraction to deconstruction. Its timeline for this is during the period of the fifth carbon budget, 2028 to 2032.

It said: “Reporting and standards can help to drive the uptake of lower carbon materials, more resource-efficient outcomes, and the transition to a circular economy in the built environment, for example by encouraging the use of low carbon concrete, or the lean design of buildings. Overall, this can reduce demand for high emissions, virgin construction materials (especially concrete, steel), reducing UK industry emissions.”

The government has also confirmed that a circular economy strategy is under development and that, from 2028 at the earliest, “circularity principles” could be integrated into planning and development processes. Adoption of “voluntary Circular Economy Statements and pre-deconstruction audits” could also be encouraged, it added.

Options to incentivise the use and lifetime extension of existing buildings could also be introduced post-2028.

Eyes on implementation

This plan shows a seriousness of approach and a detailed appreciation of the scale of the task, the challenges, the solutions and of the opportunities in terms of growth and job creation.

For real estate, many of the policy intentions are not new but the intent to progress these after years of delay is welcome. We now need to see implementation on these.

There are also important new commitments, in particular on the crucial issue of bringing down electricity costs which are currently a key barrier to decarbonisation, which the sector will be pleased to see. Also welcome is the fledging policy intentions on the completely unregulated area of embodied carbon. We need to see these developing in the second half of this decade.