In the News

UK government offers consumer subsidy for heat pumps

Graham Watson

19th October 2021

The UK government is offering a £5,000 grant for people swapping their gas boilers for low carbon heat pumps.

Ostensibly, this is good news and you should think about how to draw a demand and supply diagram. Will this mark the beginning of the end for the gas boiler?

However, let's evaluate this a bit further.

The £450m allocated will only cover 90,000 heat pumps - which won't make much of a dent in the UK's carbon emissions. There are north of 30 million homes in the UK so this subsidy covers less than 0.4% of homes.

Equally, who will get the heat pumps? The first to apply? Those with most knowledge of the market? Or only those with the money and suitable properties to make this viable.

So, the distributional effects are unclear.

And what about the electricity used to power the heat pumps - if it comes from renewable sources, then all well and good, but if it isn't what is the net effect on carbon emissions?

Will heat pumps reduce energy bills for households? Probably not at the moment but hopefully yes in the future as industry technologies advance. Prices for heat pumps should also fall in the long run due to economies of scale in production.

The Green MP Caroline Lucas adds to the critical evaluation of this government policy below.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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