The UK's Climate Change Committee (CCC) has just released its Seventh Carbon Budget, a bold plan to cut greenhouse gas emissions by 87% by 2040. But what exactly is a carbon budget?
Carbon budgets are five-year limits on carbon emissions set by the UK Government. The Climate Change Committee (CCC) is an independent statutory body established to advise the Government on progress in reducing greenhouse gas (GHG) emissions and preparing for the impacts of climate change. The Seventh Carbon Budget sets the carbon limit for the period 2038 to 2042. It’s not a government report but rather an independent, science-based roadmap recommending how the UK can transition to a low-carbon economy and achieve its net-zero targets. Importantly, it is achievable—but requires rapid action, something that has stalled progress against previous budgets.
This pathway provides clear opportunities for industries to guide their own decarbonisation strategies while also outlining how it will impact households and the businesses that serve the domestic market.
What Does the Carbon Budget Mean for Households and Housing Developers?
The report covers a wide range of recommendations for domestic, infrastructure, and business targets. Here are the top five factors we see as most important for households:
Residential Buildings: Reducing Emissions Through Electrification
Emissions from residential buildings have been declining over the past five years but remain the second-largest emissions source in the UK. However, these reductions have been largely driven by higher gas prices (exacerbated by the Russian invasion of Ukraine) and milder winters, rather than structural improvements in energy efficiency.
UK homes still rely heavily on gas for heating space and water, as well as for kitchen appliances like ovens and cookstoves. Homeowners can improve energy efficiency through draught-proofing and insulation, but 66% of emissions reductions will need to come from low-carbon heating—specifically, electrification.
This presents a massive growth market for suppliers but requires a workforce with expertise in installation and maintenance. There has been ongoing debate around whether hydrogen could be a solution for home heating, as it might allow homeowners to avoid costly upfront system changes. However, the CCC has repeatedly stated:
“There is no role for hydrogen in home heating.”
Key Actions to Decarbonise Residential Buildings
To accelerate the transition, several key actions are needed:
- Decarbonisation of the electricity grid
- Reinstating regulations for low-carbon heating installation beyond 2035
- Financial assistance for heating conversions (e.g., boiler upgrade schemes)
- Regulations preventing housing developers from connecting new builds to the gas grid from 2026
The Role of Housing Developers
Developers must ensure that their supply chains can support the design and construction of homes that are compatible with electric heating systems. This extends beyond installing heat pumps—it also requires better building envelopes to maximise efficiency and minimise electricity demand.
The UK lags behind much of Europe in the technical skills needed for heat pump installation. Homeowners and tenants will need reliable, skilled technicians to ensure their systems function properly—particularly in winter, when failures could have serious consequences.
Transport: The Future Is Electric
Transport and housing go hand in hand when it comes to decarbonisation. The recommendation is that by 2030, nearly all new vehicles should be electric, and by 2040, the vast majority on the road should be as well. However, delays are likely.
For households, charging infrastructure is a major hurdle. Without accessible home charging, the transition to EVs will be difficult. This is a key consideration for:
- New housing developments (both individual homes and apartment complexes)
- Commercial developers (who should include charging facilities and storage for low/zero-carbon transport)
Failure to plan for decarbonised transport infrastructure will make the transition more expensive and disruptive in the long run.
Challenges from Previous Carbon Budgets
While the Seventh Carbon Budget sets ambitious goals, it’s important to acknowledge that previous budgets have faced significant challenges.
Key barriers include:
- Inconsistent policy support
- Delays in infrastructure development
- Regulatory uncertainty
Businesses have often struggled with unclear government incentives, leading them to postpone investments in low-carbon technologies. Economic disruptions—such as the global financial crisis and the COVID-19 pandemic—have also derailed emission reduction efforts.
The lesson from past failures is clear:
- A stable policy environment and strong government leadership are essential.
- Businesses must take proactive steps rather than waiting for regulations to force change.
Without long-term planning, companies risk regulatory shocks and rushed transitions in the future.
The Business Case for Action
Businesses in the domestic housing market should be paying close attention to the carbon budget as part of their risk and opportunity assessments.
The UK’s net-zero economy is expanding rapidly:
- Contributed £83.1 billion in gross value added
- Supports nearly 951,000 jobs nationwide
- Attracted £23 billion in net-zero investments in 2023 alone
- 47% increase in foreign direct investment from the previous year
This influx of capital is driving innovation in renewable energy, electrification, and low-carbon technology. Businesses that act early will be best positioned to capture market share and avoid supply chain bottlenecks as demand grows.
However, developers must ensure that they are designing and constructing housing in line with the UK’s decarbonisation goals. This requires:
- A robust supply chain to support sustainable building practices
- Workforce readiness to handle electrification and efficiency improvements
- Collaboration with policymakers and industry groups to stay ahead of regulatory shifts
Taking the Next Step
For businesses wondering what to do next, the first step is to:
- Assess current emissions and identify key impact areas
- Evaluate market climate risks and opportunities
- Understand the financial implications of net-zero policies
- Develop a transition plan to future-proof operations
The Seventh Carbon Budget is more than a policy—it’s a glimpse into the future of business in the UK. Early adopters will thrive, while those who delay may find themselves struggling to keep up.
How Acclaro Advisory Can Help
Acclaro Advisory can support your business in identifying climate risks and opportunities and developing a transition plan.
Get in touch today to learn how we can help your business stay ahead of the transition.Bottom of Form
About Acclaro Advisory
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