How carbon credits are creating a new funding stream for social housing providers

Scotland is at the forefront of climate action, aiming to achieve net zero emissions by 2045, five years ahead of the UK target. The ambitious target presents a significant challenge for Registered Social Landlords (RSLs). Transitioning to energy-efficient, low-carbon heating systems is imperative with more than 600,000 homes in the social housing sector, of which approximately 500,000 rely on gas boilers. Social housing has a vital role to play in helping Scotland meet its climate change targets.

The role of social housing in Scotland’s net zero goals

Social housing in Scotland accounts for a significant portion of the country’s housing stock, much of which is old and energy inefficient. Poorly insulated homes result in higher energy consumption, contributing to Scotland’s carbon emissions and exacerbating fuel poverty among tenants. To address this, the Scottish Government has set ambitious targets under the Energy Efficiency Standard for Social Housing (EESSH) and its extension, EESSH2. All social housing must achieve a minimum Energy Performance Certificate (EPC) rating of B or better by December 2032, aligning with Scotland’s climate goals.

With pressure mounting to meet these ambitious goals, the costs of retrofitting at scale are significant. While grants from the Scottish Government provide partial support, the financial challenges of retrofitting at scale require additional and innovative funding solutions. Carbon credits offer one such opportunity.

Understanding carbon credits

A carbon credit represents a reduction or removal of one tonne of carbon dioxide (or equivalent greenhouse gases) from the atmosphere. These credits act as a measurable way to incentivise carbon reduction efforts. They can be traded on two primary markets:

• Compliance markets – Regulated by governments or international agreements, these markets require industries to meet emission limits. If they exceed their cap, they must buy carbon credits to offset the excess.

• Voluntary markets – Businesses and organisations looking to reduce their environmental impact can buy credits to offset their emissions voluntarily.

The concept is relatively simple: organisations that produce emissions can purchase credits to compensate for their carbon footprint by funding projects that remove or reduce emissions elsewhere. These projects range from renewable energy, peatland restoration, afforestation or reforestation initiatives to energy efficiency improvements, such as retrofitting homes with better insulation or replacing gas boilers with low-carbon heating systems.

One example of this, in practice, is the Retrofit Credits programme, developed by HACT and PNZ Carbon, which verifies both the emission reductions and the social value generated from housing retrofits. This approach not only contributes to environmental goals but also enhances the wellbeing of residents and communities. By incorporating social value metrics, the programme ensures that the benefits of retrofit activities extend beyond carbon reduction to include improved living conditions and community development.

For RSLs, this presents an opportunity to generate additional funding. When RSLs carry out retrofit projects, these upgrades lead to lower energy consumption and reduced carbon emissions. By measuring these reductions accurately and certifying them as carbon credits, RSLs can sell them to businesses looking to offset their emissions. This means that retrofitting social housing does not just help tenants lower their energy bills and improve comfort; it also creates a financial return by turning carbon savings into a marketable asset. By participating in carbon credit schemes, RSLs can secure an ongoing revenue stream to fund further retrofit projects, making net zero targets more achievable without placing the financial burden solely on government grants or tenants.

The process of generating and selling carbon credits for RSLs

For RSLs, engaging in carbon credit schemes can generally be broken down into the following key steps:

• Identifying eligible retrofit measures: Projects such as improved insulation, heat pump installations, solar panels, and upgraded ventilation systems can generate carbon credits when they lead to verifiable reductions in emissions. RSLs should prioritise measures that maximise energy efficiency and align with Scotland’s net zero targets.

• Measuring and verifying carbon savings: To qualify for the programme, RSLs must demonstrate actual carbon savings. This requires energy performance assessments before and after retrofit work, following verification standards such as PAS 2035. Third-party validation ensures credibility and enhances the marketability of the credits.

• Selling carbon credits to generate revenue: Once verified, carbon credits can be sold to businesses and organisations seeking to offset their carbon footprint. The revenue generated provides a new funding stream, that can be reinvested in further retrofit projects, making large-scale improvements more financially feasible.

• Strengthening partnerships and collaboration: Participation in carbon markets opens up opportunities for RSLs to work with local authorities, sustainability-focused investors, and corporate buyers looking to offset emissions. This can lead to further funding opportunities and long-term support for decarbonisation efforts.

Conclusion

The path to net zero for Scotland’s social housing sector is fraught with challenges, but innovative funding mechanisms such as carbon credits offer a viable solution. By tapping into these opportunities, RSLs can not only meet regulatory requirements but also enhance the quality of life for their residents. Through strategic planning and collaboration, Scotland’s social housing sector can make significant strides towards a more sustainable, low-carbon future.