The Clean Heat Market Mechanism (Amendment) Regulations 2025: impact assessment - RPC opinion (green-rated)
The RPC's opinion of the Department for Energy Security and Net Zero's impact assessment (IA) for The Clean Heat Market Mechanism (Amendment) Regulations 2025, laid before Parliament on 20 November 2025
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The Government established the Clean Heat Market Mechanism (CHMM) scheme on 1 April 2025, which introduced an obligation on manufacturers of gas and oil boilers, sold on the UK market, to hold credits corresponding to qualifying installations of heat pumps in proportion to their relevant UK boiler sales. This proportion was set at six per cent for the first year of the scheme (2025/26).
The amendment regulations increase the low-carbon heat pump installation target to eight per cent of eligible boiler sales for the second year of the scheme, beginning on 1 April 2026. Additionally, the amending legislation names the Microgeneration Certification Scheme as the sole certification scheme for the CHMM, and amends the definition of a “hybrid heating system” under the scheme so that such a system, which incorporates both a heat pump and a fossil fuel heating appliance, is not required to provide hot water in addition to space heating.
As required under the current Better Regulation Framework, the RPC produced an opinion on an earlier options assessment (OA) version of the final IA that has now been published by the Government.
The IA makes a sufficient case for continued intervention, based on the need to increase uptake of energy efficient technologies to achieve the Government’s target of net zero emissions by 2050. The small and micro business assessment is sufficient, providing a good description of the potential impacts and exemptions. The OA justified the preferred approach using both a qualitative discussion and a monetised appraisal of the preferred options. The assessment’s regulatory scorecard provides a good summary of the expected impacts of the preferred options, including an overall estimated net present value (NPV) [of £266 million – for the eight per cent option] (2024 price year, 2024 present value base year) and a summary of monetised impacts on business and households These are based on additional upfront capital costs, long-run variable energy costs, admin’ and familiarisation costs, carbon savings, air quality benefits, maintenance costs and ‘hidden’ costs. The OA also summarised usefully, some of the non-monetised benefits of the proposal.
The OA we scrutinised estimated an equivalent annual net direct cost to business figure as £11.5 million (2024 prices, 2024 pv base), based on the assumption that businesses would elect to pay the payment-in-lieu for every additional heat pump they are required to deliver. The policy is expected to have a negative effect on households, with a household NPV estimated at -£48 million (2024 prices, 2024 pv). This is driven by price increase to households caused by moving from gas to electricity, which is insufficiently offset from the gain in heating efficiency.
The assessment does well in considering the distributional effects of the scheme, arguing that no impact on fuel poverty is expected. The assessment acknowledges that higher-income households are more likely to benefit, in the short term, from the policy.
The OA included a satisfactory plan for monitoring and evaluation (M&E), committing to a robust approach. The assessment outlined how the Department plans to conduct a post-implementation review of the policy by 1 April 2030. The M&E section helpfully outlined the aims of the M&E, expected key metrics to be used to monitor the scheme, including the frequency of data collection, the types of evaluation that will be conducted, and an overview of potential methods, such as qualitative interviews. The evaluation section usefully sets out indicative time frames for the various phases of the evaluation, including when findings are expected to be available.
The Regulatory Policy Committee rated the OA as fit for purpose; green-rated.