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Developers and contractors will compete to offer carbon reduction schemes designed to mitigate emissions from zero carbon housing developments, under proposals outlined this week.

The proposals, which have been drawn up by the pan-industry Zero Carbon Hub, are the final element of the definition of zero carbon housing required by 2016. They could see developers set up community heating and electric car charging schemes in order to create a free market in offsite carbon reduction.

The proposals are known as allowable solutions. Under the 2016 target, housebuilders can use allowable solutions to meet the zero carbon target once they have met minimum standards for the energy efficiency of the building fabric and onsite renewable technologies.

Developers could set up community heating schemes to create a free market in carbon reduction

The Zero Carbon Hub said a free market should be created for allowable solutions to prevent allowable solutions from becoming uncompetitive, and these should be local where possible. The Hub, which sent the proposals to housing minister Grant Shapps this week, cannot set policy, but the government has previously followed its advice closely.

In the market, developers will be able to choose from a list of allowable solutions drawn up by local authorities. These could include a range of options including community heating, LED street lighting or electric car charging schemes. Each option will have a carbon price that must be below the national carbon price ceiling. Developers can choose whether to pay into a local community energy fund or a private third party provider.

If local authorities haven’t devised an allowable solutions policy, developers will pay into national private energy funds, with the money used to pay for a range of options including energy from waste schemes or wind farms. Developers could set up their own schemes to undercut other private energy fund providers.

Housebuilders will calculate how much they need to pay into a scheme but not pay until completion, enabling allowable solutions providers to plan ahead and conserve cash flows.