The Clean Heat Market Mechanism (CHMM), launching next year, will place an obligation on the manufacturers of heating appliances to meet targets for the proportion of low-carbon heat pumps they sell each year, relative to fossil fuel boilers. And these targets will steadily increase year-on-year.

For the first year of the scheme, 2024/25, manufacturers of fossil fuel heating appliances will need to hold low-carbon heat pump credits corresponding to 4% of their relevant gas boiler sales above 20,000 units and 4% of their relevant oil boiler sales above 1,000 units.

Only boiler sales for the UK market will count towards the calculation of the obligation; exports will be excluded. Similarly, only heat pumps installed in the UK will qualify towards meeting the obligation.

For the second year of the scheme, 2025/26, the credit target will increase to 6% of relevant gas boiler sales above 20,000 units of and 6% of relevant oil boiler sales above 1,000 units.

The government expects these targets to correspond to credits for qualifying heat pump installations totalling around 60,000 in 2024/25 and around 90,000 in 2025/26.

Reacting to the publication of the government response to the Clean Heat Market Mechanism consultation, Charlotte Lee, CEO of the Heat Pump Association, said: “We welcome the clarity provided by the publication of the government’s response to the Clean Heat Market Mechanism and acknowledge the adjustments made to the scheme which include; a reduced penalty payment, the ability to carry forward a larger percentage of unmet obligations, introducing a consistent approach in the new build sector and not introducing a multiplier to penalise unmet targets.

"Whilst the sector remains concerned about the impact of the scheme on the market given the lack of supporting policy enablers – such as addressing the imbalance between levies on gas and electricity bills to reduce the price of electricity relative to gas, we are committed to working pro-actively with Government and the Environment Agency to support a smooth implementation of the scheme."

Mike Foster, CEO of the Energy and Utilities Alliance (EUA), said: “The industry is really disappointed that Ministers have failed to reflect upon the extremely challenging market conditions and the new reality described by the Prime Minister. We all know heat pumps have a role to play in heat decarbonisation but punishing manufacturers because consumer demand isn’t there is just perverse.

“We have told Ministers and officials what they need to do to stimulate the market but they seem determined to drive through this quota system regardless of the fundamentals facing consumers.

“As manufacturers, in a market economy, we will supply what the consumer wants to buy – heat pumps or boilers. The UK’s approach to heat decarbonisation now relies on forcing a product sale or face a fine, that’s not good business.

“We remain convinced that the way forward is for the government to ensure that a full range of heat pump hybrid systems qualify as part of the quota and that there are sufficient numbers of installers trained and available to fit the products our members make.”