Should ECO4 Be Extended or Transition to ECO5 in 2026?

Should the UK Extend the ECO4 Scheme in 2026 or Transition to ECO5?

In the United Kingdom, the Energy Company Obligation (ECO) scheme plays a pivotal role in reducing carbon emissions and addressing fuel poverty. Since its inception in 2013, the ECO scheme has undergone multiple iterations, with ECO4, the most recent phase, running from April 2022 to March 2026.

As the end of ECO4 approaches, policymakers face a critical decision: should the scheme be extended, or should the UK transition to a new iteration, ECO5? You can view the current ECO4 extension consultation being carried out by the UK government here which is due to end on 25th September 2025.

This article evaluates the pros and cons of both options, aiming to provide clarity on the strategic implications of extending ECO4 versus introducing ECO5.

Understanding the ECO Scheme

The ECO scheme mandates large energy suppliers to fund energy efficiency improvements in low-income and fuel-poor households. Key measures include insulation, heating upgrades, and other energy-saving retrofits. The primary objectives are threefold:

Carbon Reduction: Reduce the carbon footprint of the domestic sector.

Fuel Poverty Alleviation: Lower energy bills for vulnerable households.

Energy Efficiency: Improve the energy efficiency rating of housing stock.

ECO4, as the latest version, introduced several refinements. These include a focus on fabric-first solutions, a "whole-house retrofit" approach, and improved targeting of fuel-poor households. However, as with its predecessors, ECO4 has its limitations, prompting the debate about the need for ECO5.

Case for Extending ECO4

Pros

Continuity and Stability

The extension of ECO4 would provide a degree of policy continuity. Since the scheme is well-established, participants—including energy suppliers, installers, and households—are familiar with its structure and requirements. Disrupting this system with ECO5 could create setbacks as stakeholders adapt to new regulations.

Embedded Process Maturity

By March 2026, ECO4’s operational processes—such as the implementation of the scoring matrix, data reporting infrastructures, and regulatory compliance mechanisms—will be fully optimised. Extending the programme would avoid the inefficiencies often associated with launching and scaling a new scheme.

Avoiding Administrative Overhaul

Introducing ECO5 would inevitably require legislative updates, consultation periods, and processes to establish new rules and frameworks. These administrative tasks demand time and fiscal resources. Maintaining ECO4 eliminates this overhead, enabling a focus on execution rather than transition.

Allowance for Impact Measurement

The full impact of ECO4 takes time to materialise. Extending the scheme would allow policymakers to conduct longer-term evaluations on its effectiveness, particularly regarding fuel poverty alleviation and the decarbonisation of housing. This data could then inform future revisions to the scheme beyond 2026.

Cons

Stagnation in Innovation

A prolonged ECO4 might fail to foster significant innovation. Since ECO4 was designed under a specific set of assumptions and priorities, extending it may lock the programme into approaches that fail to align with the UK’s evolving energy landscape, such as the shift towards heat pumps and net-zero by 2050.

Limited Address of Stakeholder Feedback

While ECO4 has its merits, stakeholders have identified areas for improvement. A new ECO5 could incorporate lessons learned from ECO4—such as improving the flexibility of eligibility criteria and addressing gaps in the geographic reach of the programme. Extending ECO4 might lead to missed opportunities for addressing these weaknesses.

Political and Industry Perception

Extending ECO4 may be perceived as a lack of ambition, particularly in the context of the UK’s leading role in climate action. Introducing ECO5 could send a positive signal to international partners, policymakers, and the public that the government remains proactive and innovative in achieving its energy efficiency objectives.

Case for Transitioning to ECO5

Pros

Alignment with Net-Zero Goals

By March 2026, only four years will remain to meet the UK’s 2030 carbon reduction targets (as outlined in the Climate Change Act). ECO5 presents an opportunity to recalibrate the scheme to align with more aggressive decarbonisation measures needed to achieve these targets. For instance, ECO5 could prioritise the integration of renewable energy technologies, such as rooftop solar panels and battery storage systems, alongside insulation and boiler upgrades.

Addressing ECO4 Shortcomings

ECO4’s rigid "whole-house retrofit" approach has been criticised for excluding households unable to commit to holistic upgrades. ECO5 could incorporate more flexible retrofit pathways, widening participation. Furthermore, a new scheme could address urban-specific challenges, such as inadequate support for high-rise buildings and inner-city energy efficiency projects.

Enhanced Transparency and Fairer Funding Distribution

Transitioning to ECO5 provides an opportunity to refine the cost-recovery mechanism for energy suppliers. Under ECO4, these costs are passed to consumers via energy bills, raising fairness concerns. ECO5 could explore alternative funding structures, such as direct government subsidies or levies on polluting industries, to mitigate the regressive impact of the scheme on low-income consumers.

Driving Technological Adoption

ECO5 could emphasise greater adoption of emerging energy systems, such as hydrogen-ready boilers and district heating networks. By embedding these technologies into the eligibility framework, the government could accelerate their deployment and integration into the domestic energy sector.

Cons

Implementation Delays

As evidenced by previous transitions (e.g., from ECO3 to ECO4), shifting to a new framework often incurs delays. Regulatory consultations, stakeholder engagements, and the establishment of new compliance mechanisms could slow the progress of energy efficiency installations, jeopardising short-term carbon savings.

Market Disruptions

The transition to ECO5 could unsettle market participants, particularly smaller installers who lack the capacity to adapt quickly to new rules. This could create a temporary bottleneck in the supply chain, negatively impacting installation rates and programme effectiveness.

Increased Administrative Costs

Launching ECO5 would entail administrative and operational costs for both the government and energy suppliers. Designing new scoring systems, certification schemes, and IT infrastructures represents a significant upfront investment, diverting funds from the actual implementation of energy efficiency measures.

Loss of Existing Momentum

While ECO4 isn’t without flaws, it has established a degree of operational momentum. Introducing ECO5 risks disrupting this progress, particularly if the new scheme is poorly designed or insufficiently resourced.

Strategic Considerations

While both extending ECO4 and transitioning to ECO5 offer distinct advantages and disadvantages, the decision must be evaluated within the broader context of the UK's energy policy priorities. Critical factors to consider include:

Net-Zero Mandates: Can ECO4 deliver the carbon savings required under the UK’s legally binding net-zero by 2050 commitment, or does a more radical redesign (ECO5) offer better alignment?

Fuel Poverty Trends: Which option offers the more effective solution to rising fuel poverty levels exacerbated by ongoing energy price volatility?

Stakeholder Impact: How will the decision affect key stakeholders, including energy suppliers, retrofit installers, and low-income households?

Technological Innovation: Does ECO4’s framework adequately accommodate emerging low-carbon technologies, or would ECO5 enable faster adoption?

Conclusion

As policymakers deliberate the future of the Energy Company Obligation, they face a trade-off between continuity and innovation. Extending ECO4 ensures operational stability and consolidates ongoing progress, but risks stagnation in the face of evolving energy challenges. Conversely, transitioning to ECO5 aligns with the momentum for net-zero, offering a chance to recalibrate priorities and integrate new technologies, but entails risks of disruption and delays.

Ultimately, the decision must be guided by a robust evidence base, balancing short-term implementation efficiency with long-term climate action imperatives. The outcome will serve as a litmus test for the UK’s ability to deliver cohesive, ambitious, and equitable energy policies in the critical decade leading to 2030.