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What is the fifth carbon budget and what are the UK's next steps?

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Guest blog by Alex White, Policy Officer at the Aldersgate Group

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Amid the ongoing political turmoil following the Brexit vote the government accepted the UK’s fifth carbon budget yesterday. Following the Committee on Climate Change’s recommendations, this set a target for the UK’s emissions between 2028 and 2032 to be 57% below 1990 levels. This decision was fundamental for setting the framework for long term climate policy and support future investments in low carbon technologies. 

Coming less than a week after the UK’s referendum on membership of the European Union, the passing of the budget has introduced some much needed certainty for the low carbon economy. Whilst a plan is now needed to deliver the budget, it sends a strong signal that the UK intends to stay on track in meeting its long-term climate change targets, in or out of Europe, and it remains one of the most ambitious targets in the world. 

Where we are now?

Alongside the announcement, the Committee on Climate Change (CCC) also published its annual report on the UK’s progress in reducing greenhouse gas emissions and meeting carbon budgets yesterday. The report shows that emissions have fallen by 38% below 1990 levels. However, the reductions have come almost exclusively from reducing emissions in the production of electricity. The CCC find that greater progress is needed in other sectors but that the policies are not in place to achieve this, meaning there is a projected gap of 100 MtCO2e (or 47% of the required reductions) between our current trajectory and where we need to be to meet the fifth carbon budget.

Assessment of current policies against the cost-effective path to meet carbon budgets
Click image to enlarge in a new window. SOURCE: CCC Meeting Carbon Budgets – 2016 Progress Report to Parliament

Now that the fifth carbon budget has been legislated it must be supported by a robust emission reduction plan, setting out how the government intends to meet this budget and address the projected emission reduction shortfall. A good plan will provide businesses and investors with greater confidence to invest in low carbon developments to deliver the UK’s emission reductions. This will be key to support the UK’s long-term prosperity, manage the costs of tackling climate change in the future and to ensure the UK can take advantage of the opportunities from the growing international low carbon economy. 

What is the carbon budget?

The Climate Change Act 2008, which is independent from EU legislation, set a target for the UK to reduce emissions by at least 80% by 2050 compared to 1990 levels. This is the level consistent with the UK playing its part in a global effort to limit global temperature rises to 2ºC. It is worth noting that in December 2015, world leaders reached a global agreement in Paris that aims to limit temperature increases to “well below 2ºC”, supported by a process that will require all signatory countries to increase their proposals to cut emissions every 5 years to help deliver this long-term goal.

The Act established a system of five-yearly carbon budgets to create the stepping stones to lead to the 2050 commitment, ensuring regular progress is made. It also established the CCC, an independent body to advise the UK government on reducing greenhouse gas emissions and meeting this 2050 target. The CCC publishes its recommendations for the level of the carbon budgets following a full assessment of the domestic impacts of a budget, aiming to find the best and lowest-cost path.

The recommended fifth carbon budget
Click image to enlarge in a new window. SOURCE: CCC, The Fifth Carbon Budget: The next step towards a low-carbon economy

The budget

The fifth carbon budget sets the emission reduction levels at 57% on 1990 levels. It covers the period of 2028-2032 and is consistent with the UK’s international commitments.

In both the recommended budget and its latest progress report, the CCC has set out some recommended priorities for policy development, including:

  • Enabling mature low carbon energy sources (e.g. onshore wind) to come to market
  • Setting out how energy efficiency improvements will be delivered and financed
  • Increasing uptake of low carbon heat, including policies to overcome behavioural barriers
  • Extending vehicle efficiency targets through the 2020s, along with policies to increase uptake of electric vehicles

To decarbonise effectively by 2050, the CCC calls for all new investment in power (with the exception of back-up and balancing plant) to be low carbon from 2020. The same applies to all investments in transport and heat from 2035.

Why do the budgets matter?

The CCC identifies a way to achieve the UK’s long-term (2050) targets in the most cost-effective way possible and sets a goal 16 years in advance. This is crucial because low carbon projects such as offshore wind farms or carbon and capture storage projects can take 8 to 10 years to build. Companies investing in low carbon infrastructure are already looking at projects that will be developed in the next decade and beyond and so are companies wishing to invest in the supply chain that will provide some of the key components to these projects.  By providing benchmarks towards the 2050 target, the carbon budgets ensure that key decisions are not being kicked down the road and allow investors in low carbon infrastructure to be able to plan their projects in a way that is more predictable, less risky and therefore ultimately in a way that is more cost-effective.

Confidence in the UK’s low carbon ambitions is essential to attract investment. It allows businesses to invest in innovation, new projects and supply chains, reduce the cost of new technologies and, importantly, create new jobs in the UK’s low carbon economy.

Meeting the budgets

Just as important as setting the budget is how the government goes about meeting them. There are accounting loopholes in the Climate Change Act which, if used, may undermine the integrity of emission reduction efforts. If the government chooses to make use of these loopholes, both the cost and difficulty of meeting our 2050 target will rise. What’s more, if efforts to reduce emissions are not perceived as meaningful, it may weaken the market signal sent to low carbon industries, slow down innovation and cost reductions and further reduce the confidence of investors.

The UK is on track to over-deliver on reductions from the first three carbon budgets. This is thanks in part to recent mild winters (which reduced consumers’ fuel use) and a downturn in energy demand as a result of economic slowdown. But this means that the emissions reductions are only temporary and may rebound. The over-delivery creates ‘additional emissions’ which can be banked and carried over into the next budget period, thus limiting the actual emission reductions required to meet the fourth and fifth carbon budgets.

However, the 80% reduction by 2050 target is absolute, and there is therefore no way of making use of these accounting rules indefinitely. Meeting the fourth or fifth carbon budgets through accounting loopholes does not negate the need to make the actual emissions reductions by 2050. Instead, we will just have fewer years to achieve the same outcome, and therefore a steeper and likely more expensive path of reductions to meet our subsequent budgets and targets. It is key then, that the government must not use these loopholes if the budgets are to work as intended.

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The Emission Reductions Plan

We look next to the government’s Emissions Reductions Plan, which is expected in the Autumn of 2016. This should set out the specific policy drivers that will help stimulate investment in the low carbon solutions to meet the fifth carbon budget. A plan with teeth will allow businesses to respond with affordable investment and innovation in low carbon technologies. 

The CCC’s annual progress report points to some areas for the government to prioritise. Amongst other things, the Aldersgate Group would like to see: 

  • policies encouraging low carbon energy generation, including provision for mature renewable technologies 
  • greater detail on cost reduction pathways that offshore wind projects will be required to meet
  • a long-term framework to address the shortfall in heat, with stimulus from government to enable alternative technologies and fuels to compete with natural gas and established domestic boiler infrastructure
  • a robust plan for increasing energy efficiency to replace the Green Deal and Zero Carbon Homes, acknowledging it as a key infrastructure priority
  • grants and incentives to support take up of electric vehicles, amongst others.

Going for 1.5ºC

The UK’s Climate Change Act should be seen in the context of a growing body of climate legislation around the world. The Paris Agreement in 2015 was a landmark deal, setting the greatest global climate ambition to date. For the first time, countries committed to holding the global temperature increase to well below 2ºC and to pursue efforts to limit increase to 1.5ºC. But the carbon budgets (and indeed the Climate Change Act) are based on a ‘likely chance’ of meeting the 2ºC goal of yesteryear. What does that mean for the fifth carbon budget? 

In January the CCC wrote a letter to Energy and Climate Change Secretary Amber Rudd stating that the fifth carbon budget recommendation should remain at their recommended level, noting that the budget set the absolute minimum level of ambition, but acknowledging that a tighter budget may be needed in the future to limit increases to 1.5ºC

This reinforces the importance of business, civil society and politicians to push for a robust emission reduction plan which will support the ability of business to meet this goal, particularly in light of the uncertainty in UK politics today.

Alex White headshotGuest blog by Alex White, Policy Officer at the Aldersgate Group

The Aldersgate Group is an alliance of major businesses, NGOs and cross-party politicians, which drives action for a sustainable economy. Our corporate members, who come from across the economy and have a collective global turnover of over £400bn, believe that clear and stable policies supporting low carbon growth and environmental protection make clear economic sense for the UK.

 

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L think that the government should bring in a carbon tax and put petrol up to eight pounds a gallon but keeping the price down for the hauliers and emergency service by doing that more people would have to go lectric

To claim that we 'are meeting' any sort of target is very misleading as we are still on course for a temperature rise well over 2dC. We need much more ambitious targets and a much greater reduction in current carbon emissions and a real plan for the country to reduce involving all sectors. We should add to our own emissions all those created by our imports too.

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for the hydrocarbon thermo-processing sector enabling them to achieve the 5th Carbon target today.
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Truly a worthy consideration for the interim whilst "Renewables" get their act together over the next 50 + years