1

Meeting carbon budgets –3rd Progress Report to Parliament

Committee on Climate Change, June 2011www.theccc.org.uk

2

Contents

1. Context: Fourth budget and previous progress reports

2. Key messages of today’s report

3. Emissions and their drivers in 2010

4. Emissions in the non-traded sector

5. Emissions in the traded sector

6. Sectors

a) Power

b) Buildings and industry

c) Transport

d) Agriculture

3

Large emissions reduction needed to 2050

2050 allowed emissions

4th Carbon Budget emissions to 2030

2

2

Source: CCC (2010) The Fourth Carbon Budget

4

Interim, Intended and Domestic Action budgets

Source: CCC (2010) The Fourth Carbon Budget

1,950

5

Context:Our third report on progress towards carbon budgets

First application of indicator framework:• Large emissions fall due to recession• Indicators roughly as expected• New policies needed to drive the step change

A framework of indicators consistent with budgets:• Emissions trajectories• Indicators for implementation of abatement measures• Forward indicators of investments in the project cycle• Policy milestones

The need for a step change

Aims: • Report latest data• Assess underlying progress• Monitor against indicators

First (2009)

Then (2010)

Now (2011)

6

Contents

1. Context: Fourth budget and previous progress reports

2. Key messages of today’s report

3. Emissions and their drivers in 2010

4. Emissions in the non-traded sector

5. Emissions in the traded sector

6. Sectors

a) Power

b) Buildings and industry

c) Transport

d) Agriculture

7

Today’s report - Key messages

• Underlying trend was flat – not enough to meet future carbon budgets

• Performance against indicators has been mixed – step change still needed

• Electricity Market Reform and Green Deal key to driving emissions down

• Economy-wide emissions increased 3% – due to cold weather

• Can, and should, outperform first three budgets

8

Contents

1. Context: Fourth budget and previous progress reports

2. Key messages of today’s report

3. Emissions and their drivers in 2010

4. Emissions in the non-traded sector

5. Emissions in the traded sector

6. Sectors

a) Power

b) Buildings and industry

c) Transport

d) Agriculture

9

CO2 emissions rose relatively sharply

10

With biggest rises from energy used to heat buildings

(% change 2009-2010)

Note: ‘Other’ category includes agriculture CO2 and emissions from land use, land use change and forestry (LULUCF)

11

The recession caused a downward shift in emissions but no evidence of a change in the underlying pace of emissions reductions

11

In context of faster GDP growth than in

2010

12

Contents

1. Context: Fourth budget and previous progress reports

2. Key messages of today’s report

3. Emissions and their drivers in 2010

4. Emissions in the non-traded sector

5. Emissions in the traded sector

6. Sectors

a) Power

b) Buildings and industry

c) Transport

d) Agriculture

13

Non-traded sector emissions are well below the budget level, and even further in weather-adjusted terms

13

Non-traded sector emissions v. budget

14

However continuing progress at the 2010 rate would not be enough to meet future budgets

14

Non-traded sector emissions v. future budgets

15

Our indicators envisage a ramp-up in implementation of abatement measures beyond Budget 1

Annual uptake/improvement

Budget 1 average

Budget 2 average

Budget 3 average

Residential buildings Loft insulation (CERT professional)

0.9m 2.1m n/aLoft insulation (DIY & other schemes)Cavity wall insulation 0.8m 1.4m n/aSolid wall insulation 90,000 150,000 220,000Efficient boilers 1.0m 0.9m 0.7m Renewable heat Increase in renewable heat penetration +0.1% +0.8% +2.4% Road transport

Improvement in new car CO2 -4 gCO2/km -6 gCO2/km -6 gCO2/km

Electric car sales (PHEV/BEV) 5,000 130,000 450,000Increase in biofuels penetration (by vol) + 0.7% +0.7% +0.4%Car drivers undertaking eco-driving training 300,000 320,000 340,000

16

Progress in 2009-2010 was mixed against the current modest ambition

Annual uptake/improvement

indicator

2009indicator

2010outturn

2009outturn

2010Residential buildings Loft insulation (CERT professional)

0.6m 0.6m0.8m 0.5m

Loft insulation (DIY & other schemes) 0.3m 0.8m Cavity wall insulation 0.7m 0.7m 0.7m 0.4mSolid wall insulation 70,000 95,000 15,000 13,000Efficient boilers 1.0m 1.0m 1.2m 1.3mRenewable heat Increase in renewable heat penetration + <0.1% + <0.1% +0.2% * Road transport

Improvement in new car CO2 -2 gCO2/km -4 gCO2/km -8 gCO2/km -5 gCO2/km

Electric car sales (PHEV/BEV) 0 5,000 101 167Increase in biofuels penetration (by vol) +0.5% +0.5% +0.6% +0.7%Car drivers undertaking eco-driving training 300,000 300,000 5,000 10,000

* Data not yet available

17

Successfully implementing abatement measures would lead to an outperformance of currently legislated budgets

17

Non-traded sector emissions v. future budgets

18

Contents

1. Context: Fourth budget and previous progress reports

2. Key messages of today’s report

3. Emissions and their drivers in 2010

4. Emissions in the non-traded sector

5. Emissions in the traded sector

6. Sectors

a) Power

b) Buildings and industry

c) Transport

d) Agriculture

19

Traded sector emissions rose, but remain below the cap for both UK and EU

UK level

UK becomes net seller in EU ETS / banks permits for future periods

EU level

Less CDM required at EU level to meet EU ETS cap

20

Carbon prices and projections have therefore remained low

Traded sector emissions remain low

Limited progress at Cancun

Carbon price has remained low(c. €16/tCO2)

Risk carbon price remains low in future

Undermines incentives for low-carbon investment

UK carbon price floor is appropriate:• £30/t in 2020• £70/t in 2030

21

Contents

1. Context: Fourth budget and previous progress reports

2. Key messages of today’s report

3. Emissions and their drivers in 2010

4. Emissions in the non-traded sector

5. Emissions in the traded sector

6. Sectors

a) Power

b) Buildings and industry

c) Transport

d) Agriculture

22

Slight rise in power emissions driven by short-term factors

22

1% increase in demand, may have

fallen up to 2% without weather

1% increase in intensity, driven by

nuclear outages

23

Underlying achievable emissions intensity fell

23

24

Additions of wind capacity broadly on track, with acceleration required in mid-2010s

24

Capacity in or awaiting construction covers build to 2015• Onshore: 2.0 + 3.3 GW (4.5 GW needed)• Offshore: 3.1 + 0.9 GW (3.8 GW needed)

Plus significant capacity in planning• Onshore: 8.4 GW• Offshore: 2.5 GW

Approvals neededNo offshore approvals in 2010

Forward Indicators

Onshore Offshore

25

Progress demonstrating CCS has been mixed

25

£1 billion allocated for first demonstration project

Seven applications for EU funding

Gas CCS included in second competition

But...

First project not yet signed

Schedule for second set of projects unclear and already delayed

Award the first project this year

Commence bidding and clarify funding for second set

Select winning bidders in 2012

Major potential role for CCS in 2020s decarbonisation

26

Key priorities for Electricity Market Reform

E.g. Contracts for Difference• More certain return than premium FITs• Breaks link with rising carbon prices

E.g. Reserve contracts for less mature technologies with promising long-term potential

Long-term Contracts

Technology support

Clear objectives

Smooth transition E.g. Consider extending ROC beyond 2017, design arrangements suitable for renewables

E.g. 50 gCO2/kWh

27

Contents

1. Context: Fourth budget and previous progress reports

2. Key messages of today’s report

3. Emissions and their drivers in 2010

4. Emissions in the non-traded sector

5. Emissions in the traded sector

6. Sectors

a) Power

b) Buildings and industry

c) Transport

d) Agriculture

28

Buildings emissions rose due to the cold weather and increased carbon intensity of electricity

29

Need to accelerate implementation of insulation and renewable heat measures

Loft insulation

Cavity wall insulation

Solid wall insulation

Renewable heat*

* Data not yet available for 2010

30

Success will require strong incentives and removal of barriers: Green Deal and ECO

30

Proposals provide good basis • Green Deal funds upfront costs of energy efficiency secured against property charge• Energy Company Obligation (ECO) targets fuel poor and more expensive measures (e.g. solid

wall insulation)

But some detail lacking and further strengthening may be required• Risk of under delivery

• commit to insulating all lofts and cavity walls by 2015• align ECO with ambition to insulate 2m solid walls by 2020

• Cost implications • Consider use of cheaper mortgage finance

Percentage of housing stock by mortgage loan-to-value ratio

Loan-to-value ≤20% ≤40% ≤65%

% of stock 8% 22% 45%

31

Industry emissions rose slightly during the recovery

Industry CO2 emissions

Manufacturing output

32

Contents

1. Context: Fourth budget and previous progress reports

2. Key messages of today’s report

3. Emissions and their drivers in 2010

4. Emissions in the non-traded sector

5. Emissions in the traded sector

6. Sectors

a) Power

b) Buildings and industry

c) Transport

d) Agriculture

33

Available data points to a fall in surface transport emissions

Cars - km

Cars – emissions intensity

Cars - emissions

Emissions data for 2010 not yet available but...

Vehicle-kms down

34

New car CO2 emissions are well ahead of our indicator trajectory

34

Will fall sustain without high prices, recession and scrappage policy?

2

35

Very limited progress in other transport indicators

35

Electric vehicles

• Electric car registrations in 2010 mostly limited to pilot schemes

• Full electric cars only reaching dealers in 2010

• Plug -In Car Grant confirmed in 2010 Spending Review• £5,000 incentive available since Jan 2011

• Infrastructure investment at Plugged-In Places pilots confirmed; nationwide strategy to promote infrastructure due June 2011

Indicator Outturn5,000 167

Behavioural measures

Eco-driving Very low levels of eco-driving training in 2010

Smarter Choices Need to allocate and extend funding (e.g. Local Sustainable Transport Fund)

Speed limiting Violation of speed limits on motorways increased in 2009

Land-use / transport planning Framework under review – need to fully account for transport emissions

36

Contents

1. Context: Fourth budget and previous progress reports

2. Key messages of today’s report

3. Emissions and their drivers in 2010

4. Emissions in the non-traded sector

5. Emissions in the traded sector

6. Sectors

a) Power

b) Buildings and industry

c) Transport

d) Agriculture

37

Agriculture emissions continue to decline steadily

Priorities remain improvements in the

evidence base and robust policy to drive abatement

measures

Decline in production partly offset by increased N2O intensity

Livestock production down in line with meat consumption

38

Recap of key messages

• Underlying trend was flat – not enough to meet future carbon budgets

• Performance against indicators has been mixed – step change still needed

• Electricity Market Reform and Green Deal key to driving emissions down

• Economy-wide emissions increased 3% - due to cold weather

• Can, and should, outperform first three budgets

39

Future work of the Committee

Shipping Review (autumn 2011)– Develop scenarios for UK international shipping emissions– Assess implications for inclusion in carbon budgets

Bioenergy Review (late 2011)– Develop scenarios for availability of sustainable bioenergy– Consider where available sustainable bioenergy would best be used

Advice on inclusion of aviation and shipping (spring 2012)– Required under CC Act to enable Government decision by end 2012– Build on considerations on 4th carbon budget report & Shipping Review

Advice to the devolved administrations (2011)– Advice on targets and progress reducing emissions

Adaptation (2011)– Assessment of UK preparedness and advice to Scotland and Wales– Advice on UK’s Climate Change Risk Assessment