Building a Low-Carbon Economy –The UK's Contribution to Tackling

Climate Change

www.theccc.org.uk

Structure of the presentation

1. The 2050 target

2. The first three budgets

3. Wider social and economic impacts of budgets

1. The 2050 target

(i) Required global emissions reduction

(ii) Appropriate UK contribution

(iii) Technologies for meeting required reductions

(i) Required global emissions reduction

Required global emissions reduction of 50%

• 20-24 GtCO2e emissions in 2050

• 8-10 GtCO2e in 2100

What’s changed?• Advances in science• Actual emissions higher

than forecast

Assessment of damageDecision rule• keep temperature

change close to 2°C• and probability of 4°C

increase at very low level (less than 1%)

Global trajectories considered

• Early or later peak (2015 vs. 2030)

• 3%/4% annual emissions reduction

(ii) Appropriate UK contribution

50% global reduction

Burden share• Alternative methodologies (contract and

converge, intensity convergence, triptych etc.)

• Equal per capita emissions:̶7 20-24 GtCO2e total at global level in

2050̶7 Implies 2.1-2.6 tCO2e per capita

All GHGsAviation and shipping included

2.1-2.6 CO2e per capita gives a UK reduction of at least 80% in 2050

2006 emissions

International aviation & shipping*

UK non-CO2 GHGs

Other CO2

Industry (heat & industrial processes)

Residential & Commercial heat

Domestic transport

Electricity Generation

* bunker fuels basis

2050 objective

159 Mt CO2e

695 Mt CO2e

77% cut (= 80% vs. 1990)

(ii) Appropriate UK contribution (cont.): the scale of the challenge

(iii) Meeting required reductions

Reducing power sector emissions: Renewables (wind, marine, biomass, solar), nuclear, CCS

Reducing heat emissions: • Electric heat (e.g. heat pumps,

storage heating)

Reducing transport emissions: • Electric/plug-in hybrids

Application of power to transport

and heat

Power generation to 2050

(iii) Meeting required reductions (cont.): power sector evolution

Emissions intensity to 2050

(iii) Meeting required reductions (cont): UK path to an 80% or more reduction in 2050

2050 2008

Wind and nuclear

Energy efficiency improvement

Renewable heat

Electric heat

Electric cars/plug in hybrids

20201-2% of GDP

in 2050

Other renewable and CCS

2. The first three budgets

(i) Level of budget (factors we have considered, CCC proposals)

(ii) Use of credits to meet budget

(iii) Feasible emissions reductions

(i) Level of budget: factors considered

PROPOSED BUDGETS

2008-122013-172018-22

The path to 2050

•2020 ambition needed to make path to 2050 technically feasible •Early action needed as contribution to global emission containment

European Union strategies

•30% reduction in GHG by 2020 versus 1990 if global deal at Copenhagen•20% unilateral cut

Bottom up sector by sector analysis

• Technical feasibility • Costs of achieving reductions• Policies in place or needed to drive emissions reductions

(i) Level of budget (cont.): CCC proposals

Intended budget• To apply once a global deal has been agreedInterim budget• To apply before there is a global deal• Should prepare for the Intended budget

Intended: 42% below 1990 in 2020 (31% % below 2005)

Interim: 34% below 1990 in 2020 (21% below 2005)

(i) Level of budget (cont.): Indicative emissions reductions to 2020 and 2050

2020 2050

Average annual reductions of 2.8% from 2007 – 2020

=> 42% below 1990 in 2020

Average annual reductions of 3.5% from 2020

=> 80% below 1990 in 2050

2030 2040

(i) Level of budget (cont.): scenarios for global aviation emissions

2050 emissions of up to 2.4 GtCO2 could account for around 10-12% of total allowed GHG emissions and 20% of total CO2 emissions

(i) Level of budget (cont.): treatment of aviation and shipping

Aviation Shipping

• Precise UK or even European share difficult to define

• Do not include in formal legal ‘budget’

• Committee to monitor progress and policies

• Global sectoral deal ideal way forward

• EU ETS allocation arbitrary, making reconciliation with national budget inclusion problematic

• Do not include in formal legal ‘budget’

• But allow for in budget setting • And Committee to monitor

progress and policies

(ii) Use of credits to meet targets

Pros• Minimise costs• Promise of finance flow may help in

global deal negotiations• Finance flow helps achieve low carbon

developing economies

Cons• Essential for developed economies to

drive domestic emissions reductions and illustrate feasibility of low carbon economy

• CDM type credits (versus notional BAU) can never be as robust as allowances within cap and trade system

Committee distinguishes between:• European Union Allowances (EUAs) in EU ETS • Offset credits (e.g. CDM)

Committee position• No restrictions on use of EUAs to meet budget• Restrictions on use of offset credits• No purchase by government to meet Interim budget• Purchase may be appropriate to transition between Interim and Intended

budgets • This strategy is consistent with meeting 2050 target

(iii) Feasible emissions reductions - Power

Power• Renewable and nuclear• Preparation for CCS• Required policies

­ EU ETS longer term extension

­ CCS demonstration­ Price/non-price policies

to drive renewables

Scenarios • 40% emission reduction by 2020

­ 30% of electricity supply renewable, nuclear in 2020s ­ Less renewables (e.g. 25%) and some nuclear by

2020• Costing 0.2% of GDP• Average carbon intensity in 2020 around 300g/kWh, from

current 500g/kWh

(iii) Feasible emissions reductions – Power (cont.): CCC position on coal generation

No role for conventional coal beyond early 2020s

CCS not proven at production scale

New coal investment only with full expectation of retrofit in early 2020s

Policy options:• Requirement for retrofit• Carbon price underpin• Carbon intensity limits (g/kWh)

(iii) Feasible emissions reductions – Energy use in buildings and industry

Commercial • Technical potential over 30

MtCO2 in energy efficiency and micro-generation

• Realistic potential 5-11MtCO2.

• 50% covered by caps• Need for wider policy

coverage

Our approach• Technical potential• Cost effective potential• Realistically achievable potential

Residential • Technical potential over 100

MtCO2

• Realistic potential­ Energy efficiency potential

22 MtCO2

­ Renewable heat potential 10 MtCO2

• Policy­ Supplier Obligation­ EPCs­ Appliance standards ­ Renewable heat

Industrial • Technical potential 7 MtCO2

• Realistic potential 4-6 MtCO2

• 95% covered by caps

(iii) Feasible emissions reductions – Transport

Improved carbon efficiency of vehicles

Cars: Improved fuel efficiency, electric/plug in hybrids offer potential for 12 MtCO2 emission reduction by 2020

Vans : Fuel efficiency improvement, electric/plug in hybrids offer potential for at least 3 MtCO2 in 2020

HGVs: Fuel efficiency improvement offers potential for at least 1 MtCO2 in 2020

Need ambitious EU targets and domestic implementing mechanisms (information, fiscal levers)

Demand side measures: indicative

Eco driving: 3 MtCO2

Enforcing speed limit: 3 MtCO2

Journey planning and modal shift:

3 MtCO2

Demand Management:

• Eddington Review

Information and encouragement. Response is inherently uncertain

(iii) Feasible emissions reductions – Agriculture

• 7% of all UK GHG emissions: 44 MtCO2e

• Preliminary cost curve analysis suggests technical

potential of 15 MtCO2e: some controversial, some not

• No policies currently in place to drive emissions

reductions; no reductions included in budget calculations

• Further work needed to:

- Identify realistic potential

- Design policies

(iii) Feasible emissions reductions - scenarios

Criteria: • Cost per tonne of carbon saved• Measures required on the path to 80% in 2050• Practical given constraints on deliverability

Current detailed policies plus 30% renewable power generation

Existing policies plus policy intent

Includes measures where there is no current policy or commitment

• Extended Ambition delivers Interim Budget • Intended Budget requires either credit purchase or some Stretch Ambition actions

Current Ambition

Extended Ambition

Stretch Ambition

(iii) Feasible emissions reductions – resource cost of meeting the Intended budget

0.2%

0.1%

0.3%

Electricitydecarbonisation

Other measures(buildings,industry,

transport)

Purchase ofEUAs and

internationalcredits

0.0%

Totalresource

cost

“Resource costs”

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Additional knock-on

and dynamic effects

Totalestimatedimpact on2020 GDP

2020

abat

emen

t cos

t as %

of 2

020

GDP

Cost from

macromodels0.3-0.8%

3. Wider social and economic impacts of budgets

Competitiveness • Risk in specific sectors accounting for less than

1% of UK GDP and employment • Risk can be mitigated by appropriate policy e.g. free allowance allocation , border carbon price

adjustments, sectoral agreements

Fuel Poverty 1.7 million increase in fuel poverty numbers but mitigation possible at manageable cost

• Technical: supply intermittency manageable • Geopolitical and economic volatility: positive impact of reduced dependence on imported oil and gas

Security of supply

Fiscal • Positive impacts from auctioning (£9 bn p.a.)• Negative VED and fuel duty effect (£4 bn p.a.)• £500 m p.a. to offset fuel poverty effects

Regional Significant difference in pattern of opportunities and challenges: important role for devolved administrations

Abatement opportunities in Wales – Extended Ambition Scenario

Sector UK abatement2020 (MtCO2e)

Wales abatement 2020 (MtCO2e)

Wales’s share of UK total

Buildings 35 2 6%

Industry 7 0.4 5%

Road Transport 19 0.9 5%

Agriculture & Forestry* 6 0.5 8%

Waste* 6 0.3 6%

* Not in Interim budget

In achieving required emissions reductions, there will be an important role for devolved policy measures in Wales, for example:

• Promotion of energy efficiency in buildings and industry

• Policy framework for microgeneration technologies

• Develop the policy framework for agriculture and land use

Wider economic and social impacts in Wales

Fuel poverty impactsEconomic impacts

• Potential risk of competitiveness loss resulting in output and employment impacts in Wales of up to 2.5% of GVA and 1.4% of employment

• Employment impacts may be localised given the concentration of certain sectors in Wales

• In practice, we do not expect these impacts to ensue as any risk can be mitigated by appropriate policy

• Opportunities for growth are likely to exist in low-carbon sectors

• Carbon budgets are likely to increase the number of households in fuel poverty in Wales by around 130,000 in 2022

• Energy efficiency measures could reduce this impact by around 30,000 households

• Mitigation of the impact is possible at a manageable cost

• Welsh Assembly Government has a role to play

Conclusion

• 80% cut in GHG emission by 2050 relative to 1990: all

GHGs, aviation and shipping included

• Unilateral 34% cut in GHGs by 2020 relative to 1990

(21% relative to 2005)

• 42% cut in GHGs by 2020 relative to 1990 (31%

relative to 2005) after global deal is achieved

• 34% cut predominantly through domestic emissions

reduction

• 42% through domestic emissions reduction and credit

purchase

• 2020 cost less than 1% of GDP