Implementing climate change policy in the UK

1. Implementing climate change policy in the UK Neil Johnson Head of International Mitigation and Carbon Markets Department of Energy & Climate Change, UK 2011

2. Outline The Climate Change Act Overview of UK Government policy and 2050 pathway Transforming our power sector Energy efficiency: the Green Deal Green Investment Bank Role of EU action

3. Our founding legislation – the Climate Change Act • Born from public pressure and political consensus • Requires government to set binding 5 year carbon budgets • Establishes Committee on Climate Change to advise Ministers on level of target and report to Parliament on progress • Obligations on government departments to deliver carbon reduction policies and assess emissions

4. Developing our analysis: the 2050 Pathway Calculator The UK’s 2050 Pathways work presents a framework for considering the choices and trade-offs that we will have to make The work shows there are common themes to many of the plausible pathways to 2050 Ambition reduction in energy demand A substantial electrification of heating, transport and industry Electricity supply needs to be decarbonised Variable renewable generation increases the challenge of balancing the electricity grid Substantial bioenergy is vital Emissions cuts needed from agriculture, waste, industrial process and international transport Fossil fuels continue to play a role, the size will depend on issues such as development of CCS

5. Carbon budgets – committing government departments to make reductions UK emissions have fallen more than 20%since 1990 and will be at least 23.5% lower than 1990 levels by 2012 All sectors will contribute to savings

6. The Carbon Plan sets out what each government department is doing to contribute to this agenda • Government announced a ’new public government-wide Carbon Plan to set out, Department by Department, policies and deadlines to ensure real action on climate change’ Effectively a ‘to do’ list for government activity on climate change Contains specific milestones and deadlines providing for both internal accountability and public transparency Updates on progress against deadlines within the Plan will be published quarterly on the No.10 website Plan takes account of Coalition priorities such as EMR and the Green Deal and helps ensure cross departmental delivery of policies to meet our legally determined carbon budgets

7. UK Government commitment to a low carbon economy Government Policies • Coalition agreement: “greenest Government ever” supported by focus on climate and energy policies • Green Deal: overhauling UK housing to improve energy efficiency • Electricity Market Reform: encouraging investment in power sector infrastructure Funding committed • CCS: building the first commercial scale plant: £1bn investment • Renewable Heat Incentive: £860m funding for tenfold increase in renewable heat over next decade • Green Investment Bank: £3bn plus ability to borrow from 2014-15

8. Transforming our power sector - renewables, nuclear and carbon capture and storage Transforming our electricity sector 30% of electricity through renewables in 2020 Supporting 4 new CCS demonstrations New nuclear power stations under way by 2018 Maintaining secure electricity supplies by creating a supportive climate for timely investment

9. Why the electricity market needs reform – the Electricity Market Reform package WHY? HOW? Long term contracts for low carbon generation Weak carbon signals Carbon price support “Bias to gas” Emissions performance standard Security of supply Scale of finance needed Encourage construction of reserve power plants

10. Energy efficiency Range of existing Government schemes… • Existing programmes • Carbon Reduction Commitment (CRC) • Reducing Emissions from Public Sector • Carbon Emission Reduction Target (CERT) • Community Energy Saving Programme (CESP) • Warm Front • Decent Homes • Product standards • Building regulations • Low Carbon Community Challenge • Feed-in-Tariffs • Emerging programmes • Smart meters • Renewable Heat Incentive • Green Deal • Energy Company Obligation

11. The Green Deal Through our ‘Green Deal’, we will encourage home energy efficiency improvements paid for by savings from energy bills. We will also take measures to improve energy efficiency in businesses and public sector buildings. The Coalition: our programme for government (May 2010) • ‘The Green Deal is a massive new business opportunity which has the potential to support up to a quarter of a million jobs as part of our third industrial revolution.’ • Chris Huhne, Secretary of State for Energy and Climate Change (Sept. 2010)

12. Green Deal – some key points How does it work? • The green deal customer journey • Commercial opportunity – no state funding, providers will go to commercial banks for funding • The customer doesn’t pay a penny up front – they pay back the costs through the savings on the energy bills • The legal charge is on the home, not the individual • Capped costs so payback is never greater than savings • Survey • Finance • Installation • Repayments and follow up • Marketing and co-ordination

13. 1. Overview of UK Government policy and 2050 pathway 2. Transforming our power sector 3. Energy efficiency: the Green Deal 4. Green Investment Bank 5. Role of EU action

14. Green Investment Bank – what will it do? Rationale • Complement other policy instruments: National Infrastructure Plan, changes to climate change levy, Green Deal, etc. • Intervene where financing is restricted or unavailable • Assume risks that the market will not but makes decisions on a commercial basis It is expected that the focus will be on mobilising additional capital into a wide range of “green” infrastructure and deployment of late-stage technologies. The bank is being created to mobilise additional private sector investment . It will initially be capitalised with £3bn of government funding and be allowed to borrow from 2015-16.

15. Figure 2: New financial investment in Figure 3: Green investment in stimulus sustainable energy, 2009 packages EU 2020 target will play a key role in transition to a European low carbon economy An EU 30% emissions reduction target Provide a higher carbon priceneeded to stimulate the necessary investment in green technologies and green jobs. Also give industry certainty about our low carbon future. Ensure the trajectory of emissions reductions is relatively smooth and done in the most cost effective manner. The longer we wait the more it will cost Ensure the EU can compete in fast growing markets for green goods and services Is more consistent with a 2 degree trajectory

16. More immediate benefits of moving to a low carbon economy Green growth • Considerable potential for growth – Low carbon goods and services market is • worth over £3 trillion / yr and projected to grow at over 4% for the next 5 years Energy security • H • Help reduce reliance on fossil fuels and reduce susceptibility to energy price • volatility. A 30% target would reduce the EU’s imports of both gas and oil by • approximately 1% saving €5.5bn in oil imports and €3.6bn in gas imports by 2020 Air quality Improving health and reducing health care costs through reduced air pollution. Estimated benefit of €10bn annually by 2020, as a result of reduced mortality and morbidity resulting from better air quality EU leadership Helping to restore EU leadership in international climate change negotiations

17. The costs of moving to 30% target are significant but manageable and in our own interest over the long term Estimate of costs to the EU But that is not the whole story • Studies by the Climate Action Group and Potsdam Institute suggest a net positive impact on GDP • And over the longer term cutting emissions faster earlier is in our economic interest Most studies estimate that the macroeconomic costs to meet an EU 30% target relative to no policies on climate are less than 0.5% of GDP. Commission analysis suggests costs are €81bn, compared to a move to 20% of €48bn.

18. Response We need to address concerns about a 30% target Concerns • Minimising additional costs for business and thus avoiding carbon leakage Risks to EU competitiveness are limited to a small number of energy intensive sectors . We need to work together to ensure these industries can prosper in a low carbon world Need to act now to avoid the risk of ‘lock in’ The sooner we start to invest in large-scale green infrastructure, the less we will pay overall 2. Low carbon is more expensive • Higher targets will lead to deindustrialisation The EU 2050 low carbon roadmap shows that we need to act to be on the cost effective trajectory. Heavy industry has a vital role to play in moving to low carbon but it must be efficient.

19. 100% 100% Trajectory with current policies Power Sector 80% 80% Residential & Tertiary 60% 60% Industry 40% 40% Transport 20% 20% Agriculture Other Sectors 0% 0% 1990 2000 2010 2020 2030 2040 2050 The 2050 Low Carbon Roadmap • Describes the most cost-effective pathway for the EU to cut emissions by 80% by 2050 • Shows the cost effective pathway is 25% in 2020, 40% in 2030 and 60% in 2040. • These milestones represent domestic action only (not EU targets which may include international offsets) “The roadmap shows that Europe’s current 20% target for 2020 isn’t enough or cost effective and shows that Europe’s already got the policies and the tools to cut emissions by 25% at home. This makes the case for going to 30% stronger and more urgent..” Chris Huhne, UK Secretary of State for Energy and Climate Change , 8 March 2011

20. Where next ? Looking forward to continue the debate and discussion over the next twelve months. Quote from Prime Minister David Cameron (Prime Minister’s Questions): “ let me be absolutely clear that we are committed to the 30% target and nothing is going to change that”