Thursday, 15 October 2009

A step change for climate action

We need action at Copenhagen on the climate crisis and the UK needs to do its bit – both as a moral issue, and in order to have credibility. The question is, what sort of action and who will the UK government do it.

Two major reports that have come out over the past week offer some valuable suggestions.

On Monday, Lord Adair Turner’s Committee on Climate Change (CCC) published Meeting Carbon Budgets – the Need for a Step Change. This reported that between 2003 and 2007 (the five years before the first carbon budget period), the UK’s carbon dioxide emissions fell by 0.6 per cent per year on average. But the CCC also said that cuts of 2.6 per cent per year on average will be needed to meet the UK carbon budgets. The budgets effectively call for greenhouse gas emissions cuts of 34 per cent by 2020.

The committee looked at current and planned government policies and concluded:

“Going forward a step change will be required to achieve deep emissions cuts required through the first three carbon budget periods and beyond.”

The committee’s suggestions included building around 8,000 more wind turbines, up to four carbon capture and storage (CCS) demonstrations and getting 1.7 million electric electric cars on the road by 2020.

Now for the really hard part. Such a “step change” would come on top of an already ambitious series of official targets and aims. For instance, the UK has a target for 15 per cent of the UK’s energy to come from renewables by 2020, compared with about 2 per cent now. The government’s existing renewable energy and energy efficiency plans will need investment in, for example: renewables generation; robust energy efficiency solutions; offshore wind power grids; electricity transmission and gas distribution grid reinforcement and interconnectors; and smart meters.

How much would the “step change” cost? Who’s going to pay? And where will companies get the incentives to invest in low carbon power plant?

That brings me to the second key report of recent days – Ofgem’s Project Discovery Energy Market Scenarios. Of the four scenarios discussed, the one that is most like the government’s policy mix is the “green transition”, based on a big expansion in investment in environmental measures (with a fast economic recovery). The scenario assumes that £200bn of investment could take place before 2020, with big progress on efficiency and renewable heat. That would mean more than double the rate of investment spending over the last 10 years. But, as Ofgem notes, the length of the current global financial crisis raises questions over the financing of that investment. There’s another snag: under “green transition”, domestic power bills would increase by 23 per cent by 2020. That’s a smaller rise than under other scenarios but a big job awaits the next energy and climate change secretary. Will s/he know what to do it and how to do it?

The main way that the government tries to secure such investment is through the carbon price, the EU Emissions Trading Scheme. It also uses regulatory measures (especially on energy efficiency) and tax policies. But the Turner committee was none too optimistic about future carbon price levels. It also said:

“Our analysis suggests that in a risky, uncertain world, even with very high carbon prices, the market may not deliver necessary low-carbon [generation] investment, resulting in high emissions intensity (and high costs for consumers).”

The committee argued that without a clear policy lead, Britain risks increasing reliance on gas and given falling gas production across Europe (apart from Norway), reliance on gas means reliance on Russia. More gas consumption will make sustained cuts in carbon emissions harder to achieve.

We hear a lot of calls these days for a more active, “interventionist” approach from government. But they leave open a lot of hard questions. Ofgem also put up a scenario called “green stimulus”, in which economic recovery is slow, meaning that governments around the world spend a lot of money to boost their economies and cut emissions at the same time. That could mean that the UK government invests directly in large generation projects and infrastructure projects, such as smart grids, electric vehicle charging and CO2 transportation and storage.

Ofgem found that under this scenario emissions would fall by more with prices going up less than under the “green transition”. But there is no guarantee that the government would always make the correct decisions. The “green stimulus” scenario shows how vulnerable UK energy policy is to external economic conditions. Ofgem notes that with low fuel prices, the additional costs of the low carbon technologies would be very significant in the “stimulus” scenario. Moreover, customers (and Government) may be less able to afford these costs if the economy was not growing strongly.

The sensible thing is to keep relying on a carbon price and other policy measures, at least some of which will need government investment in future. But they may need to change. I am becoming more convinced that a carbon tax or similar measure could be needed to underpin the carbon price. This is one option put up by the Turner committee.

On another of their suggestions: I have long supported action via the planning system to ensure timely approval of large wind projects. The Infrastructure Planning Commission should not be scrapped and its remit may need be extended to cover smaller wind projects.

The Turner committee’s focus on energy efficiency was especially interesting. This has been a Cinderella policy for far too long, despite the fact that improved energy efficiency is the most effective way to cut emissions and market failures mean than consumers don’t invest quickly enough. The committee concluded that “a major shift in ambition is needed”, with at least 10 million lofts and 7.5 million wall cavities insulated by 2015 and around 12 million boilers to be upgraded by 2022.

Rather than hoping that individual households will ask for specific insulation measures, the report called for three pillar approach: “whole house” with a one stop shop covering all effective measures; “neighbourhood” – led by the UK government and delivered area by area with local authorities and energy companies playing key roles; and .“pay as you save” finance – with some grants / subsidies to encourage uptake of insulation measures. That sounds very much like the nationwide housing retrofit programme advocated by the Green Standard – and the Liberal Democrats.

There’s another important issue, not discussed by the Turner committee, where government action is needed. Because of market failures, private sector involvement alone will not generate enough investment to bring some new green technologies to market quickly enough. [click here] That strengthens the case for green bonds and a green investment bank, a cause which has now been taken up, I am pleased to say, by Green Alliance and the Aldersgate Group.

Now, let’s see some political action.

[for Blog Action Day 2009 –]

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