Sunday, March 30, 2008

Response to Draft Climate Change Bill. May 2007

These notes were prepared as the basis for a written response by the BIEE Climate Change Policy Group to the Draft Climate Change Bill in May 2007.

1. Introduction. We welcome the introduction of the draft Climate Change Bill as indicating the importance Government attaches to climate change policy, particularly the creation of a new institutional framework to back a system of carbon budgets and to set statutory limits to carbon emissions. Concerns are not so much with possible amendments to the Bill as the need for clarity on the Government’s position on certain key issues which may well arise during the passage of the Bill and will influence the effectiveness of the carbon budgeting system in due course.

2. However, notwithstanding the above level of agreement with the main framework of the Bill, we have comments which we believe will be very important in making the proposed carbon budgeting system fully effective. These concern:

a. The CO2 reduction target proposed for 2050, and its effect on the intermediate target for 2020 and the trajectory of 5 year budgets.
b. The extent to which effort purchased by the UK from other countries should be eligible in contributing towards UK emission reduction.
c. How the whole corpus of detailed policies/ measures to reduce emissions can be incorporated within the carbon budgeting process, and thus clearly linked with accountability.

We deal with each of these in turn.

3. Unilateral Legal Target of CO2 reduction by 2050 and associated trajectory. The proposed unilateral legal target of 60% CO2 reduction by 2050 derives from the RCEP report published in 2000 and was adopted in the 2003 Energy White Paper on the basis that it was consistent with a global strategy of limiting the ultimate atmospheric concentration of CO2 to 550 ppm. As such it has been very helpful in promoting a national consensus on the scale of the actions required. On these grounds alone there is a strong case for embedding this 60% target in the proposed legislation.

However this position is not without difficulty, since

-the most recent scientific consensus indicates the need to aim for atmospheric concentrations of CO2 of less than 550 ppm [1]
-in the light of the lack of progress in reducing emissions over the last decade there are real doubts as to whether a 60% target would deliver cumulative emission reductions consistent with 550 ppm in 2050. [2]

Accordingly in an earlier paper [3]we expressed the view that “we should at least consider the implications of a more challenging 80% target, as well as the more conservative 60% UK reduction considered hitherto”.

The question is how should these concerns be dealt with within the proposed framework in the Bill? Clearly this has to be done in such a way as to minimise long term uncertainty on the government’s position. Otherwise many of the advantages of three rolling 5 year budgets could be prejudiced.

The essential issue is that a limit based on an 80% reduction would be a further major reduction in carbon emissions, implying only half the allowable emissions of CO2 in 2050 compared with a 60 % reduction. As such it almost certainly implies significantly higher adjustment costs, and is also likely to imply measures which would impinge on the nearer term targets. It would therefore be harder to justify an 80 % reduction as a UK unilateral measure at this juncture.

Thus, if risks of delay to the passage of the Bill are to be avoided, the most appropriate compromise or practical approach is to proceed for the time being with limits based on the 60% target as outlined in the Bill, but to recognise the probability that the UK will wish or indeed need to move to a tighter limit in the future, most probably as part of a coordinated international response. This does not appear to call for any obvious major adjustments to the Bill, other than to ensure that both Government departments, in their monitoring and policy development, and the Committee on Climate Change, in its advisory role, do take into account the implications of tighter international objectives as exemplified by an 80% path. The combination of explicit legal limits, with a recognition that the UK may need to adjust to even tighter targets in the future, should effect a substantial reduction in the uncertainty facing investment in CO2 emission reduction.

Because of the difficulty of these issues we would also propose that:

(i) at the earliest opportunity the Secretary of State should decide whether there had in fact been significant developments in scientific knowledge about climate change such as to raise doubts on the validity of the 60 % target [section 1.4]

(ii) the Secretary of State should seek the advice of the Committee on Climate Change [section 22.1] on:

a) the implications of adopting an 80% rather than a 60% target for 2050, in terms of the validity of the interim target for 2020, and the probable limits for the first three 5-year carbon budgets

b) clarification of the probable link between the 2050 target, whether on a 60% or 80% basis, and the cumulative UK emission reductions to 2050 (and therefore the implied carbon budgets to 2050)

(iii) the advice of the Committee should assume that targets/budgets would include aviation and shipping

4. Counting overseas credits towards the budgets and targets.

Any presumption that “effort purchased by the UK from other countries should be eligible in contribution towards UK emission reductions, within the limits set out by international law” needs to be clarified and qualified.

We recognise that emissions reduction is properly regarded as a global issue, and this requires in principle that there should be no restriction or disincentive to UK agents making genuine cost effective investments to reduce CO2 or GHG emissions in other countries, especially where these may be more cost effective than UK investments. However the use of overseas credits does raise a number of serious practical questions that need to be resolved.

First, the integrity, credibility and additionality of such schemes needs to be assured, as any revelations of schemes of dubious validity will serve to undermine both the domestic political consensus for action on CO2, and any exemplary value of UK action internationally.

Second, if the purchase of even soundly based international credits was on a scale that left only minimal “domestic” reductions, then the exemplary value of UK action would be severely damaged.

Third, analysis suggests that the availability of international credits will be very difficult to predict, as it will depend both on the implementation of projects in countries with sometimes difficult regulatory regimes, and also on the demand from other developed countries whose policies are still evolving. Unconstrained use of such credits could create significant uncertainty about the level of domestic emission reduction that is required and undermine the stability of the CO2 price, with a damaging impact on investment.

Under present practice and within the framework of the EU ETS, UK reliance on such credits is limited to some 8% of total emissions. The “partial regulatory impact assessment” attached to the Bill examines the issue of greater flexibility and states (5.1.38) that the use of such additional flexibility would:

- restrict the pace of decarbonisation of the UK economy, by encouraging Government and firms to use overseas credits as a cheaper short-term option, expose the UK to the risk of “lock-in” to high carbon technologies, and potentially reduce the ability of the UK to demonstrate leadership

We would give considerable weight to these observations at this juncture. They are of greatest relevance for the next 5-10 years, since it will be during this period that

- the exemplary value of UK action would have the greatest leverage in progress towards a “post Kyoto” settlement
- potential reforms to the EU ETS will have to be implemented and tested
- long term foundations for the UK low carbon economy need to be laid, requiring strong incentives

On this issue we propose that the use of overseas credits (particularly CDM and JI) should remain very limited for the first budget period to 2012, and be subject to review thereafter in the light of progress with EU ETS reform and international negotiations on a “post Kyoto” settlement.

This would also involve specific guidance from the Secretary of State to the Committee on Climate Change to limit its discretion on this point. (Section 20.i.b)

5. Incorporating the corpus of policies and measures into the carbon budgeting system, including accountability and monitoring.

We are concerned that the carbon budgeting system, and its associated accountability and monitoring arrangements, should facilitate public scrutiny of the whole corpus of policies and measures concerned with the low carbon issue. Effective accountability will need to consider not only recent performance of emissions against budget but also those steps being taken to create the conditions for necessary long term technological and system changes.

We believe that the carbon budgeting system should have space for detailed descriptions or “time critical pathways”, endorsed by Government, on how the emission targets (both short and long term) are to be achieved, subject to necessary flexibility and with due regard to “urgency”. We emphasise that here we are concerned not only with direct action by Government but also with action by other agents for change operating within policy or market frameworks set or influenced by Government.

Our ideas on “time critical pathways” have been set out in earlier documents[4], and are summarised again in Annex 1 to this note. We believe they could play an important role in making the proposed carbon budgeting system fully effective. There are two specific points of entry.

(i) Section 6 requires the Government, whenever a carbon budget is set, to produce a report setting out its proposals and policies for meeting the carbon budgets for current and future budgetary periods. Note 34 to the Bill states that “this clause aims to enshrine transparency in the system so that Parliament is clear about how the Government intends to achieve its new obligations”.

(ii) Section 21 requires that the Committee on Climate Change report annually to Parliament its views on progress being made towards meeting not only the carbon budgets already set, but also the long term target for 2050.

It is difficult to see how these duties could be discharged satisfactorily without reference to something like Government-endorsed “time critical pathways” for the main sectors of electricity, transport and buildings.


Annex 1. Summary Of Proposals On Time Critical Pathways

In the detailed evolution of Climate Change Policy, and within the framework of carbon budgets proposed in the draft Climate Change Bill, there is also a need for an approach which will address “urgency” directly. Given the long lead-times involved in removing sources of inertia, introducing low carbon technologies and making the associated changes to infrastructure and institutions, the successful implementation of any 60- 80% path is on a very tight schedule. To provide clarity and credibility there is therefore a need to draw up “time critical pathways” for the three most significant sectors —electricity, transport, and buildings. These would be drawn up by the relevant Government departments, and endorsed by Government. They would identify, for each sector:

i) the extent and duration of the CO2 savings likely to be available from short term behavioural changes to reduce demand, increased efficiency of existing assets and systems, and fuel switching between existing assets and systems.

ii) the likely portfolio of options for key technologies/ system changes, over and above those in (i) above, which could contribute to the sector’s transition to a very low carbon future by 2050 and an assessment of the speed at which they might be introduced, taking account of:

- stage of technical development (in light of R&D both in the UK and internationally)
lead-times to widespread adoption
- age and turnover of existing capital stock (including associated infrastructure)
nature of factors creating inertia and barriers to progress, and the potential speed of their removal

iii) description of “time critical pathways” based on analysis of the above factors, which clearly set out the order and timing of key decisions and commitments involved, if the ultimate goals are to be achieved, in terms of:

· who will be the main agents for change; and therefore who is to be incentivised to do what, and when?
· what incentives will be most appropriate for urgent progress?
· what issues of coordination (e.g. on infrastructure) will arise and when?
· how sufficient flexibility can be retained to cope with uncertainty.

Such descriptions of “time critical pathways” could be an important means of establishing a coherent link between the whole corpus of climate change policy measures and the carbon budgeting system and its associated accountability framework.

[1] The recent IPCC report for example suggests that lower concentrations, of between 445ppm and 490ppm, would keep the temperature rise in a range of 2.0-2.4C. This compares with EU policy of seeking to avoid rises of more than 2C.

[2] Tyndall Briefing Note 17, March 2007
[3] Bringing Urgency Into UK Climate Change Policy. Paper by the BIEE Climate Change Policy Group, para 3
[4] Bringing Urgency Into UK Climate Change Policy. Paper by the BIEE Climate Change Policy Group, December 2006, and also Time Critical Pathways For UK CO2 Reduction, Supplementary Note, February 2007

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