THE IPAT EQUATION AND THE KAYA IDENTITY. A CONVENIENT MEASURE FOR UNDERSTANDING CLIMATE ISSUES?

 

What Matters Most?  Population, GDP Growth or Technology.

A common theme in popular discussion of climate change, or rather of whether mitigation is feasible, is its attribution to different factors, notably population growth or economic growth, and the reliance of solutions on technology. This also affects any discussion of historic responsibility for CO2 emissions. It is a highly emotive subject, particularly in relation to population control or the limitation of growth, so it is at least worth a cursory look at what the hard statistics tell us.

The so-called IPAT equation represents a general description of human influence on the environment: IMPACT (of CO2) = [POPULATION] X [AFFLUENCE] X [TECHNOLOGY]. A popular and useful way of interpreting this for CO₂ emissions for the energy sector is the so-called Kaya Decomposition. Affluence is measured as GDP per capita and technology is further decomposed as energy per unit of GDP, and CO2 emitted per unit of energy. The Kaya identity[1] is:

Global Picture. The IPCC Fifth Assessment Report (2014) provided a useful breakdown of changes in global CO₂ emissions over several decades, based on this identity:

In the three decades from 1970 to 2000, population growth and increasing incomes contributed similar amounts to the rise in emissions, but the energy intensity of GDP fell quite sharply contributing a significant saving to the level of emissions that might otherwise have been expected.

The energy intensity of GDP was a significant offsetting factor, whose importance rose in 1990-2000, possibly reflecting the longer term impact of higher energy prices and uncertainties in the 1970s and 1980s. However efforts to reduce the carbon emissions associated with energy use played only a limited role in reducing emissions. This is unfortunate since reduction of dependence on fossil fuels  this is a key component of emissions reduction hopes, and this factor actually moved in the wrong direction from 2000-2010, again reflecting in part the Chinese dependence on coal.

From 2000 to 2010 the importance of rising incomes rose relative to population factors, reflecting inter alia the rapid growth of the Chinese economy. The overall outcome was particularly depressing as the decade showed a sharp increase in emissions and lessening impact of the mitigating factors.

Major regional and temporal differences

But this decomposition can change significantly over time. Global averages also conceal major differences  between countries, and there are some optimistic signals. A similar but more recent chart for China (Safonov reference below) shows overall reductions (to 2016), and significantly more reductions attributable to less energy intensive GDP and less carbon intensive energy. For China, population growth has not been a significant factor over this period, but income growth continues to be so.

China recent emissions

Similarly more optimistic trends have been observed in the USA to 2015, but with higher influence from population, less from economic growth, and significant reductions attributable to less energy intensive GDP and less carbon intensive energy consumption. 

An interesting comparison of country by country decomposition for periods before and after the financial crash of 2008 is given in a fairly recent paper by Sadorsky, referenced below. It shows huge diversity in findings between countries, exemplified in the following chart for four countries:

NB. This chart has a rather more complex interpretation, as it represents the changes between two very distinct periods. The reader is referred to the Sadorsky article

Kaya factors. The future.

Given the pace of reduction required to reach net zero by 2050, the Kaya emphasis will have to shift to much greater emphasis on decarbonising energy. Population cannot be subject to substantial percentage reduction, and the drive for higher incomes is unlikely to stop. There is some scope for further weakening of the link between affluence and energy use, but the heavy lifting will depend very substantially on decarbonisation of energy, starting with the power sector and expanding the power sector into transport and heating.

References:

IPCC Fifth Assessment Report.

George Safonov's Lab. National Research University Higher School of Economics, Moscow. Long-term, Low-emission Pathways in Australia, Brazil, Canada, China, EU, India, Indonesia, Japan, Republic of Korea, Russian Federation, and the United States. December 2018.

Sadorsky, P. Energy Related CO₂ Emissions before and after the Financial Crisis. Sustainability 2020, 12, 3867. https://doi.org/10.3390/su12093867

Dr Ajay Gambhir, Neil Grant, Dr Alexandre Koberle, Dr Tamaryn Napp. The UK’s contribution to a Paris-consistent global emissions reduction pathway. Grantham Institute. Imperial College. 2 May 2019.

Public Utilities Fortnightly. First Look at 2015 CO2 Emission Trends for the U.S.

For a fuller “actuarial explanation and justification for the Kaya identity, this reference may help  Kaya identity_JC Final 050219.pdf (actuaries.org.uk)

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[1] Since the identity is multiplicative, a logarithmic transformation is usually used in the calculation of the factor contributions.

GREENS WANT A HUNDRED BILLION A YEAR OF PUBLIC SPEND TO DECARBONISE. THE COMMITMENT IS WELCOME, BUT HOW MUCH IS NECESSARY?

The UK’s Green Party rightly treats climate change as the defining issue of our time, but what is the financial and policy credibility of its proposals?  We must be prepared to spend what it takes, but money is not necessarily the biggest obstacle. Focus needs to be on the practicalities.

The Green Party manifesto promises an annual budget of £ 100 billion to realise the decarbonisation of the UK economy. Some people may fear that this makes policies to “save the planet” unaffordable, but the spending and borrowing to achieve that  should not necessarily be seen as the main question.

If high levels of spending on decarbonisation are effective, they can be justified.  

The issue of climate change is rapidly becoming a major priority among the public. There is an increasing recognition by climate scientists that the world will, collectively, have to attain “net zero” carbon emissions in the not too distant future. The likely overshoot, together with any failure to fully decarbonise sectors such as agriculture and aviation, or policy failures in some countries, mean that the global economy will have to find the funds for direct extraction of CO2 from the atmosphere. Even the most optimistic views of the still undeveloped sequestration technologies for direct extraction find it hard to come up with future estimates that are realistically much below $200 per tonne[1].

This means that current CO2 emissions themselves represent a particularly insidious form of borrowing. It is borrowing that requires a future repayment in kind (ie carbon sequestration to deal with past carbon emissions). If, globally, we are already on track to be at or above sustainable targets compatible with avoiding catastrophic change, then the future burden will include the cost of removing much or even all of current emissions. In the end we will, collectively, be forced to pay what it takes to deal with the problems, or to face the even more expensive consequences.

With current annual GHG emissions in the UK running at close to 500 million tonnes of CO2 equivalent (465 in 2017), our current activity is, each year, potentially imposing a future "climate debt" of perhaps $100 billion on future citizens of somewhere who will have to pay for the clean-up. The disturbing nature of this debt is of course concealed by the fact that it remains unmonetized, and also that it simply forms part of a global pool, responsibility for which cannot easily be re-allocated to individual agents or countries.

On this basis the Green Party propositions for these extremely high levels of public spending, and the associated borrowing, are not intrinsically unreasonable or outrageous. Long term borrowing, in a non-monetised form, is what we are doing now. But that in itself does not prove the need for quite such a large public spend as the best policy now.

We shall not be forgiven.  (Charcoal drawing, Nina)

But is this a realistic or even a necessary proposition for public spending?

The first qualification to make is that the estimate of what can be usefully spent is higher than most previous estimates. The Stern Review, hugely influential in promoting the low carbon agenda, suggested that perhaps between one and two percent of global GDP needed to be devoted to decarbonisation and other measures to reduce GHG. That would be consistent with an annual spend in the £20-40 billion range. Stern argued, correctly, that this represented no more than a six to twelve month delay in reaching a given level of income by 2050.

A second qualification is that this does not necessarily equate to this level of public spending. At least part of this spend will, eventually, take the form of spending by households and businesses as they adapt to the future. That may for example include personal investment in electric vehicles or in adaptation of domestic heating systems to conform to new low carbon standards.

A third qualification is that it may simply not be possible for us to spend, usefully and quickly, the amount of money suggested by the Green’s budget. Electric vehicles, heat networks, and heat pumps are all a long slog and it is unlikely that we have the labour or the skills to do all those things at the speed the Green Party programme implies.

Where Greens are right of course is that we and others need to be doing more, and faster. In particular we should be putting in place the institutions that will in due course facilitate the investments we need. Elsewhere I have proposed the idea of a National Heat Authority to promote and coordinate plans for carbon-free heat, and to initiate local proposals for (up to) city-scale heat networks which may in due course be managed and financed through local authorities. A very effective use of the money, too, if the political will can be found and successful project implementation assured, may well be to support some of the initiatives to promote climate compatible growth in the developing world.

There are plenty of feasible options available which are essential to accelerating our current downward trend in emissions, and may help postpone reliance on actual carbon sequestration. We certainly need to spend significantly more, but not necessarily, yet, in UK located investments, on the scale that the Green Party has proposed.

As a global community we should be taking action, to the practical limits, to mitigate climate change. And in its level of ambition the Green Party deserves our wholehearted support. Greta Thunberg is right. We shall not be forgiven if we fail. 

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[1] One major issue for costs is that not only does the CO₂ have to separated, it then has to be safely stored, either by a further process of combining with other elements to a solid state, or by the energy intensive process of pumping into deep oceans.

CAN COST BENEFIT ANALYSIS GRASP THE CLIMATE CHANGE NETTLE?

And can we justify ambitious targets?

It is easy, for anyone concerned about the future of the planet and our place on it, to assume that formal economic analysis of the case for mitigating climate change is almost redundant or has only limited value in determining the course of action we should take. However, Simon Dietz’s strongly recommended presentation at the Oxford Martin School last week[1] was a timely reminder both that we cannot in practice escape responsibility for some balancing of costs and benefits, and that, in spite of the limitations, trying to answer that question can still yield valuable recommendations and insights.

Weaknesses in the economic calculus

The weaknesses of conventional applied economics, especially cost benefit analysis, in quantifying issues on the scale of climate change are widely recognised.

Some of the weaknesses are of a technical, conceptual or even philosophical nature. In dealing with risk and uncertainty, there is little or no empirical basis for assessing probability distributions. Non-linearities and non-market effects present technical challenges. The policy choices are a long way away from the world of marginal analysis in which cost benefit analysis (CBA) is typically more comfortable. Distributional and inter-generational inequalities bring in philosophical and ethical questions, and economics still lacks a philosophically sound and universally accepted basis for time discounting.

An even bigger issue perhaps has been the inability of conventional macro-economics to capture the complexities, or indeed the potential scale, of major disruptions caused by climate (or, arguably, other non-marginal or disruptive changes such as Brexit).  So-called integrated assessment models (IAMs) purport to capture complex feedbacks between climate impacts and economic output, but the judgment from academics on IAMs has been damning[2].  Such models come “close to assuming directly that the impacts and costs will be modest, and close to excluding the possibility of catastrophic outcomes”, according to Nicholas Stern^[3].  In other words, they largely assume away the problem they are supposed to be analysing. It is for these reasons that CBA arguments have become the new line of defence for climate sceptics whose refusal to accept the science has clearly become untenable.

In plain language, Robin Harding in the FT^[4] claimed that

… one standard model only gives damage greater than 50 per cent of output with 20^oC of warming. Combine that with the assumption that the economy will be many times bigger in the future and the problem is clear. Your grandchildren might be cooking in their own fat on the London Underground, but rather than regarding them as dead, these economic models would regard them as wealthier than you. …

… After the financial crisis, the world did not construct vastly complicated models to estimate the chances of another meltdown and the damage it would cause. Policy makers simply recognised that regulations such as the US Dodd-Frank Act are a small price to pay for preventing a repeat performance. It is time to take a similar risk-based approach to the greater problem of climate change.

But we still need to choose between 2 ^oC and 1.5 ^oC targets

Simon Dietz’s presentation focused very clearly on a current issue – the case for, and practicality of, adoption of the aspirational 1.5^oC target that arose from the COP 21 Paris Agreement. He pointed out, correctly, that the lower target would remove a very substantial part of the “remaining carbon budget”, and that this required unprecedented rates of reduction in carbon emissions, leading us inter alia to early “zero carbon” and the necessity of carbon capture. Other calculations implied a high implicit carbon price of $100 per tonne of CO₂, or more.

Defending cost benefit analysis, at least partly on the basis that alternatives faced, and similarly failed to resolve, most of the same difficult issues as CBA, he attempted to answer the 1.5^oC question. His analysis, which neatly side-stepped some of the methodological issues, ultimately boiled down to the biggest uncertainty of all – estimating the cost of the damage from climate change.

Successfully avoiding the CBA/ modelling trap described above, of assuming away the problem, he argued that the (wide) range of damage estimates made from an empirical rather than an IAM approach could at the very least make a strong case for the lower target, even if this was not conclusive in CBA terms.  Subsequent discussion focused on what was or was not included in the various estimates of the costs of climate change, notably in relation to resource conflicts and migration.

The conclusions may have seemed uncontroversial or even too mild to many in the audience, especially those of us with professional exposure to climate issues, but Simon noted that at least one distinguished economist had estimated 3.5^oC of warming, often taken to be catastrophic, as an “optimum” amount. Simon also emphasised the importance of the “options” argument[5] for adopting a lower target. More action now increases the room for manoeuvre as time passes, especially if more knowledge increases the estimated risk of “tipping points” or serious downside and catastrophic outcomes.

Reinforcing the case for early action and tighter targets

Related arguments have previously been advanced by the actuarial profession, who of course have long specialised in the analysis of catastrophic risk. In 2014 Oliver Bettis addressed an event at the Grantham Institute and argued [6]for a “risk of ruin”  approach similar to that used in the insurance industry. The conclusion of his analysis, and using “actuarial” risk parameters, was that:

  

·         the CO2 already released (400ppm) produces unacceptable risk of ruin

·         emergency decarbonisation may be the correct risk management response.

·         allowing for slow feedbacks, the right target might be below 350ppm

·         removal of CO2 from the atmosphere should be investigated.

In qualitative terms this could be seen as a similar set of conclusions to Simon’s, but with even more aggressive support for lower targets. Actuaries are possibly more risk averse than economists.

And assessing the practicality and cost

Perhaps the most important barriers to a lower target are simply those of practicality and cost. A badly managed and extremely disruptive re-engineering of the entire energy sector, and indeed the entire economy, could after all bring with it its own “risks of ruin”. It is often asserted that the costs of action are simply unaffordable.

However, at least in very broad macro-economic terms, the admittedly high costs of decarbonisation appear as eminently manageable when compared to other major disruptive impacts on the world economy. At a national level for example, if we take Simon’s very approximate estimate of $100 per tonne, and apply it to UK emissions of about 500 million tonnes of CO₂, we get a cost of c. 1.4% of GDP; this is consistent with the 1-2 % range common in post Stern discussions of the cost of action necessary to curtail emissions to a “safe” level. As often pointed out, this might mean reaching a particular standard of living less than12 months later by 2050.

While in most contexts 1-2 % of GDP is a substantial quantity, it is comparable to other energy and other commodity price shocks that the world economy has absorbed, mostly without ruinous dislocations. Notably these include the multiple oil price shocks of the last 45 years.  Compared to the impact of the 2008 financial crash and its consequences, estimated to have cut GDP by as much as 15%, or to current expectations of the possible near term cost to the UK of Brexit, the cost of climate action can be seen as modest and eminently affordable.

Intellectually therefore the case for ambitious climate action is strong. Less well developed are, first, the levels of political support and, second, agreement on, and acceptance of,  the actual means to get there. But that, as they say, is a series of stories for another day.

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[1] This can be viewed online and, together with the immediately previous presentation by Joeri Rogelj provides an excellent introduction to understanding the current state of play on carbon budgets and policy dilemmas.

[2] Pindyck, Robert S. 2013. "Climate Change Policy: What Do the Models Tell Us?" Journal of Economic Literature, 51(3): 860-72. Pindyck is particularly scathing.

A plethora of integrated assessment models (IAMs) have been constructed and used to estimate the social cost of carbon (SCC) and evaluate alternative abatement policies. These models have crucial flaws that make them close to useless as tools for policy analysis: certain inputs (e.g., the discount rate) are arbitrary, but have huge effects on the SCC estimates the models produce; the models' descriptions of the impact of climate change are completely ad hoc, with no theoretical or empirical foundation; and the models can tell us nothing about the most important driver of the SCC, the possibility of a catastrophic climate outcome. IAM-based analyses of climate policy create a perception of knowledge and precision, but that perception is illusory and misleading.

[3] The Structure of Economic Modeling of the Potential Impacts of Climate change: Grafting Gross Underestimation of Risk onto Already Narrow Science Models / Nicholas Stern. Journal of Economic Literature, Vol. 51, N° 3, pp. 838-859, September 2013

[4] Robin Harding. 2014.  “A high price for ignoring the risks of catastrophe.”  Financial Times. 18 February 2014.

[5] The maintaining of options is also an important part of the case for attaching a higher value to saving current emissions, rather than assuming a rising real price of carbon, addressed by the author, inter alia in Cumulative Carbon Emissions and Climate Change. Has the Economics of Climate Policies Lost Contact with the Physics?  Oxford Institute for Energy Studies Working Paper.

[6] Risk Management and Climate Change: Risk of Ruin. Oliver Bettis. Event at Grantham Research Institute on Climate Change and the Environment London, 14 January 2014.

GLOBAL WARMING. POSITIVE NEWS BUT A THREAT UNDIMINISHED

A recent (September) article in the journal Nature Geoscience has been quite widely reported as an indication previous scientific studies have over-estimated the extent of global warming. Many followers of climate science and observers of climate policies will have been surprised by some of the headlines. Not least, the stream of evidence over the last few years has, even to a casual observer, indicated global temperature increases very much in line with a strong upward temperature trend. Other indicators such as the rapid decline in Arctic sea ice, have offered little comfort, or suggestion that any of the earlier projections have been overestimates.  

Has this turned out to be entirely a good news story? How has it been reported? And will it have a positive impact on the promotion of effective climate policies? Closer examination reveals some important qualifications, some additional information and potential for some dangerous misinterpretation of a piece of serious climate research. The worst possible conclusion to draw is that these revised estimates in any sense reduce the sense of urgency that should attach to climate policy.

First of all clarify what the paper actually tells us.

Just clicking on the Nature Geoscience link provides an abstract of the paper itself, a technical and suitably restrained summary of some recent climate modelling work based around, inter alia, a number of estimates of climate system parameters from the IPCC Fifth Assessment Report. It is reproduced at the end of this comment for the benefit of readers. In the abstract, the authors (who include my colleague Myles Allen from the Oxford Martin School) avoid dramatic language, and the strongest claim with obvious policy relevance was that “limiting warming to 1.5 °C is not yet a geophysical impossibility”.

The backdrop of course is that the Paris agreement adopted an aspirational target of 1.5 ^oC of warming, which had widely been seen by many climate experts as now beyond reach, even on the most optimistic policy assumptions. The relevance of the article is that, while many scientists may previously have estimated that the remaining “budget” of future CO₂ emissions consistent with the target was impossibly small, the revisions suggest it may be larger, and closer to what is attainable tyrough effective policy. If the glass of acceptable CO₂ concentration really is only 92% full rather than 98%, then the budget is four times as big. But four times a very small number is still a very small number, as the authors emphasise.

And some balancing bad news

Another report, due to be published shortly, but whose findings were previewed at the Oxford Energy Day, (Pfeiffer et al) has some much less welcome findings. Power generation, which currently contributes some 30% of CO2 emissions, is on course to emit much of the headroom identified as available for the 1.5 °C target. Currently operating power generators will absorb 41% and generators in pipeline another 36%, unless closed prematurely, underutilized or retro-fitted with CCS. This reduces the already very tight headroom for other (much harder to decarbonise) sectors, and for other GHGs.

How was the story reported?

First reports in the British press were on the whole fairly accurate. Typical was the Independent [or rather The I]. Computer modelling used a decade ago … may have forecast too much warming a study has found. The study does not play down the threat which climate change has to the environment, and maintains that major reductions in emissions must be attained.  But the findings indicate the danger may not be as acute as was previously thought.

Then the commentators moved in. Comment by Graham Stringer MP in the Daily Mail, for example, verged on the hysterical. This and similar comment from sources such as Breitbart led the authors to respond forcefully in The Guardian on the misrepresentation of their research.  

But do these revised estimates cast doubt on the wider credibility of climate predictions, or lead us to consider whether the urgency of climate policy is understated.

Wider credibility of climate policy. Is warming still happening?

The first point is easily answered. The potential revisions under discussion all lie comfortably within the range of future projections. They are in effect a small scale adjustment comfortably within the range of possible outcomes. The main reason for their potential importance is that they provide, prima facie, a slender piece of evidence that the 1.5 °C target may still be attainable.

Anyone still seduced by the views of Lord Lawson, the GWPF and others, that warming stopped in 1998, should simply examine the global temperature measurement of the last few years. The Lawson argument seized on an exceptional el Nino year (1998) and pretended that no warming could be detected. [El Nino events tend to produce substantial blips in temperature. This was always an entirely  specious argument, and is addressed in more depth elsewhere on this site (on the page SCIENCE VS SCEPTICISM),  and a wilful ignoring of the underlying temperature trends. Its fallacious nature was underlined, at least visually, by the return of an el Nino in 2015 and 2016, breaking global temperature records in successive years.

Does the extra headroom give us any reason to relax the urgency of climate policy?

We have already identified several reasons why not:

·         the scale of the downgrading is relatively trivial and well within the predicted ranges; in this sense it is no  more than a minor adjustment to best estimates proposed by one of the entities currently modelling climate

·         the small amount of extra emissions headroom in  is roughly equivalent to the “bad news” on fossil power generation, although much of this is, implicitly at least, already factored into policy making

At a deeper level though we need to recognise that there are some even more important fundamentals.

·         One is that the targets, whether for 1.5 °C or 2.0 °C, are to a large extent arbitrary. We do not know with real confidence that either is even “safe”, although they are often described as if they represented some kind of hard border between safety and disaster. Normal caution, of the kind we would exhibit in other contexts, should be the real driver for policy.

·         The second fundamental is that even much smaller levels of warming will have serious adverse consequences, some of which we are starting to see in changing weather patterns and the higher incidence of extreme events. There is therefore a massive social cost from the levels of emission that we have allowed to date. The corresponding benefit of urgent action is huge.

·       The third fundamental reflects ideas from the theory of rational decision making. There is a huge option value to slowing down the rate of change in climate. It provides extra time both to meet targets, to prepare defences against the worst consequences of extreme warming, or to mitigate them through currently impossibly technologies for carbon sequestration.

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Abstract. The Paris Agreement has opened debate on whether limiting warming to 1.5 °C is compatible with current emission pledges and warming of about 0.9 °C from the mid-nineteenth century to the present decade. We show that limiting cumulative post-2015 CO2 emissions to about 200 GtC would limit post-2015 warming to less than 0.6 °C in 66% of Earth system model members of the CMIP5 ensemble with no mitigation of other climate drivers, increasing to 240 GtC with ambitious non-CO2 mitigation. We combine a simple climate–carbon-cycle model with estimated ranges for key climate system properties from the IPCC Fifth Assessment Report. Assuming emissions peak and decline to below current levels by 2030, and continue thereafter on a much steeper decline, which would be historically unprecedented but consistent with a standard ambitious mitigation scenario (RCP2.6), results in a likely range of peak warming of 1.2–2.0 °C above the mid-nineteenth century. If CO2 emissions are continuously adjusted over time to limit 2100 warming to 1.5 °C, with ambitious non-CO2 mitigation, net future cumulative CO2 emissions are unlikely to prove less than 250 GtC and unlikely greater than 540 GtC. Hence, limiting warming to 1.5 °C is not yet a geophysical impossibility, but is likely to require delivery on strengthened pledges for 2030 followed by challengingly deep and rapid mitigation. Strengthening near-term emissions reductions would hedge against a high climate response or subsequent reduction rates proving economically, technically or politically unfeasible.

PARIS CLIMATE AGREEMENT. COP 21 SETS AN AGENDA.

AFTER THE PARIS SUMMIT (COP 21). CHALLENGES FOR TECHNOLOGY, ENERGY POLICY AND EVERYONE?

Adrian Gault, Chief Economist at the Committee on Climate Change, addressed the BIEE’s regular energy and climate policy seminar this week. His presentation will be available to BIEE members on the BIEE website, and this note reflects both his presentation and some of the subsequent discussion at the meeting. (These meetings are held under the Chatham House Rule, with no attribution of opinions allowed. This comment however reflects both the meeting and this author’s personal observations on conclusions to be drawn from Adrian’s presentation and the subsequent discussion.)

Aim for temperatures well below 2^oC above pre-industrial levels. Get to rapid reductions from peak as soon as possible. Try to lower risk with a 1.5^oC. limit.

The December negotiations in Paris should be viewed as a success for international climate diplomacy. The level of ambition for effective action, and the aim of reducing the “2^oC limit” to an even more challenging if aspirational 1.5^oC was both surprising and encouraging.  The UK can claim that its current approaches are entirely compatible with Paris, but there will nevertheless be important challenges for the EU as a whole, for the UK in supporting key technologies such as carbon capture, and globally in ensuring adherence to the principles set down in Paris. This was an event that will interact with every aspect of our politics, from regulation and markets through to trade deals after a possible “Brexit”, for a very long time.

Paris 2015 was anticipated as a “make or break” event for concerted international action on climate, and should be viewed as a success, even if it fell short of the negotiated imposition of “top down” national climate targets that some were demanding. Instead it is a strategy based on national commitments, but with a process of monitoring, review and verification (MRV) that allows for a tightening of requirements (to reduce GHG) over time.

Given the difficulty of enforcing binding commitments in any case, this may well be a more robust strategy. The growing evidence of the risks posed by climate change, sharpened by this year’s record temperatures, will expose backsliders to a considerable volume of criticism, and will be hard to separate from other international negotiations, eg over trade. But there is no doubt that the tasks will be extremely challenging, even for countries like the UK which are relatively well equipped in institutional terms for the task in hand.

The CCC’s advice to the Secretary of State in January recognised that the Paris agreement was more demanding for the long term than current UK targets assume, but nevertheless that its earlier recommendations for the fifth carbon budget, covering 2028-2032, should be retained, although tighter budgets may be needed in the future. The measures underpinning this budget appear to be consistent with a cost effective approach to the 2050 target (the CCC’s formal remit) and also with more ambitious commitment by the EU in the light of Paris.

But it is clear that longer term targets will require this, and the UK’s overall strategy, to be kept under review. The UK government has already responded positively to the agreement by acknowledging the profound implications of Paris, promising "to take the step of enshrining the Paris commitment to net zero emissions in UK law".

A number of particular questions arise in this context, particularly for a number of the technologies required for cost-effective progress towards “zero carbon”.

·         Both CCC analysis and that of the Energy Technologies Institute (ETI) has indicated the importance of carbon capture and storage (CCS) technology in providing a cost-effective route to a low carbon future. Unfortunately support for this was cancelled in November 2015, and will now need to be reconsidered.

·         Aiming for “zero carbon” requires some energy technology which is “carbon negative”. The only serious contender for this currently is bio-energy with carbon capture (BECCS), which was discussed in my earlier comment (20^th April) on the benefits of wood burning at Drax. This could have been an early demonstration of BECCS.

·         Cost-effective low carbon scenarios also face some difficult choices in the heat sector, some of which are discussed under the DECARBONISING HEAT tab on this site. The CCC already recognise the heat sector as having potentially the slowest rate of reduction in carbon emissions.    

·         Pushing ahead faster on the transport sector is another priority.  This is a sector where considerable weight attaches to regulatory measures to encourage electric or other potentially low carbon technologies.

·         Consistency with current or revised EU targets in the context of the EU’s flagship emissions trading scheme

The discussion also reverted to the familiar debate on the relative merits of regulation and markets, and whether tighter targets might tilt the balance back towards regulation. In many respects this may be a false dichotomy, but the weight to be given to each instrument will be a continuing theme.

One participant referred to the “elephant in the room” – the possibility of a Leave result in the EU referendum, and its effect on the political landscape. The very strong correlation between “Leave” and opposition to climate focused policies[1] would imply very difficult times ahead, on both UK climate policies and on future trade negotiations, either with the EU or others. It would be hard to see the EU, or many countries outside the EU, accepting trade deals which exempted the UK from emissions policies to which they had themselves signed up.

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[1] This blog. Anti-Europe and Anti-Science, 28^th March 2016

COMMENTS ON DRAFT CLIMATE CHANGE BILL.

John Rhys
May 2007

The following notes were prepared as a basis for written evidence to be submitted to the Joint Committee on the Draft Climate Change Bill in May 2007. The comments are addressed to the themes of the Committee’s inquiry.

1. The main aims and purposes of the Bill and why it is needed.

A recent BIEE Climate Change Policy Group paper[2] summarized the case for urgency of action on climate change. The following extract provides a neat summary of at least part of the case for action in relation to the institutional framework.

Policy has over the last two decades been set in a “liberalised market framework”, with a mixture of competitive markets and regulation, and many economists and politicians continue to rely exclusively on market driven solutions. While recognising the fundamental importance and powerful advantages of markets, we believe the current framework, unamended, is unlikely to be capable of promoting large scale investments in new low carbon technologies or fundamental long-term change in complex UK (or for that matter international) energy systems, since:

· “Climate change represents the greatest market failure the world has seen” (Stern).

· “Carbon valuation”, to internalise the costs of CO2, is not embedded in the economic system, and it has so far proved very difficult to implement in a manner that will give confidence to investors in long term assets, eg in power generation, by ensuring that the reward for carbon reduction will remain over the life of the asset.

· R&D investment may be particularly susceptible to market failure problems in industries where it is difficult for individual firms to capture the benefits. The energy sector has been notable for low and declining R&D in recent years, and the potential for market failure is enhanced by the absence of a clear and stable framework to put a value on the benefit of “low carbon”.

· Solutions based on the creation of market structures, such as for the trading of carbon, must play a hugely important role; but, to be effective, they will require not only Government endorsed targets for emission reduction, but also carefully designed policy interventions and regulatory supervision.

· In a number of cases decisions on infrastructure may have a profound effect on the economic and commercial choices of preferred technology, eg on the form of the electricity grid or on a pipe network for CO2 capture and disposal, requiring some degree of centralised decision making.

All these factors suggest the need for some amendment to existing regulatory and competitive market structures. Indeed small-scale incremental adjustments to existing market and institutional frameworks are unlikely to suffice and additional policy instruments are likely to be required.”

Club of Rome. Lord Lawson, in his recent evidence to the Committee, drew parallels with the “alarmist” projections of the Club of Rome. The failure to materialise of these early prophecies of doom led, unsurprisingly, to their characterisation as neo-Malthusian fallacies. However global warming in relation to man-made climate change has one economic characteristic which destroys any possible analogy. In the main the Club of Rome addressed the subject of natural resources, such as oil and minerals, for which actual or potential shortages are translated rapidly into price movements. Higher prices can and do induce substitution and both supply and demand responses. However when the scarce resource is a common good, like many aspects of what we choose to call “environment”, it does not, absent intervention, have a market price and users do not have to bear or respond to the external costs of their own consumption. The normal checks and balances of prices related to costs, and of supply and demand response, simply do not operate. In the absence of mechanisms to internalise the externalities of excess usage of an environmental resource, in essence what CO2 emissions are, there is nothing to curb demand or increase supply.


2. Appropriate to legislate? Balance between compulsory and voluntary action.

We should recall that “voluntary” action on energy conservation has been a feature of the energy policy landscape since the mid-1970s’ and that its achievements have been at best limited and partly undermined, perhaps, by falling real energy prices. Given the urgency that now attaches to real action to reduce emissions, it is clear that a new framework is required, and that legislation is likely to be necessary for many of the market based or regulatory initiatives that will be required. Climate change legislation also provides an opportunity to inject momentum into CO2 policy.

The balances that will need to be found in the future are between “compulsory” and “voluntary” measures, when so described in relation to individual choices by consumers or other economic actors. The most important distinction that can be drawn is between “voluntary” action in response to market pressures and new market signals, admittedly helped and reinforced by public education, and “compulsory” measures based on regulation, relevant examples of which might be building standards, planning requirements or motorway speed limits.
While there may be a general preference for “market” solutions, and the scope for new markets is covered in the Bill, it is likely that there will be a significant dimension of “regulation” required in future policy. One question to address therefore is whether possible future measures in respect of regulation are adequately covered by the Bill.

3. Inclusion of GHG; and the adequacy of the proposed 60% reduction.


In principle, and in the longer term, it will be important to move to a broader and more comprehensive system of greenhouse gas control. This should therefore be kept under review. The practical case for maintaining the immediate focus on CO2 is that it allows earlier progress to be made on the largest single element of the problem. To wait on resolution of the scientific, technical and political questions associated with a full GHG system might result in unnecessary delay to essential action that can be taken now.

The position on the adequacy of a 60% target is analogous, in that

- the most recent scientific consensus[3] indicates the need to aim for atmospheric concentrations of CO2 of less than 550 ppm
- with the lack of progress in reducing emissions over the last decade there are real doubts[4] as to whether a 60% target would deliver cumulative emission reductions adequate to achieve even the less demanding target of 550 ppm in 2050.

- the BIEE Climate Change Policy Group has 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 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.

Finally it is important that CO2 targets align with the true underlying objective. This is to minimise cumulative emissions, not to achieve a particular level by a given date. A target such as 60% reduction in annual emissions by 2050 may be a useful indicator of what is required, but it should not obscure the primary objective, reinforced by Stern, of keeping cumulative emissions within “safe” limits. Exclusive preoccupation with ultimate 2050 targets ignores the importance of the path of emissions reduction both in determining ultimate emissions and the “exemplary value” of UK action. There is therefore a case for expressing targets in terms of cumulative emissions.

4. What difficulties face the Government in controlling UK carbon?

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 emissions against budget but also those steps being taken to create the conditions for necessary long term technological and system changes.

The carbon budgeting system should therefore have space for detailed descriptions, 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”. The concern here is not only with direct action by Government but also with action by other agents for change operating within policy frameworks set or influenced by Government

In this context the ideas set out by the BIEE Climate Change Policy Group[5] on time critical pathways, essentially documents that set out expectations on how sectoral targets are to be achieved, 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.

Economic Costs of Adjustment. While one should not underestimate the scale of the task, I believe that the purely economic costs of adjustment, either to GDP or to consumers, are frequently overstated. As an example, the electricity sector accounts for some 35% of UK CO2 emissions and clearly has to become virtually carbon-free by 2050 if even a 60% target is to be achieved. However this is a sector in which a very large replacement programme would in any case be required over the next 20/30 years just to replace aging nuclear and coal stations.

Just to get a feel for the magnitude of the economic impacts for this sector, it is instructive to look at the French economy, which effectively converted electricity to carbon neutrality in two decades, from c 1980 on, while at the same time maintaining some of the most competitive power prices in Europe. France, apparently, made at least half the progress associated with a 60% target, within two decades, without any obvious excessive cost burden or adverse economic consequences.

5. Use of credits from overseas investment projects should be permitted ?

The BIEE Climate Change Policy Group has addressed this question directly in its submission to Government.

“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.”

6. Constitution, remit, powers, and resources of the Committee on Climate Change.

Remit. There is a good case for separating the design and implementation of climate change policy, on the one hand, from monitoring and accountability on the other; this would increase the credibility of the monitoring agency and thus improve the enforcement of emission targets. However the Committee is likely to develop considerable expertise and may be drawn into an advisory role on policy. This may create tensions for its main role.

Factors to consider (section 5.55). While all these factors are relevant, they are rather all-encompassing and should not all have equal weight in the Committee's deliberations. The Committee needs primary objectives more narrowly defined in terms of climate, technological, and energy policy issues within a sound framework of economic analysis.

Composition. The focus should be primarily on expertise. Stakeholders would not carry credibility and would inevitably be drawn into protection of special interest positions.

Resources and expertise. In 5.57 of the consultation document, part (e) should be redefined as energy production, supply and utilisation. Energy policy should also be included explicitly as an area of expertise. Most importantly, the list should include expertise in regulatory or regulatory economics issues. The Committee itself needs considerable strength on these issues as well as some sound grounding in climate science and technology. Some areas will inevitably need to be supplemented in the supporting staff and perhaps in commissioning additional research.

[1] The group consists of a number of energy experts, but does not claim to represent the views of the BIEE membership as a whole.
[2] Bringing Urgency Into UK Climate Change Policy. BIEE Climate Change Policy Group, December 2006
[3] 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.
[4] Tyndall Briefing Note 17, March 2007

[5] 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