Building a low-carbon economy – Lord Adair Turner

Building a low-carbon economy – Lord Adair Turner - 1st December 2008

Good morning and welcome to this launch of the First Report of the Committee on Climate Change...

The report does two things:

First – in Chapters 1 and 2 – it sets out our recommended targets for reductions in UK greenhouse gas emissions by 2050.
Second, it proposes the level for the UK’s first three carbon budgets – the total level of greenhouse gas emissions which the UK will legally be allowed to emit over the periods 2008-12, 2013-17 and 2018-22

On the first issue – the targets to 2050 – our main conclusions and recommendations have been already set out in a letter to the Secretary of State for Energy and Climate on October 8th. We made three recommendations:

First, that the targets for emissions reduction by 2050 should cover all greenhouse gases, not just CO2, and should cover all sectors – including international aviation and shipping.
Second, that the global target should be to reduce total greenhouse gas emissions to around 20-24 gigatonnes by 2050, which is about 50% below current levels.
Third, that the UK target should be to cut our emissions by at least 80% below 1990 levels by 2050, which implies a 77% reduction from today’s level. This 80% cut compares with the 60% reduction which has been the previous UK government target, but is achievable at an economic cost of only about 1-2% of GDP.

Since these conclusions and recommendations were announced in October – and extensively discussed then – I will not go into details on them now, but I am very happy to answer questions on them. But I would like to stress two points:

First, that while there are many technologies which will play a role in driving emissions reduction – and while emissions reduction can come from new low carbon energy sources, improved energy efficiency or changes in consumer behaviour – a particularly important development is the decarbonisation of electricity – both because electricity generation accounts for around 25% of emissions – and because once we decarbonise electricity production, we can then apply electricity to new activities –for instance to road transport and to the heating of buildings.

A crucial objective [Slides to go with Lord Turner's speech to the press ] is therefore to achieve not just by 2050 but earlier, by 2030, a radical reduction in the grams of CO2 required to produce each kilowatt hour of electricity.

Second, I would like to be clear about our recommendations on international aviation and shipping.

Aviation and shipping are both rapidly growing sources of emission. And in the case of aviation in particular, there may be less potential to cut emissions via new technologies than there is, for instance, in electricity generation. Therefore aviation and shipping would, under business as usual scenarios, amount by 2050 to a very significant proportion of the maximum emissions that the world can safely emit - perhaps as much as 6-8 gigatonnes – about 30% of all acceptable GHG emissions and about 50% of acceptable CO2 emissions.

And even these forecasts assume either significant technological progress or per capita aviation travel in developing countries in 2050 well below the level in developed countries today. If today's per capita aviation emissions for the developed world applied across a world population of 9.8 billion, total aviation emissions of CO2 would total 5 gigatonnes - about 40 per cent of total global acceptable emissions in 2050 and something like 100 percent of acceptable 2100 emissions.

It is therefore essential that aviation and shipping are covered by targets and by policies which encourage technological and energy efficiency improvement, and which constrain demand below business as usual projections.

The key issue then becomes how to cover aviation and shipping, and here we have concluded that they should not, at least initially, be included in the legally defined budgets – but covered by other policy instruments and monitored separately by the Committee.

In the case of aviation this is for a technical reason. There are no major competitiveness or carbon leakage concerns which prevent a European-only approach to aviation emissions, and international aviation is and should be included in the European Trading System (EUETS). But the specific national allocation used within the EUETS makes it difficult to include international aviation in the UK national budget without creating complex reconciliation problems which will impede rather than aid clear analysis of trends. Therefore we propose to monitor progress separately, outside the budget.

In the case of international shipping, there are major problems in pursuing a European-only let alone a UK-only approach, and it is therefore essential to try to achieve a global sector deal. But the Committee will still monitor the UK’s share of international shipping emissions and the development of policies to reduce them.

So the UK legally defined national budgets we propose include all sectors other than international aviation and shipping, and cover all greenhouse gases. Let me turn now to our proposals for the first three budgets.

In assessing the appropriate reduction by 2022 we have considered three criteria:

First, progress in reducing emissions must be fast enough to put us on a feasible path to 80% reductions by 2050. We cannot commit to a 2050 target and then leave it another decade before taking serious action.
Second, our budgets need to be compatible with the European Union targets, to which the UK has made strong political commitment, particularly given that one of the crucial policy levers – the EUETS – covering 45% of all our emissions, is and should be pan-European in nature.
Third, we have considered the opportunity for emissions reductions on a sector by sector basis, and estimated the feasibility and the cost of achieving emissions reductions, to ensure that the budgets we set are deliverable.

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The second criterion, the EU targets, introduces a complexity. The EU has made its strategy contingent on the success of the international negotiations at Copenhagen in 2009. If there is a successful global deal, the EU will commit to 30% reductions in all greenhouse gases below 1990 levels by 2020; while if there is no global deal, it has proposed a unilateral 20% cut. The UK’s reasonable share of these reductions would be about 42% below 1990 levels in the global deal world, and 34% below 1990 levels without a global deal.

This is a sensible negotiating approach. But it means that in setting UK budgets compatible with our European commitments, we also need to specify two possible paths.

The first we call the Intended Budget – it is what we want to achieve – and it is what Britain should do as part of a global deal. It results in us cutting our emissions by 42% below 1990 levels by 2020, which is 31% below current levels.
The second we call the Interim Budget – it is what we should do unilaterally. It results in us cutting emissions by 34% below 1990 levels and 21% below current levels, but with the level of domestic emissions cuts sufficiently high that we could then – in the event of a global deal – move to the Intended Budget through the significant use of emissions credit purchase, but without excessive reliance on emissions credit purchase. I’ll show later the precise figures.

We believe reductions of that magnitude are achievable at a cost in 2020 which will not exceed 1% of GDP – our precise estimated figures indeed suggest a range of 0.3-0.8%.

That is based on a detailed assessment of opportunities across each sector of the economy.

In electricity generation, it will be possible to reduce emissions by 40% below 1990 levels. This could be achieved if the government met its Renewable Energy Strategy targets with renewable (mainly wind) energy supplying 30% of UK electricity by 2020: a somewhat lower renewable target combined with nuclear deployment would be another way to achieve the same emissions reduction. Further emissions reductions in the 2020s are likely to require new sorts of renewables (wave and tidal) together with further nuclear deployment and the application of carbon capture and storage to coal and subsequently to gas fired power stations.

We note in the Report that the operation of coal fired stations without CCS beyond the early 2020s is incompatible with the required reduction path and that new coal fired power stations should only be built with the clear expectation that they will be retrofitted with CCS by the early 2020s. We set out a range of policy levers available to the government to ensure that this expectation is achieved.

In the residential housing sector there are major opportunities to achieve energy efficiency improvements via better insulation and better appliances; in commercial buildings also. In both there is also opportunity to drive renewable heat applications based on biomass, and increasingly to use electricity to generate heat in a carbon efficient form via ground and air source heat pumps. Emissions reduction potential also exists in manufacturing processes.

And in the road transport area, there is very significant opportunity to reduce the grams per km travelled by cars and vans. We believe it is possible to reduce the average grams per km of new cars being bought in Britain from around 160 grams today to 100 grams by 2020; this will require implementation of the proposed EU 100 grams target which car manufacturers will need to achieve on a fleet average basis, but also clear UK policies, for instance via the Vehicle Excise Duty regime, to bring the UK average down to the European level.

Looking across these different sectors, we have combined the opportunities available into what we have called Current Ambition, Extended Ambition and Stretch Ambition scenarios. These scenarios are based on judgments about what is likely to be achieved given different levels of policy commitment.

The Current Ambition scenario requires the achievement of the Renewable Energy Strategy objectives for electricity, together with other objectives where there exist clear detailed policies which should, with high probability, be effective.

Extended Ambition covers actions which are feasible at reasonable cost or which are essential as stepping stones to long-term emissions reduction, and where there is already stated government policy intent, but where in many cases further work is needed to ensure that policy is sufficiently robust to achieve what is possible.

Stretch Ambition includes reductions which are possible but where either the costs are relatively high or where there is currently no policy in place. The Stretch Ambition scenario therefore suggests further actions which could be taken if necessary, for instance if reductions included in the Extended Ambition scenario proved more difficult than envisaged.

We believe that the Extended Ambition target for domestic emissions reductions should be achievable and that government should commit to achieve it. Provided it is achieved, the pattern of emissions reductions, and of reliance on bought-in credits will be as on this table.

Lord Turner's presentation to guests at the launch of Building a low-carbon economy

In the Interim Budget case – to which we should unilaterally commit, we will achieve reductions in 2020, of 129 million tones, with 94% of that achieved domestically or via purchase of allowances from other European countries, and only 6% (8 million tonnes) from outside Europe.

This will enable us, in the event of a successful deal at Copenhagen, then to shift to the Intended Budget with an increased reliance on offset credits (39 million tones) but with domestic and inside EUETS reductions still accounting for 80% of total effort. Indeed in the Intended Budget the absolute level of domestic and within EUETS effort. Would be 155 million tonnes , 26 million tonnes higher than in the Interim Budget.

Finally, let me cover the wider social and economic considerations on which the Committee was explicitly required by the Climate Change Act to comment and which are addressed in Chapters 10-14 of the report.

Our conclusions here are that:

On competitiveness of industrial sectors in global competition. Yes it is an important issue in specific sectors. These sectors only account for about 1 per cent of UK GDP, and an even smaller percentage of employment, but is still essential to address their concerns, not least because they account for up to 15% of UK emissions, and it is therefore vital that they do not relocate abroad to avoid emission controls. But the problems can be addressed by appropriate special treatment within the EUETS.
On fuel poverty. Yes, achieving a low carbon economy will increase the cost of electricity and gas, and without offsetting action would increase the numbers in fuel poverty by 1.7 million. But 400,000 of these people can be taken out of fuel poverty via energy efficiency investments – insulating their houses better – and the cost of offsetting the remaining fuel poverty effect - £500m – could be addressed via direct fiscal transfers or via social tariffs.
On fiscal resources, there are pluses and minuses. The big plus is the up to £9bn per annum of revenue which the government may get from auctioning emissions permits by 2020. The negatives are the potential loss of fuel duty as cars become more efficient (which could, along with VED effects be as much as £4bn per annum), and potentially the £500m required to pull people out of fuel poverty. By 2020 the positives are likely to outweigh the negatives.
On security of energy supplies, we believe that technical security of electricity supply is achievable at reasonable costs, even as intermittent wind increases to over 20% of total supply. And we argue that moving away from dependence on imported oil and gas is good for geopolitical security and will tend to reduce macro-economic volatility.
Finally, we have looked at impacts by devolved administrations, noting the different factors which are relatively more and less important in Scotland, Wales and Northern Ireland, and which need to be addressed by devolved policy levers.

Those then are our key conclusions and recommendations and I am now happy to take questions.

Committee on Climate Change

Independent advisors to the UK Government on tackling and preparing for climate change

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Building a low-carbon economy – Lord Adair Turner - 1st December 2008

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