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Letter: Advice to the Welsh Government on existing targets, international credits, and carbon accounting

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1. Outline

This is a letter from Nigel Topping CMG, Chair of the CCC, to Huw Irranca-Davies MS, Deputy First Minister and Cabinet Secretary for Climate Change and Rural Affairs, in response to requests for advice on:

  • The level of Wales’ Fourth Carbon Budget (2031 to 2035).
  • Whether the current legislated levels of Wales’ Third Carbon Budget (2026 to 2030), the 2030 interim target, and the 2040 interim target are supported by the latest evidence.
  • The definition of carbon units established by the Carbon Accounting (Wales) Regulations 2018.
  • The limit of carbon units (also known as international carbon credits) for Wales’ Third Carbon Budget.
  • Whether Wales should adopt a notional share of the UK Emissions Trading Scheme (UK ETS) cap for the traded sector for carbon accounting purposes and how such an approach could be enacted.

2. Key messages

  • The level of Wales’ Fourth Carbon Budget: on 14 May 2025, the Committee published our advice on the level of Wales’ Fourth Carbon Budget. We recommended that the Fourth Carbon Budget should be set to require average annual emissions over the five-year period from 2031 to 2035 to be at least 73% lower than the 1990 baseline, including Wales’ contribution to international aviation and shipping.
  • Wales’ Third Carbon Budget and the 2030 and 2040 interim targets: the Balanced Pathway developed for our Fourth Carbon Budget advice meets all of Wales’ existing emissions targets. Therefore, the Committee’s view is that the currently legislated levels of Wales’ Third Carbon Budget, the 2030 interim target, and the 2040 interim target remain credible and are supported by the latest evidence.
  • Carbon units: the Committee recognises that the Welsh Government may wish to have the flexibility to purchase international carbon credits to help meet emissions targets in the future should this become appropriate. Therefore, the Committee recommends that the definition of carbon units in Welsh regulations should be updated to allow the purchase of credits under Article 6 of the Paris Agreement. However, we do not currently recommend the use of carbon units and the Welsh Government should plan to deliver the emissions reductions required to meet the Third Carbon Budget through domestic decarbonisation action within Wales. The Balanced Pathway developed for our Fourth Carbon Budget advice demonstrated a feasible and cost-effective pathway to meet the Third Carbon Budget without the use of carbon units. Therefore, the Committee recommends that the maximum limit on the use of carbon units for the Third Carbon Budget is set at 0% of the total emissions allowed over the Third Carbon Budget period.
  • Carbon accounting of the traded sector: the Committee recommends that the Welsh Government should continue to use actual emissions for carbon accounting purposes across all sectors of the Welsh economy. This approach has clear advantages over a notional share approach, including greater transparency and consistency with carbon accounting across the rest of the UK. In May 2025, the European Commission and the UK Government announced their commitment to link the UK and EU emissions trading schemes. When the details of this linkage are clearer, the Committee will consider whether it would be appropriate to revisit our advice on carbon accounting of the traded sector.