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Letter: Use of offset credits to meet the second carbon budget (2013-2017)

From: Lord Turner
To: Rt Hon Chris Huhne

We are required to advise you on the use of offset credits to meet the second carbon budget, prior to a limit on credit use being set in secondary legislation before June 2011.

We have already recommended that you should commit not to bank outperformance of the first carbon budget (2008-2012) resulting from the impact of the recession, and that you should tighten the second and third carbon budgets (2013-2017 and 2018-2022) such that these embody a level of ambition consistent with the fourth carbon budget (2023-2027) we recommended in December.

The basis for these recommendations is analysis showing that the Intended budgets for the non- traded sector could be achieved through implementation of measures that are cost-effective and that are required to lay the foundations for meeting the fourth carbon budget (see attachment).

The implication of this analysis is that there should be no use of credits in the second budget period to meet either the currently legislated or the Intended level of ambition for the non-traded sector. Use of credits would substitute for appropriate domestic ambition.

In the traded sector, where the budget is defined by the EU ETS cap, the use of offset credits should be limited to a level consistent with allowed use in the EU ETS. The focus in the traded sector should be on delivering domestic emissions reductions through investment in renewable and other forms of low-carbon power generation, and reducing emissions in energy-intensive industries through energy efficiency improvement, investment in renewable heat and development of CCS technology.

I would be happy to discuss these recommendations in more detail with you if that would be useful.