Proposed methodology for the
Seventh Carbon Budget advice

2. Methodological approach

Introduction and key messages

In this chapter we lay out our approach for determining the appropriate level of the Seventh Carbon Budget. This will be guided by determining a feasible and cost-effective pathway for emissions reduction in the UK from 2025 to 2050. Our key messages are:

• We will present two pathways, based on the latest available data and evidence on technology feasibility and costs, and considering the current status of policy progress in the UK:
  • An updated ‘Balanced Pathway’ that meets the UK’s current targets cost-effectively and is used to determine the level of the Seventh Carbon Budget; and
  • An ‘Additional Action Pathway’ that lays out the additional actions required should the UK choose to decarbonise faster.
• A Balanced Pathway and an Additional Action Pathway will also be provided for Scotland, Wales and Northern Ireland, taking consideration of each of their specific circumstances and drawing from available data.
• During the Seventh Carbon Budget period the UK’s emissions are likely to be dominated by the buildings, aviation and agriculture sectors, balanced by a significant contribution from both nature-based and engineered removals. As part of our advice, we will be building our evidence base for the removals sector to bring more clarity to what is feasible in the UK.
• We will quantify the uncertainty from some key assumptions and present these as a range on emissions and costs in the Balanced Pathway.
• In order to increase resilience to uncertainty and unforeseen circumstances, we will develop a contingency framework, where further or alternative decarbonisation options (which may be drawn from or guided by the Additional Action pathway) are developed so that they can be implemented, in good time, should the UK become off-track for its targets.
• We will consider two key aspects of energy security within our pathways: the position in relation to energy imports and geopolitical aspects of energy security and ensuring that the UK energy system is reliable and resilient.

The rest of this chapter is laid out in eight sections:

2.1 Considerations for setting carbon budgets under the Climate Change Act

2.2 Pathways

2.3 Uncertainties and contingency plans

2.4 Baselines

2.5 Pathways for Scotland, Wales and Northern Ireland

2.6 Pathway indicators and spatial information

2.7 Energy security

2.8 Consumption emissions

2.1 Considerations for setting carbon budgets under the Climate Change Act

The Climate Change Act 2008 (the Act) stipulates the following matters that should be considered in connection with carbon budgets. We indicate where in this document each is discussed:

• Scientific knowledge about climate change (Chapter 1).
• Technology relevant to climate change (Chapter 1 and Chapter 2, Section 2.2).
• Economic circumstances, and in particular the likely impact of the decision on the economy and the competitiveness of particular sectors of the economy (Chapter 3, Section 3.1).
• Fiscal circumstances, and in particular the likely impact of the decision on taxation, public spending and public borrowing (Chapter 3, Section 3.2).
• Social circumstances, and in particular the likely impact of the decision on fuel poverty (Chapter 3, Section 3.2).
• Energy policy, and in particular the likely impact of the decision on energy supplies and the carbon and energy intensity of the economy (Chapter 2, Section 2.7).
• Differences in circumstances between England, Wales, Scotland and Northern Ireland (Chapter 2, Section 2.5).
• Circumstances at European and international level (Chapter 1 and Chapter 2, Section 2.2).
• The estimated amount of reportable emissions from international aviation and international shipping for the budgetary period or periods in question (Chapter 1, Box 1.1).

2.2 Pathways

2.2.1 Number of pathways

As part of our Sixth Carbon Budget advice, we developed a total of five pathways to Net Zero. There were four exploratory scenarios, spanning different assumptions about future innovation and societal change, with the Balanced Pathway being the recommended most cost-effective and feasible path, designed to drive progress while maintaining optionality.

Multiple scenarios were useful in 2020 to explore options for the path to the then-new Net Zero target, but for our Seventh Carbon Budget advice we plan to take a different approach. The option space is now narrowing, and we intend to produce only the following two pathways, directly quantifying and showing the effect of some key uncertainties on projected emissions and costs (see Section 2.3 on uncertainties and contingency plans):

• Balanced Pathway. Our advice on the level of the Seventh Carbon Budget will be informed by an update to the Balanced Pathway, using up-to-date evidence and data.
  • This pathway should meet the targets to which the UK is already committed: the Fourth (2023-2027), Fifth (2028-2032) and Sixth (2033-2037) Carbon Budgets, the UK’s 2030 Nationally Determined Contribution (NDC) and Net Zero by 2050 (Chapter 1).
  • Due to delays in decarbonisation in some areas since we originally developed this pathway, some further action is likely to be required to speed up delivery and ensure these targets are all achieved.
• Additional Action Pathway. We also plan to produce an Additional Action Pathway that sets out the further action required should the UK choose to decarbonise faster.
  • The Additional Action Pathway will include all measures in the updated Balanced Pathway, along with additional actions that could speed up the journey to Net Zero. These additional actions could also be used as contingency options should progress towards the Balanced Pathway be slower than required (see Section 2.3 on uncertainties and contingency plans).
  • This may include measures such as accelerated scrappage of high-carbon capital assets, more ambitious demand reductions that would require greater policy effort, and more expensive technological ways of reducing emissions.
  • This pathway is different to the exploratory pathways from our Sixth Carbon Budget advice, which included a combination of different types and levels of action, and different assumptions about future innovation and societal change. The purpose of the Additional Action Pathway is to make clear what would be needed to go further in terms of additional action from government (rather than make assumptions about further innovation or societal changes without additional interventions).

2.2.2 General analytical approach

The analytical approach we intend to take for our Seventh Carbon Budget advice is similar to that for the Sixth Carbon Budget.

• Our two pathways will be developed by dividing the UK’s emissions into sectors of the economy and determining emissions for each from 2025 to 2050 (Figure 2.1 shows this for our Sixth Carbon Budget Balanced Pathway).
• The starting point for each sector’s pathway is a projected baseline of emissions representing a hypothetical world without further decarbonisation in the UK (see Section 2.4 on baselines). In some sectors the starting point will be behind the pathways from our Sixth Carbon Budget advice due to delays in action to reduce emissions. These delays will need to be compensated by either speeding up delivery in that sector or by faster decarbonisation in other sectors.
• Emissions reduction options are then considered for each sector. These are discussed below.

2.2.3 Emissions reduction over the Seventh Carbon Budget period and beyond

By 2037, the end of the Sixth Carbon Budget period, emissions in the UK should be around a third of levels in 2022.

Sectors expected to decarbonise by 2050. Many of the sectors that currently dominate the UK’s emissions, including surface transport, buildings, industry, and electricity and fuel supply, will need to decarbonise almost completely by 2050 (Figures 2.1 and 2.2).

• In our Sixth Carbon Budget analysis, emissions in surface transport, energy supply and industry are projected to have reduced by between around 80% and 90% by 2037 compared to levels in 2022. For these sectors, the key question for the Seventh Carbon Budget period is how fast the tail-end of emissions are reduced.
• For buildings, emissions are projected to have reduced by just over half by 2037. How fast the remaining slightly less than half of buildings decarbonise will be a key driver of the level of the Seventh Carbon Budget.

Sectors with residual emissions in 2050 and removals. In 2050, emissions are expected to remain in sectors with no credible way to completely decarbonise (agriculture, aviation, waste and land use sources). These are balanced by greenhouse gas removals, both ‘nature-based’ removals via carbon sequestration in land use sinks and ‘engineered’ removals (e.g. approaches utilising carbon capture and storage) to reach Net Zero by 2050. These emitting sectors will be starting to dominate over the Seventh Carbon Budget period, and greenhouse gas removals will be becoming increasingly important to ensure a sufficient reduction in net emissions (Figures 2.1 and 2.2).

• For 2050, we will determine the balance between residual emissions and greenhouse gas removals by considering what is feasible in each of these sectors, and what is feasible in removals. We will consider the trade-offs between the costs and other co-impacts.
• For the Seventh Carbon Budget period we will consider both what is feasible and what is required to ensure each of these sectors is on track for the emissions reduction required by 2050, taking consideration of cumulative emissions.

2.2.4 Decarbonisation options

Decarbonisation options involve a combination of switching to low-carbon technologies and practices, and reductions in high-carbon activities. We will be pragmatic about what solutions are feasible in the real world, driven by updated empirical evidence wherever possible. We will consider the state-of-play internationally, especially where progress has been faster than in the UK, to inform us on what is feasible. Nearly all the key technologies we need for Net Zero already exist. We can also expect developments to result in improvements to existing technological solutions and to offer new options. We avoid relying heavily on potential speculative future technological advances lacking a firm evidence base. We look to reasonable demand reduction options where a key technology cannot be relied upon in the future, and where demand reduction offers the potential for more efficient use of resources and/or significant co-benefits.

(i) Technology choices and rate of roll-out

Our approach aims to develop pathways that achieve the transition to Net Zero in a feasible, cost-effective manner, whilst also considering other benefits. There are three key components to this: a ‘snapshot’ of cost-effectiveness, ‘dynamic’ cost-effectiveness and assessments of feasible installation and roll-out rates.

• Snapshot of cost-effectiveness. When constructing the pathways, consideration is given to the most cost-effective choice between alternative credible low- or zero-carbon technologies and emissions reduction (abatement) measures, and to the timing of roll-out:
  • Cost-effectiveness is determined by comparing the cost per tonne of abatement (£/tCO₂e) each year between alternative options and to the carbon value for that year.
    • The cost of abatement is determined by considering both the capital and operating expenditure of the low-carbon measure, relative to the high-carbon alternative, if relevant.
    • The carbon values are monetary values placed on reductions in emissions. We use the UK Government’s ‘target-consistent’ carbon values, developed to be consistent with the 2050 Net Zero target and to take a least-cost approach to minimising cumulative greenhouse gas emissions over the period to 2050.
    • In some cases, co-impacts of a measure can be quantified and included in the cost of abatement (for example by putting a monetary value on health benefits). In other cases, co-impacts can be harder to quantify, and a judgement needs to be made on whether the measure should be deployed at a certain time. The Climate Change Act requires explicit consideration of social circumstances and the impact on fuel poverty that may put greater weight on certain measures than would result purely from considering quantifiable factors (Chapter 3).
  • While the carbon values are a good starting point for deciding which measures should contribute to emissions reduction and their timing, the actual timing of measures may differ from this, for reasons of dynamic cost-effectiveness and considerations around feasible roll-out rates (discussed below).
• Dynamic cost-effectiveness. While the carbon values provide a snapshot view of cost-effectiveness in reducing emissions, taking this approach alone can miss the benefits of early action in opening up additional opportunities for emissions reductions later on and/or cost reductions that could reduce the overall cost of achieving Net Zero. Therefore, where key early actions are not cost-effective according to the carbon values in a given year, but result in lower future costs, these may be included. Examples of such action can include development of infrastructure or installation and roll-out of technologies that are currently commercially immature, but can be expected to become more competitive with increasing roll-out.

• Feasible roll-out rates. The cost of abatement is taken together with the following considerations when determining a feasible roll-out rate, with the importance of each depending on the sector:
  • Maturity of technology. How well-established a given technology is and how this is expected to change in the future (e.g. for engineered removals).
  • Skills, supply-chains and resources. The need for a sufficiently skilled workforce and sufficient manufacturing capacity and supply chains to deliver the technology at the scale and pace required. This includes consideration of required resources, including the reliance the UK will have on international resources.
  • Low-carbon infrastructure. Considering availability of current infrastructure and the time taken to build additional infrastructure.
  • Planning. Practicalities in land and marine planning.
  • Preferences and feasible consumer behaviour. This considers the pace at which the public can be expected to purchase and use low-carbon technology (e.g. electric vehicles and heat pumps) effectively. This will include consideration of the options and cost reductions the market may be able to provide and of the fact that social norms may shift to low-carbon choices, especially when the high-carbon alternative is less desirable.
  • Feasible private sector action. The pace of purchase decisions and changes in practices that businesses can reasonably be expected to make.
• Additional considerations. As well as the cost and feasibility, we will consider the following when deciding between measures:
  • Imported emissions. Consideration of emissions arising from the supply chain of the technology or fuel that are not included in the UK’s territorial emissions.
  • Resilience to a changing climate. For example, on the need to avoid overheating when making home efficiency improvements and the risks to infrastructure from droughts, floods and extreme weather conditions.

• Integrity and verifiability. For measures including greenhouse gas removals and biomass and carbon capture and storage, consideration of the monitoring, reporting and verification systems that will be required to ensure that accounting is accurate and robust.

In our Sixth Carbon Budget advice the lifetime of existing assets was an important constraint on the roll-out rates of new technologies. In many cases, assets were assumed to be replaced at the end of their physical lifetime. A key difference in our upcoming advice will be a reconsideration of this constraint, allowing for planned scrappage where assets, for example fossil-fuel boilers, can be replaced earlier than their physical lifetime. This will assess when scrappage is cost-effective and practical, and with consideration of embedded emissions. This is particularly important during the Seventh Carbon Budget period when existing high-carbon assets may be uneconomic/undesirable and accelerated scrappage may be sensible.

When considering the trade-offs between alternative technologies we will be mindful that projected costs are uncertain, and the cost of currently expensive technologies may fall significantly in the future. However, if cost-effective alternatives are unlikely to be available in the near future, we will develop pathways on the basis of a more limited set of available technologies.

(ii) Reducing high-carbon activities through empowering low-carbon choices

Our approach aims to develop pathways with a feasible shift from high-carbon activities through empowering low-carbon choices.[1] Low-carbon choices can be enabled by technological and market-driven shifts in consumer habits, changing societal norms and public policy price incentivisation and regulation.

• We consider low-carbon choices as an option for reducing emissions either where there is no technological solution to removing emissions (e.g. aviation and emissions associated with meat and dairy); or where there is a technological solution, but where more efficient alternative approaches help us reduce emissions while on the pathway to Net Zero (e.g. reducing waste, increasing the longevity of product use, switching from car and van journeys to public transport). We also consider the co-benefits in demand reduction measures.
• Reducing high-carbon choices can constitute a switch to a low-carbon alternative (e.g. switching from flying to taking the train), or a reduction in high-carbon activity (e.g. buying fewer products), or a combination of the two. When considering a switch, we will consider what would need to be in place for the low-carbon choice to be easy, attractive and affordable to enable households and businesses to shift habits. These habitual shifts can be technology, market and societally driven.
• For sectors where emissions will remain in 2050 (in particular aviation and agriculture), trade-offs between removals and low-carbon choices will be considered. Where practical we will seek to assess how the cost associated with a reduction in an activity (e.g. the lost utility of someone not taking a flight) compares with the relevant carbon value.

What is considered a feasible reduction will be based on observed societal change elsewhere and historically, behavioural and social science research, data on public attitudes as well as wider societal impacts. We will also assess the extent to which policy could address market failures and enable the market to offer attractive and affordable low-carbon choices, including through improved infrastructure, technological innovations for alternatives and price incentives. Where it is challenging to quantify, we will draw on qualitative evidence.

Footnotes

[1]   This covers repeated choices. It does not include one off purchases of low-carbon technology (e.g. purchase of heat pumps and electric vehicles), which fall within considerations for the technology choices and roll-out rate.

2.3 Uncertainties and contingency plans

2.3.1 Uncertainties

In a decarbonisation pathway a set of assumed measures, such as roll-out rates of low-carbon technologies, are translated to a projection of expected emissions. There is uncertainty in pathways, including uncertainty on whether the assumed measures will happen and uncertainty on how these measures translate to reported emissions. We aim to quantify some key sources of uncertainty on both emissions and costs in the Balanced Pathway, presenting them with a central value and a range. These may include uncertainties on future projections for:

• The UK population.
• The UK’s gross domestic product (GDP) and how this affects consumption.
• The UK climate.
• Changes to greenhouse gas emissions reporting methodologies, including the global warming potentials used to compare the emissions from different gases.
• Assumed fuel and technology costs.
• Other sector-specific assumptions.

These uncertainties can either increase or decrease projected emissions, with the possibility of the former putting the UK’s targets at risk.

2.3.2 Contingency plans

We plan to develop a framework to limit the risks to meeting emissions targets from the uncertainties described above, as well as risks associated with policies achieving the assumed emission reductions in the pathway. This is likely to comprise the following steps:

1. Develop contingency options for further action beyond the Balanced Pathway. These may be drawn from, or guided by, the Additional Action Pathway, as well as considering alternative options. These options are likely to include measures such as accelerated scrappage of capital assets, more ambitious demand reductions that would require greater policy effort, and more expensive technological ways of reducing emissions. We will consider the cost implications of some of these contingency options.
2. Determine the lead-time required to implement contingency options in a sensible and fair way for the required mitigation of risk for a given emissions reduction target.
3. Identify indicators to track progress over time to determine if, and when, a certain measure in the Balanced Pathway is off-track for each of the UK’s targets and consider the time required in step 2 to implement the contingency option. The indicators should track progress against the required measures in the pathways, but also monitor the key assumptions that affect emissions (discussed in the uncertainty section above).

2.4 Baselines

We use baseline projections to compare a pathway to Net Zero with a hypothetical path that does not include further climate action, enabling us to calculate the required abatement and costs associated with the actions to reduce emissions.

The baselines for each sector in our analysis will be a projection of emissions representing a hypothetical world without further decarbonisation in the UK. This means that low-carbon technologies would remain at today’s stock levels and today’s efficiencies. Projections for emissions over time are based on projected changes to population, GDP, the warming climate and fuel prices. Overall, this usually leads to a gradual increase in emissions over time, although there are differences in each sector.

The purpose of this definition of baseline is to demonstrate what actions are required to reduce emissions from today, without taking a view on whether these will be driven by policy or the markets, and without any assumptions about what existing or planned polices will achieve. It is therefore not a projection of what may happen based on current trends or markets. This differs from other baseline definitions:

• The Government’s Carbon Budget Delivery Plan uses a baseline derived from their Energy and Emissions Projections (EEP), which includes estimated emissions reductions from existing and some planned policies.
• Some baseline definitions include a projected uptake of low-carbon technologies in the absence of new policy. For example, they would predict a rise in the sale of electric vehicles.

In reality, emissions reductions will be driven by a combination of existing and new policies and contributions from market developments and consumer choices that may occur in the absence of any policy.

2.5 Pathways for Scotland, Wales and Northern Ireland

As well as the UK-wide pathways, we will produce a Balanced Pathway and an Additional Action Pathway together with associated costs and indicators (see Section 2.6 on pathway indicators and spatial information) for Scotland, Wales and Northern Ireland.

In addition to their contribution to meeting the UK’s targets, Scotland, Wales and Northern Ireland each have their own legal framework for reducing emissions (Chapter 1). Our updated pathways will form the basis for our future advice, including on the level of Wales’s Fourth Carbon Budget (2031-2035) and Northern Ireland’s Fourth Carbon Budget (2038-2042), both of which will come shortly after the UK’s Seventh Carbon Budget advice in 2025.

• When determining the fair share of emissions reduction from each nation to meet the UK’s target, we will draw from available data and consider specific circumstances, including:
  • Levels of emissions and activity in each sector today.
  • Existing infrastructure.
  • Existing use of land and opportunities for land-based removals.
  • Access to potential geological storage for Carbon Capture and Storage (CCS) and engineered removals methods using CCS.
  • Different geographies and demographics.
• Wales’s currently legislated carbon budgets are in line with our advice and with the Balanced Pathway from our Sixth Carbon Budget analysis. However, both Scotland’s 2030 target, of a 75% reduction in emissions compared to 1990 levels, and Northern Ireland’s Net Zero by 2050 target go further than our Balanced Pathway and our advice. It is unlikely that our updated pathways for Scotland and Northern Ireland will be consistent with these targets.
• We will consider contingency options for Scotland, Wales and Northern Ireland to go further, particularly in areas with devolved policy powers. These may be used should there be delays in action, including from the UK Government, that put either the UK’s or the devolved administration’s targets at risk.

2.6 Pathway indicators and spatial information

As well as emissions pathways and associated costs (Chapter 3), we will provide pathways for indicators in each sector that allow progress towards meeting the targets to be tracked. These are based on the required outcomes and enablers in our Monitoring Maps, described in our Monitoring Framework, and include things such as changes in land use, the roll-out of low-carbon technologies and shifts in consumer choices.

2.6.1 Spatial information

As well as indicators for the UK, and where possible for Scotland, Wales and Northern Ireland, we intend to develop a set of area archetypes, resembling types of areas that can typically be found in any given local authority, and to provide information about how key indicator pathways may vary between them.

These archetypes will consider factors that could drive significant differences compared to our national decarbonisation pathways, for instance rural versus urban geographies and the make-up of the housing stock. We will then explore how the optimal choices to deliver these pathways might vary based on such factors, for example different balances between the use of electric vehicles and shifts to public transport and varying shares of properties using different heating technologies. This should help local authorities to understand the pace of change and timing of actions needed across different parts of their jurisdictions to achieve our decarbonisation pathways and will be accompanied by advice to local authorities, similar to that in our ‘Local Authorities and the Sixth Carbon Budget’ report.

2.7 Energy security

The analysis for the Seventh Carbon Budget will consider two key aspects of energy security: the position in relation to energy imports and geopolitical aspects of energy security, and ensuring that the UK energy system is reliable and resilient.

As for our advice on the Sixth Carbon Budget, the analysis will consider a range of international fossil fuel prices and determine how the decarbonisation pathways will reduce the UK’s exposure to them. Given recent volatility in international fossil fuel markets, we expect to consider a wider range of fossil fuel prices than previously.

Consideration of the reliability and resilience of the UK energy system will build on the detailed work published in the Committee’s March 2023 report ‘Delivering a reliable decarbonised power system’, which showed how reliability of the system can be maintained while moving to a system that is fully dependent on decarbonised generation.

2.8 Consumption emissions

The UK’s targets under the Climate Change Act and UNFCCC process are based on territorial emissions (Boxes 1.1 and 1.2) and do not consider emissions associated with imports. A consumption-based approach, also referred to as the UK’s carbon footprint, includes all emissions that occur as a result of UK consumption of goods and services, wherever those emissions happen globally.

Emissions from imports are likely to become an increasingly significant share of the UK‘s contribution to climate change as the UK’s territorial emissions fall. Taking measures to reduce our consumption emissions is an opportunity to accelerate global action on climate change beyond our domestic targets. Such measures would also make the UK’s consumption emissions less tied to the rate of international decarbonisation.

In our Sixth Carbon Budget analysis, we concluded that the UK can and should aim to reduce the level of emissions occurring overseas as a result of UK consumption as part of its contribution to reducing global emissions, and we presented several of the policy levers available. For the Seventh Carbon Budget advice, the CCC intends to build on this in the following areas:

• Taking a systematic approach to ensuring that, when developing domestic emissions pathways, measures reducing emissions in the UK do not lead to increases elsewhere in the world.
• An updated indicative pathway for consumption emissions, with the aim to quantify the impact of potential UK actions on consumption emissions (e.g. Carbon Border Adjustment Mechanisms, product standards, reduced demand for high-carbon imports).
• Case studies exploring the available policy levers for particular commodities.