Memorandum submitted by Friends of the
Earth (U39)
EXECUTIVE SUMMARY
1. 2005 offers a historic alignment of opportunities
for the UK to lead the world in efforts to tackle climate change.
However, in order to convince the world that we are deserving
of the leadership role that the Prime Minister has indicated he
wishes to take, we must first demonstrate a commitment to meeting
our national climate targets and to assisting Europe in meeting
its Kyoto target.
2. The Government's review of its Climate
Change Programme offers the potential to get the UK back on track
to meeting its 20% carbon dioxide reduction target by 2010.
3. To do this the new programme must be
designed using fundamentally different principles. A "top
down" rather a "bottom up" assessment must be undertaken
to identify those sectors where emissions are currently rising
and policies targeted and designed accordingly.
4. Targets, and policies designed to meet
them, must be adaptable and expressed in relation to net reductions
achieved relative to a fixed baseline, and not in set amounts
of carbon subtracted from a projected, and therefore uncertain,
future baseline, as was the case in the previous programme.
5. The UK should commit to introducing a
package of measures that give sufficient control over emissions
to guarantee the delivery of sustained year on year reductions
as soon as possible.
6. The programme review also provides the
opportunity to increase the effectiveness of existing policies—the
EU Emissions Trading Scheme, the Climate Change Levy and the Energy
Efficiency Commitment—and to introduce new policies to plug
the gaps in the existing framework. By, for example, introducing
new measures to ensure renewable transport fuels and efficient
vehicles penetrate the transport market and rising demand for
energy in the commercial and domestic sectors is reversed.
7. Internationally, the UK should use its
Presidency of the EU and Chairmanship of the G8 to move towards
a renewed international consensus around the need to take urgent
action to tackle climate change under a legally binding international
framework. It should also be accepted that developed countries
need to deliver immediate and sustained emissions reductions,
and that to avoid technological lock-in to high emission pathways,
public funding through international financing institutions should
be available for only sustainable energy developments such as
renewable energy.
INTRODUCTION
1. Latest scientific findings indicate that
global sensitivities to increasing concentrations of greenhouse
gases could be far greater than first thought, and that warming
could be occurring far faster than anticipated. The need for a
truly global, legally binding framework to bring down emissions
rapidly is more pressing than ever.
2. The UK and Europe have been leading the
world in the political battle to secure a legally binding international
framework to tackle climate change. With Russia's decision to
ratify it looks very likely that the Kyoto Protocol will come
in to force early in 2005. This protocol seeks to reduce emissions
from developed countries by 5% relative to 1990 levels. It is
the first step towards much deeper cuts that will be necessary
if we are to avoid temperature increases in excess of two degrees.
To achieve this, the IPPC's Third Assessment Report indicated
that global emissions, which have been rising by about 1.5% per
annum, would need to peak and decline within the next 10-15 years.
3. In order to maintain credibility internationally,
it is imperative that as well as continuing to demonstrate political
leadership, the EU and the UK must meet their reduction targets
and show that they can successfully decouple economic growth from
rising emissions.
4. Under Kyoto the EU has a target to reduce
greenhouse gas emissions by 8% (relative to 1990) by 2012. The
EU is not currently on track to meet its target—in 2002
a reduction of 2.9% had been achieved meaning that we some distance
from the linear path to meeting the target where we should have
achieved a 4.8% reduction.
5. In 2001 the European Environment Agency
predicted that a 7.2% reduction was possible with additional policies
and measures and if several Member States, including the UK, over
achieved their target. If no overachievement was taken into account,
the reduction fell to just 5.1%.
6. The UK's contribution to the EU Kyoto
target is to reduce by 12.5% but it is clear that in order for
the EU as a whole to comply the UK will need to go further. This
is entirely possible as the UK met its Kyoto target in shortly
after agreeing to it in 1997 largely due to the dash for gas that
occurred during the 1990's when a switch from coal to gas and
the building of more efficient power stations lead to reductions
of about 1% per annum for most of that decade.
7. In 1999 the UK set a more ambitious national
target of a 20% cut in carbon dioxide emissions by 2010, and in
2003 in the Energy White Paper it set a long term target of a
60% cut in CO2 by 2050.
8. Current trends show that the UK's Climate
Change Programme is failing to deliver sufficient reductions to
meet our 20% target by 2010. The last published version of the
DTI's Energy Paper outlining projected energy trends and resulting
emissions indicated that with existing polices and measures we
were on course to meet only a 15.2% reduction. Even this is optimistic
given that in 2003 we were only 7.5% below 1990 levels and that
the power sector has recently highlighted flaws in the projection
methodology that may lead to even higher projected emissions.
9. The review of the Climate Change Programme
will need to introduce new policies and measures and to toughen
up its use of existing measures if it is to succeed in making
up the projected shortfall. The most important challenge for the
programme is to deliver a package of measures that provide control
over all sources of greenhouse gas emissions that we can then
apply with increasing pressure to meet whatever cuts the latest
scientific results indicate are necessary. At present, in developed
countries, annual reductions of approximately 1-3% are required.
10. The two ways of delivering emissions
reductions are to decrease the carbon intensity of our energy
system by for example switching from coal to gas and increasing
our use of renewable energy, and increasing our resource productivity
ie improving energy efficiency. The existing CCP contains a mixture
of measures which seek to achieve these aims in various ways in
various sectors—however, there appears to be no consistency
of approach to emissions in different sectors and little sign
of any top-down assessment of whether the coverage of the policies
is adequate or the measures sufficiently robust. Annex I provides
a rough overview of the type and coverage of existing measures
in the programme.
11. The fact that emissions have fallen
and risen in no discernable pattern since the late 90's indicates
that the partial coverage and range of types of measures being
used do not provide Government with sufficient control to guarantee
reductions in emissions of carbon dioxide.
SECTION A
REVIEW OF
THE UK'S
CLIMATE CHANGE
PROGRAMME
Changing the Framework
A top down approach
12. One of the most fundamental changes
that can be made to the programme is to adopt a more "top
down" rather than "bottom up" approach to designing
policies to achieve our emissions targets—that is to start
with the question: Which sectors' emissions are currently rising
and need to be addressed? Rather than building towards a given
target using estimated amounts of carbon saved from various policies
and measures that exist already, or are planned for introduction.
A top down approach would lead to more effective targeting of
policy and more comprehensive coverage.
Adaptive targets and policies
13. Policies should also be designed so
that they are adaptive and reach targets relative to a given baseline
year (1990 in the case of the 2010 20% CO2 reduction
target) rather than set amounts of carbon removed from a projected
future emissions scenario. The existing programme has largely
failed to deliver because many of the policies were not able to
adapt to changing circumstances (such as high gas prices relative
to coal and increasing demand for energy) and targets were expressed
as set amounts of carbon irrespective of what that delivered in
terms of net reductions against the baseline year.
Strengthening Existing Policies
14. A number of measures already that are
designed to deliver emissions savings and Government has theoretically
at least a reasonable degree of control over emissions in at least
one sector—industrial (including the power sector). However,
the effectiveness of existing measures will be determined by how
Government chooses to implement them. So far generous allocations
in the EU Emissions Trading Scheme and weak Climate Change Agreements
and indicate that substantial savings, even in this sector, are
unlikely to be achieved for the majority of the remainder of this
decade.
The EU Emissions Trading scheme
15. This covers approximately fifty per
cent of our emissions of carbon dioxide that come from industry.
The scheme, which places a cap on emissions but enables trading
of emissions permits to be used to assist with compliance, will
come into force in 2005. The first round of trading runs from
2005-08 and the UK has used it to achieve a 5.5MtCO2
reduction from Business as Usual Projections for the power sector.
16. Allocations in the first phase have
been generous and taken us a long way from a linear path to meeting
the 20% target in 2010. There can be no adjustment to allocations
once trading begins and so we have effectively ruled out achieving
any additional saving from 50% of our emissions until 2008 when
the second traded period begins.
17. It is true that UK industries could
still decide to beat their caps and sell credits overseas, taking
us closer to the target, however, the opposite is also true—credits
can be imported taking us further away.
18. The initial allocation was the Government's
best opportunity to constrain emissions as the scarcity of allowances
will set the price of carbon and in turn influence behaviour.
It is true that scarcity will be determined by how all 25 members
of the EU allocate, but the UK was seen to by many to be setting
the pace, and, as the second largest emitter in Europe, controlled
a sizeable portion of the market. Despite this the UK chose to
allocate very generously for more details see Annex II.
19. The Review of the Climate Change programme
will need to determine the level of reduction required from industry
in the second phase of trading (2008-12). Allocations will need
to be significantly reduced—in all probability savings will
need to be tripled—if we are to stand a chance of meeting
our 20% target.
20. The rules of the game also need to be
tightened at a European level (see EU Presidency below for details).
Climate Change Levy
21. The climate change levy has the potential
to deliver significant emissions reductions by internalising the
cost of carbon intense fuels and profligate use of energy. However,
so far, its impact has been limited primarily because of the low
level at which it was introduced—energy costs for most businesses
remain a relatively small expenditure item.
22. In the industrial sector where energy
costs are high, most sectors have secured exemptions from the
levy and instead signed "Climate Change Agreements"
with Government. These negotiated agreements have so far been
very generous and have failed to deliver significant savings in
all but the iron and steel sector where there was a large falling
off of capacity.
23. These same sectors are likely to seek
exemptions from the EU Emissions Trading Scheme which would otherwise
introduction of a cap and trade mechanism to constrain emissions.
If this is to be allowed the UK Government must ensure that targets
under future CCAs are tough and absolute (ie not expressed as
targets per unit of production) in order that they require an
effort equivalent to the effect of the trading scheme.
24. The classification of levy-exempt forms
of energy includes renewable energy but the definition used is
different to the one used in the Renewable Obligation in that
it makes imported sources of renewable energy eligible and includes
energy from mixed waste incineration. These loopholes should be
closed.
25. The Levy Exemption Certificates that
act as proof of exemption can be attached to non-renewable units
of electricity and sold as "levy exempt" without the
corresponding "Renewable Obligation Certificate" or
"ROC". This means that there is significant potential
for double selling and the weak incentive the levy creates for
renewable energy is still further weakened. The Government should
introduce proper accreditation for all renewable electricity offerings
in the domestic and commercial sector and ensure no double counting
occurs.
The Energy Efficiency Commitment
26. The principle tool for delivering energy
efficiency in the domestic sector is the Energy Efficiency Commitment
(EEC). The demand reduction achieved in the scheme is calculated
using derived figures for set activities, which are sometimes
weighted to encourage investment in particular activities (eg
promotion of more efficient appliances). Targets are not expressed
as a percentage of energy supplied and are not measured against
the 1990 Kyoto baseline. Consequently there is no requirement
to prove a net reduction in supply or demand as a result of the
scheme being in operation. The weighting of credits further undermines
the transparency and breaches the environmental integrity of the
scheme. In other words, although efficiency may on paper appear
to be improving, overall demand for energy and the associated
emissions, can continue, and are continuing, to rise.
27. The EEC establishes the concept of a
regulatory approach to delivering energy efficiency and uses trading
mechanisms to enable participants to meet targets. However, by
being "bottom-up" in its design, it fails to address
fundamental market failures where suppliers are incentivised to
sell more units of energy to their customers, sometimes offering
tariffs with banded structures that reward profligate use with
lower per unit rates. These contradictory market forces help to
undermine the overall effect of EEC on total demand which continues
to rise year on year.
28. Friends of the Earth proposes a move
towards a far more flexible traded mechanism incorporating features
from the Renewables Obligation. These should include the immediately
setting targets expressed as a percentage of the overall supply
of energy rather than a set amount of energy supplied (as is currently
the case), greater incentives to trade, and a buy-out mechanism
to limit cost impacts.
29. The shift to a more flexible traded
system is unlikely to be able to be fully implemented until after
2008 when the design of EEC will be next revisited. In the meantime,
we recommend that the principles of a more trading based system
be piloted in the commercial sector (see below).
New Policies to Address Gaps
30. It can be seen from the table in Annex
I that there are significant gaps where no substantial measures
exist to ensure a shift towards a less carbon intense economy.
Friends of the Earth recommends the following measures be introduced
to better complete the policy framework:
CROSS SECTORAL
MEASURES:
Renewable Heat Obligation
31. This would in effect be a cross cutting
measure that, like the Renewable Obligation, would incentivise
investment in renewable energy across industrial, commercial and
domestic sectors.
32. Heat accounts for roughly a third of
our demand for fossil fuels and yet there is no dedicated measure
designed to support the development of renewable sources of heat
as it is not included in the existing Renewable Obligation.
33. Friends of the Earth supports the introduction
of an obligation on all suppliers of fossil fuels for heat such
that a rising proportion of their business is provided by renewable
sources of heat eg biomass, ground source heat pumps and solar
thermal. A fuller briefing on how such a measure could be practically
applied is available.
IN THE
COMMERCIAL SECTOR:
Demand Reduction Obligation (or Trading in "Negawatts")
34. There are few measures in this sector,
beyond the weak climate change levy, to encourage either energy
efficiency or the switch to less carbon intense fuels.
35. Friends of the Earth recommends that
a "demand reduction obligation" be introduced in the
commercial sector. This would take the form of a cap and trade
system with a buy out mechanism. The obligation could be applied
to the utility companies serving the commercial sector or to commercial
customers themselves. The scheme would provide a financial incentive
for the obliged parties to seek out cost effective ways of reducing
the growing demand for energy in this sector, by setting a target
for the total amount of energy to be supplied in a given year.
The target could initially be set at "no net growth in demand".
36. Those companies beating their targets
can trade over-compliance with those unable to meet their targets.
The existence of a buy-out mechanism would ensure that there was
no absolute limit of the amount of energy that could be provided
(unlike in the EU Emissions Trading Scheme where there is no buy-out)
but that a cost would be internalised by those exceeding their
target. The benefits of such a scheme are that unlike in the case
of a tax it is a flexible mechanism and introduces a positive
financial incentive as well as a penalty.
IN TRANSPORT:
37. Aviation: Uniquely, aviation is currently
free from any policies or measures designed to curb emissions.
This must be addressed or forecast increases will swamp savings
made in other sectors.
38. Government must internalise the environmental
cost of emissions by introducing an emissions charge either as
a stand alone charge or by increasing Air Passenger Duty. It must
also begin proceedings to opt aviation into the EU Emissions Trading
scheme (see EU Presidency).
39. Road transport: In distinct contrast
the number of new regulations that have been introduced in the
industrial sector, efforts to curb transport emissions have been
largely reliant on fiscal incentives or voluntary action. Fiscal
measures such as road fuel duty need to be increased, with revenue
raised going to provide real alternatives and Vehicle Excise Duty
could similarly be increased for gas-guzzling cars like 4x4s,
recycling the revenue back to greener cars.
40. In addition however new measures are
needed to enable new technologies to effectively penetrate the
market including:
A renewable transport fuel obligation:
41. There is currently no measure, other
than a weak duty rebate for biofuels, that incentivises the commercialisation
of renewable fuels in transport. As in the electricity sector,
if the introduction of alternative fuels is to effectively reduce
emissions, it must displace existing fuels. A price signal alone
is insufficient to ensure this happens as incumbents in the market
will have little incentive to change business practices and new
entrants will find it extremely difficult to enter what is a highly
consolidated and mature market.
42. In July of the this year a new law was
introduced in the Energy Act enabling the Government to introduce
a Renewable Fuel Obligation similar to the Renewable Electricity
Obligation. Government has, however, yet to make any announcement
about whether it intends to set targets and introduce such an
obligation. The Government must use this measure to help to bring
about increased fuel diversity and reduced emissions and an early
announcement would ensure that companies who are interested in
investing in renewable fuels locate in the UK, creating jobs and
revenue streams for farmers, rather than in other European countries
who have already introduced far more favourable support mechanisms.
A legal requirement to improve vehicle efficiency:
43. A clear timetable of regulations designed
to ensure the rapid uptake of high efficiency vehicles such as
"hybrids" should be introduced such that by 2010 all
new cars sold meet stringent new upper limits on fuel consumption
per mile travelled. The only measure intended to increase the
efficiency of vehicles is a voluntary agreement at EU level. This
phased agreement is coming under increasing pressure from car
manufacturers who have sought to water down the next round of
commitments. The voluntary nature of the measure will prevent
it from achieving substantial improvements and if hybrid vehicles
are not to remain niche products, regulations will need to be
introduced to help them compete with cheaper, less efficient alternatives.
IN THE
DOMESTIC SECTOR:
44. The domestic sector does not currently
pay the climate change levy and the primary tool the Government
has introduced to incentivise energy efficiency is the Energy
Efficiency Commitment which applies to utility companies supplying
energy The most important step Government could take to reduce
emissions in the domestic sector is to introduce a top down market
based mechanism that incentivises energy companies to sell energy
services rather than units of energy (see above).
45. In the meantime, many additional measures
could be introduced to increase incentives for householders to
reduce their energy demand and to switch to cleaners fuels including:
— Stamp duty rebates for efficient
homes.
— Much tougher building regulations
applying to existing as well as new developments.
— A domestic business tax allowance
allowing private landlords to claim investment in energy-saving
materials against profits.
— Council Tax reduction for householders
installing energy saving measures.
— Reduced rate of VAT to 5% for the
supply and installation of energy efficient products or materials
(in non-grant schemes when householders employ contractors).
IN THE
INDUSTRIAL SECTOR:
Rates reform
46. New rules governing how business rates
are calculated are to be introduced in April of next year and
are likely to hand a significant rebate to coal fired power stations
while increasing the rates payable by clean renewable alternatives.
This example of how perverse effects can be introduced, undermining
Government's climate objectives, highlights the need for far greater
integration between Departments and to deliver clear unequivocal
policy signals. A solution to this particular problem would be
for Government to create a new formula for the calculation of
rates which was a least in part based on carbon emissions per
unit of production.
SECTION B
UK PRESIDENCY OF
THE EU
47. Two important policy decisions will
be being discussed next year: the EU's position on reduction targets
post 2012 and the review of the EU Emissions Trading Scheme.
POST 2012 TARGETS
48. Russia's ratification of the Kyoto Protocol
now means that targets for future commitment rounds can begin
to be discussed. The EU must continue to press ahead not only
with meeting its existing target but also in setting challenging
new targets. Friends of the Earth is currently consulting internally
on the level of targets we will be recommending, however, initial
discussions indicate that they will need to be in the region of
at least a 30% reduction by 2020.
49. Another important point that must be
accepted is that departure from linear reduction paths towards
targets, means that targets must be made more stringent to compensate.
Increased concentration levels of gases will be achieved if the
volume of emissions over time is higher than would be the case
if a linear reduction path is adopted. This is the case if high
emissions are sustained and reductions only achieved towards the
end of the target period—if this occurs to achieve the same
reduction in concentrations a deeper cut needs to be achieved
at the end of the period.
EU EMISSIONS TRADING
SCHEME
50. The EU Emissions Trading Scheme represents
the most significant piece of climate legislation anywhere in
the world to date and if it is implemented effectively it has
the potential to control approximately half of Europe's emissions
of carbon dioxide.
51. However, experiences to date have shown
that the level of subsidiarity in the scheme allows too great
an opportunity for Member States to undermine the effectiveness
of the scheme in the name of protecting international competitiveness.
A review of the Directive will commence in 2005 and under the
EU Presidency significant progress could be made towards improving
this ground breaking tool.
52. The UK needs to pursue the following
objectives:
— set a challenging European level
cap on total allocation of allowances in the second phase of trading
(2008-12);
— extend the scheme to cover other
sectors including land based transport and aviation;
— extend the scheme to cover other
greenhouse gases;
— increase the harmonisation of rules
governing how Member States allocate allowances to participants
including: fixing the baseline years for future allocations; introducing
compulsory auctions; establishing technology benchmarks for new
entrants; providing consistent incentives for plant closures;
and agreeing banking and borrowing rules;
— committing to 100% auctioned system
in the third phase of trading;
— introducing tough penalties for abuses;
— introducing tough caps on use of
overseas credits (ie Joint Implementation and Clean Development
Mechanism credits) to meet domestic targets; and
— establish consensus on the need to
introduce a UN procedure to oversee the development of company
level trading internationally.
DIVERSION OF
PUBLIC MONEY
TOWARDS SUSTAINABLE
ENERGY DEVELOPMENTS
53. In addition, the EU has significant
influence over how public money is spent in international finance
institutions. Historically huge sums of money have been spent
underpinning fossil fuel developments, locking in emissions for
many years to come. Friends of the Earth is calling for public
money in the shape of international loans and guarantees to be
diverted away from projects with high emissions—particularly
export focussed projects, which have delivered little in the way
of economic advantage to host countries and simply served to provide
developed countries with cheap fuels. Instead public subsidies
for truly sustainable renewable energy projects should be greatly
increased. More information on this recommendation is provided
in Annex III.
SECTION C
UK CHAIRMANSHIP OF
THE G8
54. The UK's chairmanship of the G8 in 2005
provides a key opportunity to achieve political consensus amongst
the world's richest countries on the urgent need to take international
action to tackle climate change.
55. Our Prime Minister has already stated
that his two priorities will be climate change and Africa. On
climate change he has indicated that he will pursue three themes:
— consensus on the most recent scientific
evidence with a view to agreeing a global environmental limit;
— work to speed up the deployment of
existing carbon abatement technologies; and
— work to engage high emitting developing
countries such as China and India.
56. Friends of the Earth largely supports
these aims and hopes that they will deliver tangible outcomes.
The G8 summit in July will need to lead to a firm consensus amongst
the G8 that immediate and sustained activity is necessary to tackle
climate change under a legally binding internationally agreed
framework. A key test of work streams begun in the G8 will be
whether they culminate in re-invigorated discussions and negotiations
at the first meeting of parties to the Kyoto Protocol in December
of the same year.
57. Key milestones towards this goal could
include:
— agreement to review the adequacy
of commitments which should have happened in 1998 (UNFCCC Article
4 para 2.d);
— consensus between developed and developing
countries about the reorientation of global agricultural subsidies
towards supporting biofuels and away from food production;
— agreement to establish an international
framework governing the development of company level emissions
trading schemes enabling all UNFCCC signatories to design and
implement effective schemes to control their domestic emissions;
and
— consensus amongst G8 and OECD countries
to divert public funding away from projects which lock us into
high emissions pathways and to support instead truly sustainable
renewable energy developments.
More information on each of these suggestions
is available from Friends of the Earth.
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