| Introduction
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| 1. | Climate change is on a different scale from any other political challenge. Its potential effects could be both physically and economically devastating. It is not just the size but the timing of these effects that poses such a challenge. The lag between emitting CO2 and experiencing the resulting rise in temperatures means we must take bold action today in the hope of preventing dangerous climate change occurring in the future, the impacts of which could be irreversible. Timing is also an issue given the long term planning and investments required to roll out new technologies and infrastructure, and thereby decarbonise the economy. (Paragraph 9)
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| 2. | These challenges underline the vital importance of getting the structures and systems which support UK climate change policy right. The UK's carbon reduction framework must be firmly embedded in the structures of government and the economy, so as to provide long term certainty and continuity. This necessitates policy-making which seeks to establish and draws on political consensus, which is based and updated on the best available science, and which draws on a detailed understanding of the impacts of policies on emissions, the economy, and everyday behaviour. (Paragraph 10)
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| The Climate Change Programme Review
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| Forecasting future emissions
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| 3. | Forecasting the future rate of an economy's carbon emissions is a complex business, fraught with inescapable uncertainties. As the review by the National Audit Office shows, the UK's forecasting processes have received approval from reviewers acting on behalf of the UN, and have been in line with assumptions and projections made by external bodies. However, while the NAO explains that a degree of change in projections is to be expected, it also notes that in this case the extent of change was greater than the Government modelling teams had expected. Naturally, there should be continual efforts to improve the models on which projections rely. But it also underlines the need for the Government to treat forecasts for future years with caution, and ensure they are not presented—either to decision-makers within the Government, or to the public—with undue certainty, as though they were concrete descriptions of the future. This applies especially to emissions forecasts which project many years into the future, such as to 2050. (Paragraph 32)
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| 4. | We consider it unacceptable that it took so long after 2000 for Government projections to catch up with reality. As late as the 2003 Energy White Paper, the Government was still projecting that the 2010 target would be met in full. The delay in producing more accurate forecasts severely retarded and impaired the ability of the Climate Change Programme Review to come up with policies that would get the 2010 target back on track. The Government should perform much more frequent revisions to emissions forecasts. (Paragraph 33)
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| 5. | Even if many of the Government's key forecasting assumptions were broadly in line with those made by external organisations, the fact that the movement of oil and gas prices in recent years has repeatedly been higher than forecast demonstrates that the consensus view may sometimes be wrong. The Government's forecasting model should consider a wider range of assumptions and scenarios, especially regarding fossil fuel prices. (Paragraph 34)
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| 6. | The Government does open up the assumptions it uses in its forecasting model to consultation and review. However, while there may be external input into this modelling, its inner workings remain opaque to the outside world. The Government should make its forecasting models publicly available as open source software. This would allow external analysts to test the Government's forecasts by inputting their own projected values for fuel prices, economic growth, energy demand from households, and so on. (Paragraph 35)
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| 7. | The Energy Saving Trust has called for the Government to develop a new and bespoke model to forecast carbon emissions, rather than simply adapt the DTI's energy demand model. We recommend that the Government should now do so. (Paragraph 36)
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| 8. | We recommend that the Government should admit the uncertainty range of its emissions projections. It should also regularly publish a review of its previous projections, comparing them against outturn data and latest projections, and analyse what it got right, what it got wrong, why it did so, and what lessons it has learned. These reviews should be consistent in format and categories of data they present, so that it is easy to compare one year with another. (Paragraph 37)
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| 9. | The downward revision, by some 16-26%, of the expected impact of carbon reduction policies in the 2000 Climate Change Programme shows, first of all, that the Government must eliminate "optimism bias" from its initial design of climate change policies. Secondly, it highlights the risks inherent in the Government's current approach, whereby it seeks to implement policies which will deliver only just enough carbon savings to span the gap between a "Business As Usual" projection of where emissions are going to be in a certain year and a target level of emissions for that year. Government forecasts of "BAU" emissions have so far consistently been too low, while its forecasts of the impact of carbon reduction policies have consistently been too high. The moral is that the Government should err on the side of caution, and aim to overachieve its targets. (Paragraph 38)
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| Cost-effectiveness analysis
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| 10. | Many of the technical aspects of the cost-effectiveness analysis (CEA) used in the Climate Change Programme Review were done well. As the NAO noted, CEA was appropriate to be used to help decide among different policy options, its use was more consistent and comprehensive than in the original CCP 2000, the assumptions used in it were in line with the analysis of external organisations and their uncertainties recognised, and in the Review it produced evaluations which were reliable enough for different policies to be compared with each other. (Paragraph 46)
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| 11. | At the same time, there were some weaknesses in the way CEA was used. Because the Review was focused on meeting the short term target of 2010, it did not consider policies which would have a bigger but longer term impact. This represents a missed opportunity to advance UK climate change policy, and, to some extent, a waste of the Review teams and their resources. Some options were not appraised fully or at all because the Review itself was running short of time and resources. This lack of time was compounded by the delay in the Government's identification of how far short of the 2010 target it was projected to fall, and thus how many more policy options were needed. This highlights the need for annual reassessments of progress towards short, medium, and long term emissions forecasts and the carbon reduction policies that can help us achieve them. (Paragraph 47-48)
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| 12. | Future use of CEA should ensure that it focuses on different scales of policy implementation, across different timescales, thereby enabling policy-makers to better choose different ways and combinations of implementing certain policies. There should also be more public scrutiny of and debate about the assumptions and calculations which result in CEA indicators for each policy. Most importantly, emissions targets should be determined by climate science, and CEA only used to help achieve these targets in the most cost-effective manner; rather than in effect setting targets itself, through being used to determine what level of emissions cuts is "affordable". (Paragraph 49)
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| 13. | The overruling of the CEA indicators in the case of major policies such as the Renewables Obligation and fuel duty escalator suggests that the CCPR was still significantly guided by broader political considerations. It is not necessarily wrong for the Government to overrule the recommendations generated by a particular methodology such as CEA; Governments must always take wider political considerations into account. What we recommend is that the Government is braver about the extent of action on climate change that is politically possible. We hope the Government is already moving in this direction, given that having excluded tighter building regulations from the CCPR, it subsequently introduced a policy for Zero Carbon Homes in Pre-Budget 2006. In future, the Government should be bolder about consulting on potential climate change policy options, to test public opinion on their acceptability, and encourage public debate on alternative measures. (Paragraph 50)
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| Social cost of carbon |
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| 14. | We have queried the Government's use of the Social Cost of Carbon (SCC) in a number of inquiries. We were interested to learn that, as the NAO put it, the cost-effectiveness analysis in the CCPR "sensibly excluded the social cost of carbon", and that one of the main reasons why the Review opted to use cost-effectiveness analysis in the first place was "because it is not reliant on a firm valuation of the social cost of carbon". We conclude from this that the Government has doubts as to the reliability of the SCC in policy-making. In the light of this, the Government should explain clearly how it intends to use SCC in the future. (Paragraph 52)
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| Joined-up policy-making |
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| 15. | The Climate Change Programme Review involved the joined up work of officials from several different Departments, as well as key external bodies. But one major failure in this joined up approach was the exclusion of fiscal policy, consideration of which remained the preserve of the Treasury. In the future, there must be an integrated approach to climate change policy-making, which considers the use of taxes and incentives alongside other measures. (Paragraph 58)
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| The Draft Climate Change Bill
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| The 2050 target |
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| 16. | The Government's policy towards the UK's 2050 target is clearly incoherent. The Government remains committed to limiting global warming to a rise of 2oC; but it also acknowledges that, according to recent scientific research, a cut in UK emissions of 60% by 2050 is now very unlikely to be consistent with delivering this goal. While the Office of Climate Change was justified in telling us that the "at least 60%" target in the draft Bill is within the range discussed in the Stern Review, this is clearly the minimum in emissions reductions which the Stern Review sets out. In fact, Stern states that this would correspond to a 63%-99% chance of exceeding a warming of 2oC, and describes this level of global warming as "a dangerous place to be, with substantial risks of very unpleasant outcomes". We recommend that the 2050 be strengthened to reflect current scientific understanding of the emission cuts required for a strong probability at stabilising warming at 2oC. (Paragraph 69)
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| 17. | We recommend that the Government publishes the rationale for its 2020 and 2050 targets, preferably including the central formula upon which they are based, in the Climate Change Bill. This rationale should make clear the size of complementary caps on annual emissions required of other blocs of nations, the stabilisation target for global atmospheric concentrations of greenhouse gases, and the resulting projected temperature rises, which are implied by the Bill's targets for annual emissions from the UK, as well as the central assumptions used by the Government in making these correlations. The Bill should state that if the Secretary of State proposes to revise these targets, he must publish the rationale for the new target in like manner. (Paragraph 70)
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| 18. | Above all, the Government must draw attention, at home and abroad, not just to percentage targets for the annual emissions in a certain year, but even more to the absolutely crucial issue of the cumulative total budget of greenhouse gases that the world can afford to emit by 2050 if it is to have a reasonable chance of holding global warming to 2oC. (Paragraph 71)
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| 19. | In terms of the way in which this cumulative global budget is divided up among individual nations, we recommend that the Government explicitly endorses, and promotes internationally, the Contraction and Convergence method, or a method similar to it. (Paragraph 72)
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| 20. | The Tyndall Centre for Climate Change Research have made a very strong argument that the UK ought to make carbon reductions of 70% by 2030 and 90% by 2050. We recommend that the Government respond to Tyndall's recommendations; and if it is rejecting them, explain why. (Paragraph 73)
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| 21. | While we note that the Government has included a "trigger clause" in the draft Bill for amending the 2050 target, it states that the Secretary of State "may only" revise the target if one or both of its specified qualifications are met. We are concerned that this may put fetters on the ability of future Governments to respond to the threat of climate change. It is perhaps possible that the wording of this clause may encourage or make it easier for opponents of a tougher target to mount a political or legal challenge, based around the test of whether there truly have been "significant developments", in the event that a Government decides to raise the target above 60%. We recommend that the power to amend the target be significantly less circumscribed. (Paragraph 74)
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| The 2020 target |
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| 22. | The Government should set out in detail where the UK needs to be in terms of emissions reductions by 2020 in order to be on track to meet other possible, and more challenging targets, for 2050. Especially given that some have suggested that that the 26%-32% target for 2020 would have to be increased in order to meet a more stringent target for 2050, we recommend that the restrictions in the draft Bill on amending the 2020 target be taken out. We are also concerned that setting a target range in practice encourages people to aim for the bottom end of the range, as this requires the least effort while still achieving compliance. For this reason, we recommend that the 2020 target be amended to read "at least 32%", rather than "26-32%". (Paragraph 78)
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| 23. | It is clear to us that the Government will have to introduce more radical policies into its Climate Change Programme very soon if it is to meet even the 2020 target as currently set. Current measures, including those introduced by the recent Energy White Paper, are only projected to get us nearly to the bottom end of 2020 target range - and this at what the Office of Climate Change described to us as "the upper end of optimism". The Government has thus far consistently overestimated the impact of its carbon reduction policies, while underestimating the upward trend in emissions from social and economic developments. The lesson of the UK's failure to meet its 2010 target is that the Government must aim to overachieve its target for 2020. We recommend therefore that the Government introduce other measures projected to achieve at least the top end of the 2020 target, a reduction of 32%. (Paragraph 80)
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| International aviation and shipping
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| 24. | Overall, we are unimpressed by the Government's arguments for excluding international aviation and shipping emissions from the UK's carbon reduction regime. While the draft Bill contains provisions that allow these emissions to be included in the future, we recommend that they be included immediately. Despite the arguments of the Secretary of State, we do not believe the Government needs to wait until the terms under which aviation will enter the EU ETS are fully confirmed before doing this. There already is an internationally agreed methodology for attributing and recording these emissions as memo items to national Kyoto accounts; the Government should simply use this to track these emissions within the UK's carbon budgets. This, in turn, means the Government should only count the simple weight of CO2 from international aviation within these carbon budgets, rather than multiplying it by a factor of 2 or more to reflect the wider global warming impacts of flying. These extra impacts should not be ignored, however, but merit additional policy responses. (Paragraph 96)
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| 25. | If the inclusion of international aviation and shipping has to be delayed, the Bill should be more prescriptive about and when they are to be included. The flexibility currently there in the draft Bill threatens to undermine the UK's overall emissions targets. The draft Bill's qualification that a future Secretary of State "may only" include these emissions if there has been an international agreement on them seems potentially to tie the hands of future Governments for no good purpose, and should be removed. (Paragraph 97)
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| 26. | Finally, if these sectors are not included from the outset, then the Government figures for the UK's annual emissions and forecasts of future emissions should clearly indicate what the level of these emissions and progress towards meeting national carbon budgets and targets would be, once international aviation and shipping were included. This would aid transparency, and focus attention on the effects that an ongoing upward trajectory in aviation emissions has on progress towards the UK's short, medium and long term targets. In order to do this, projections of future emissions from aviation and shipping must be improved, frequently updated, and fully integrated into the Government's Updated Emissions Projections papers. (Paragraph 98)
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| Use of emissions trading |
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| 27. | We have concerns as to the scope in the draft Bill for the UK's carbon reduction targets to be partly met by purchasing carbon credits from other countries. The Government must ensure that carbon credits are not used to forestall the early transition in the UK to low carbon infrastructure in power generation, buildings and transport, as this could mean that the country is locked into carbon-intensive lifestyles for decades to come. At the same time, we certainly recognise the potential importance of trading in providing funds for low carbon infrastructure in the developing world. We would simply argue that this must not become an "either/or": the Government should ensure that the UK's targets are sufficiently challenging that they drive decisive emissions reductions at home and abroad. (Paragraph 106)
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| 28. | Where emissions trading is used to meet UK targets, it is essential that the Government distinguishes clearly between emissions reductions achieved within the UK and emissions reductions funded by the UK but taking place abroad. Thus far, in reporting the relationship of the EU ETS to UK emissions, the Government has been less than transparent. The problem with this is that it might foster a false sense of complacency about the progress and policies required to decarbonise the UK. The Government ought to adopt a code of practice for reporting UK emissions, and the Committee on Climate Change should audit Government press and statistical releases. (Paragraph 107)
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| 29. | Above all, the Government should address the question: if all countries will have to meet challenging emissions targets by mid-century, how many are going to beat their targets and thus be able to offer surplus carbon credits to the rest? The Government has pointed to the research in the Stern Review which concludes that in order to meet a global 450-550ppm CO2e target, all developed nations would have to make emissions cuts of at least 60%-90%, with many developing world countries allowed only a modest increase or a small decrease; but Stern clearly says that these figures "do not incorporate international emissions trading". The Government should clarify what these targets would be once emissions trading is taken into account, under a range of scenarios. In doing this, the Government should be explicit about the maximum range of the UK's carbon budget to 2050 which could be made up by buying emissions credits from abroad, and still be consistent with Stern's global stabilisation targets. (Paragraph 108)
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| Carbon budgets and reporting
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| 30. | We welcome the Government's proposals to introduce a national carbon budgeting system. Setting successive five year carbon budgets will help to span the gap between annual emissions figures and the target for 2020. We hope that these carbon budgets will ensure that there is constant political pressure to meet them every five years. They should also help define the pathway of emissions reductions through time that the UK will need to follow in order to meet its medium and longer term targets. In addition, the introduction of rigorous annual reports to Parliament on trends in emissions and on the impacts of carbon reduction policies, as well as reports setting out the suite of policies and their projected impact for each budgetary period, will show whether the UK is managing to follow its required emissions pathway, and should lead to a timely revision of policies if progress is slipping off track. (Paragraph 117)
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| 31. | It makes sense for each carbon budget to run for longer than one year, to allow for unforeseen variations in emissions from year to year. But the Government should still set out an indicative target for UK emissions in each year, so as to apply continual pressure to reduce emissions. We also recommend that the successive series of carbon budgets should extend out all the way to 2050, so that all carbon budgets are consistent with the UK's overarching emissions objective. (Paragraph 118)
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| 32. | Earlier budgets should contain steeper reductions: as the Stern Review made clear, early cuts in emissions are disproportionately beneficial. The Government should also examine the feasibility of introducing sector-specific emissions pathways to be defined to 2050, notably for power generation, buildings, and transport; this would help to identify in more detail the scale, timing, and nature of the developments needed in order for the UK as a whole to meet its targets. (Paragraph 119)
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| 33. | One further aspect of the provisions in the draft Bill which we welcome is the proposed introduction of five-yearly reports on the impacts of climate change in the UK and policies for adaptation. We recommend that this requirement is accompanied by a Government programme of action on adaptation in the UK. The Government should incorporate into such a formal programme of action an international development strategy which identifies and works to address the impact of climate change on the world's poorest and most vulnerable communities. Following our recent suite of reports on the Government's approach to trade, development, and the environment, we may look more closely at the adaptation proposal in this draft Bill and any wider initiatives it develops in the future. (Paragraph 120)
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| Committee on Climate Change
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| 34. | We support the Government's proposal to establish an independent Committee on Climate Change. The creation of such an independent body should make a significant contribution to the quality and transparency of Government climate change policy. One particularly valuable aspect of the Committee's work would be in providing challenge to, and public reporting on, Government forecasting and policy analysis. As part of the Committee's proposed statutory role to report to Parliament on UK emissions and the progress made in reducing them each year, it should be given a duty to audit the Government's publication of emissions statistics to ensure these are transparent, differentiating between emissions reductions made in this country and those funded abroad. It should also have a duty to comment annually on the assumptions and modelling used by the Government to forecast future emissions and estimate the impact of individual policies. Furthermore, the Committee should be able to make detailed policy recommendations to Government. (Paragraph 131)
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| 35. | There has been much discussion of the parallels between the Committee on Climate Change and the Bank of England's Monetary Policy Committee. The latter illustrates the advantages that can be gained by devolving key responsibilities to a non-party political committee of experts. At the same time, the issues involved in climate change policy are bigger and more complex than those devolved to the MPC. We conclude that, while the Committee on Climate Change could make some detailed recommendations, the Government must still choose which policies to implement. The virtue of the Committee will be that the Government must respond to it; and if Ministers reject any of the Committee's recommendations, they will have to set out why, and propose others to deliver equivalent emissions savings. (Paragraph 132)
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| 36. | These virtues, of course, depend on the Committee's enjoying—and being seen to enjoy—a very high level of both subject expertise and independence. We consider that, as the conditions for membership are set out in the draft Bill, "climate science" is not given enough prominence. We recommend that this should be spelt out as the most important area for the Committee to understand and take into account. We further recommend that the Committee be given a duty to consider the wider environmental aspects of sustainable development. (Paragraph 133)
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| 37. | In order to strengthen the independence of the Committee—and public perceptions of its independence—it is essential that members be appointed for their individual expertise, and serve in a personal capacity, rather than as representatives of different stakeholder groups. The appointment process itself should be open and transparent, preferably in accordance with the recommendations of the Nolan Report. To increase transparency and perceptions of independence, and in view of the importance of their role, all new appointees to the Committee should first be required to appear before the Environmental Audit Committee, to provide assurance to Parliament as to their suitability, and to highlight their thinking on tackling climate change. (Paragraph 134)
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| Relationship of the Committee on Climate Change to the Office of Climate Change
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| 38. | We conclude that the Office of Climate Change is doing valuable work, and will help to improve the quality of Government climate change policy. Its main role appears to be to provide a resource which individual Departments can access for discrete pieces of research on climate change policy. It remains to be seen, however, whether it will have the remit to design truly cross-cutting policies, or the influence to ensure that all Departments build climate change into their thinking at an early stage. The OCC's lack of responsibility for considering fiscal policies is a sign that this is not the case. Also, it cannot, by itself, ensure that Government policies are joined up, so that major policy programmes—for instance, DfT's airport expansion programme—do not run directly counter to the effort to reduce carbon emissions. This requires a joint effort of Ministerial will. (Paragraph 138)
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| 39. | The Government is right to seek to ensure that the Committee on Climate Change, the Office of Climate Change, and relevant parts of Government share resources and do not unnecessarily duplicate each other's work. But the Committee on Climate Change must have the resources to ensure that its work is wholly independent, and does not merely have to rely on the conclusions given to it by individual Departments. This point is underlined by the way in which, in the Climate Change Programme Review, the Interdepartmental Analysts Group only supplied decision-makers with one scenario for each potential policy, thus preventing the CCPR from considering the impacts of different scales and combinations of policies. Given the importance of the Committee it needs a high quality secretariat which is adequate to support all its work and a budget for commissioning external research. (Paragraph 141)
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