5 Increasing the UK's international
92. Climate change is a global problem requiring
a global solution. The UK has demonstrated considerable leadership
on the issue by setting legally binding emissions reduction targets
for 2020 and 2050;
the first of their kind in the world. This section considers the
potential international impacts of a UK-based EPS as well as examining
how the Government could maximise its influence through the introduction
of an EPS.
EMISSIONS PERFORMANCE STANDARDS
93. There is no EPS currently in operation within
the EU. However, the idea has been explored in some other Member
States, as well as at a Europe-wide level.
94. The Dutch Parliament has considered plans to
bring in an EPS of 350 gCO2/kWh in 2020. However, the
debate has not progressed since the Parliament re-formed following
elections earlier this year.
Environmental law and policy organisation ClientEarth told us
that "at least one EU Member State is set to release draft
legislation including provisions for EPS for the power sector
during 2010". The Member State in question was not identified.
95. In 2008, the European Parliament Environment
Committee voted to support an EU-wide Emissions Performance Standard
from 2015 onwards as part of the EU Climate Package. The proposal
was ultimately rejected by the Council of Ministers and was not
included in the final agreement. The CO2 Storage Directive
already features a review in 2015 to consider whether an EU-wide
EPS might be required.
96. If the UK were to introduce an EPS, there could
be an impact on policy development in other Member States. We
heard from several organisations that a UK EPS could provide a
useful model for other countries and could even lay the groundwork
for a European-wide EPS.
Simon Skillings told us that the UK is a "thought" leader
in Europe and that there is particular interest in the approach
the UK takes to decarbonising its power sector. This is because
the UK is currently dealing with questions about investment in
new capacity that many other European countries are set to face
in a few years' time.
However, despite this potential leadership role, the Minister
told us that the Government had not yet engaged in any discussions
with other Member States on this matter.
97. E3G also told us that a Europe-wide, harmonised
EPS would help to widen the market for low carbon technologies
and help to achieve an integrated and more competitive European
However, UK Coal and others pointed out that some European countries
are still highly dependent on coal-fired electricity, which suggests
that they would be resistant to the introduction of a Europe-wide
Alliance provided an alternative approach to promoting action
at the European level, which was for a "vanguard Member State
or grouping [to] take action first, which could then be taken
up by neighbouring countries or by the EU as a whole".
98. However, there are some risks to the UK introducing
an EPS by itself, without similar action in other Member States.
For example, as discussed in paragraph 79, a UK-only EPS could
push generators to build new, cheaper, high-carbon capacity in
neighbouring countries with interconnectors to the UK but with
no EPS of their own.
99. The UK is an influential member of the EU
and action taken by the UK in reducing its carbon emissions could
provide an example for others. Several other Member States have
expressed an interest in introducing their own EPSs and a UK EPS
could provide a model for others to emulate. This is a valuable
opportunity for the UK to shape the EU's approach to an important
area of policy and we recommend that the Government must seize
it. Equally, there may be lessons for the UK to learn from others.
The Government must engage more closely with other Member States
that are considering EPSs in order to share best practice and
learning on EPS design and implementation.
100. The UK has been vocal within Europe in advocating
a more liberalised energy market. However, the UK is now considering
major changes to its own market structure in order to switch to
a low-carbon economy, which may appear to contradict its previous
doctrine of liberalisation. Lord Turner told us:
[...] there is an element to which we have been
so proud of our complicated liberalised energy market [...] that
we have managed to sell it to Europe and they are rolling ahead
to try and make everybody have to have it just at the point where
we are realising that it is not necessarily the most efficient
way to drive a low-carbon economy.
Although the UK's liberalised electricity market
has successfully delivered on its original aims, it is now clear
that the market as it currently stands will not on its own incentivise
the development and use of low-carbon and electricity storage
technologies. Therefore, with these objectives in mind, it has
to be modified. The EU must also take the need to decarbonise
the electricity sector into account as changes are made to the
European electricity market.
IMPACT ON THE EU ETS
101. We described the impact an EPS could have
on the EU ETS carbon price in section three. In addition, we heard
some concerns that the introduction of an EPS could be interpreted
as a sign that the UK Government does not consider the EU ETS
to be a sufficient mechanism to meet its climate change ambitions.
This in turn, it was argued, could undermine confidence in the
ETS and hamper efforts to introduce carbon trading schemes outside
CBI claimed, unconvincingly in our view, "The introduction
of an EPS would send out the message that the Government does
not feel that the EU ETS is an effective policy tool in helping
to meet carbon reduction targets".
102. On the other hand, Mr Molho of WWF told us
that the European Commission acknowledges that the impact of the
recession on the EU ETS means that it will not provide an adequate
route to decarbonisation.
It seems unlikely therefore that a UK-based EPS would result in
additional reputational damage to the System, particularly since
the Government is not proposing to replace the EU ETS with an
EPS but rather to introduce it alongside the EU ETS.
103. We heard from several organisations that
felt that the introduction of an EPS would demonstrate leadership
on tackling climate change and would show a commitment to meeting
the UK's 2020 and 2050 emissions targets. Specifically, it could
demonstrate a willingness to invest in meeting our climate change
targets (since there are potential costs associated with implementing
an EPS) and could demonstrate a commitment not to permit the construction
of new unabated fossil plants. Both these outcomes would show
how serious the UK is about tackling climate change.
104. We conclude that the risk that the introduction
of a UK-based EPS could undermine the reputation of the EU ETS
is easily outweighed by the positive leadership it would demonstrate.
There is already a widespread acknowledgement that the EU ETS
is not by itself delivering low-carbon investment, so any reputational
damage caused would be minimal.
LEGALITY OF AN EPS UNDER EUROPEAN
105. There appears to be some doubt as to whether
a UK-based EPS would be permitted under the EU Industrial Emissions
Directive (IED). A recent amendment to the IED states that the
Directive does not prevent Member States from introducing more
stringent measures, such as greenhouse gas emission requirements.
However, in order to prevent duplication of regulation with the
existing EU ETS, Article 9 of the Directive prohibits the use
of emission limit values for direct emissions of greenhouse gases.
Scottish and Southern Energy suggested that the introduction of
an EPS might therefore be open to a legal challenge.
EURELECTRIC also questioned whether an EPS would constitute a
more stringent measure or whether in fact it would really
be an additional measure, in which case it would not be
permitted under the terms of the IED.
106. It is not clear whether a UK-based EPS would
be permitted under the EU Industrial Emissions Directive. Article
9 of the Directive prohibits the use of emission limit values
for greenhouse gases and although the preamble states that Member
States may introduce more stringent measures, it is not
clear whether an EPS might in fact be considered an additional
measure. There is therefore a risk that the introduction of an
EPS may result in a legal challenge. We call on Government to
clarify the legality or otherwise of an EPS in its response to
Wider international impact
107. As discussed above, the introduction of a UK-based
EPS would demonstrate leadership and a clear commitment to meeting
our climate change targets. This could lend some credibility to
the UK in climate change negotiations on the international stage,
although it should be remembered that the UK negotiates at the
UNFCCC as part of the EU. Therefore, the UK's leadership role
within Europe may be of more importance.
108. A UK-based EPS could also help international
efforts to tackle climate change in a more practical sense. It
could provide a model and policy template that could be useful
to other countries looking to introduce an EPS of their own.
Sharing knowledge and best practice on climate policy could also
help to build trust between countries; a vital ingredient if international
negotiations are to move forward with any real impact.
109. We heard some suggestions that if other countries
were to adopt EPSs for their power sectors, this could help pave
the way for sectoral agreements between countries and potentially
help to secure future binding agreements to mitigate climate change.
110. E3G told us that the use of EPSs in developing
countries could help to improve the functioning of the Clean Development
Mechanism (CDM). For example, an EPS could provide a clear minimum
standard for the power sector, which could then be used as a baseline
against which the carbon savings of CDM projects could be measured.
The current system involves identifying baselines on a project-by-project
basis, which is both subjective and costly. In addition, a well
designed EPS that provided greater certainty and removed policy
risk for investors could help to encourage private sector finance
in low-carbon technologies in developing countries.
111. Some respondents to our inquiry suggested that
introducing a new policy measuresuch as an EPSwould
have little impact at the international level and that if the
Government wanted to encourage greater efforts to reduce emissions
in other countries that it would be better off focusing its efforts
on more practical examples, such as the CCS demonstration project.
112. Even though the introduction of an EPS may
not be as influential at the international level as a successful
demonstration of CCS technology, we nevertheless believe that
it could bring significant benefits. We call on the Government
to work with other countries to share best practice on EPS in
order to facilitate global emissions reductions from the power
113. The introduction of a UK-based EPS would
bring a number of benefits at the international level. Within
Europe, it would provide a template for other Member States to
follow. Other Member States are considering EPSs of their own
and leadership from the UK could help to encourage the uptake
of EPSs elsewhere in Europe, particularly since the UK is viewed
as a leader on climate change within the EU. At the international
level, the introduction of a UK EPS would demonstrate commitment
to tackling climate change. Providing a model for other countries
to emulate could help bring forward sectoral agreements and help
to achieve global emission reductions from the power sector.
114 These targets were set out in the Climate Change
Act 2008. Back
Ev 61, Ev 70 and Ev w28 Back
Ev 79 Back
Ev 73, Ev w9 Back
Ev 43 (E3G), Ev 73 (Green Alliance), Ev 79 (ClientEarth) and Ev
w24 (UKCCSC and UKERC) Back
Q 60 (Skillings) Back
Q 159 Back
Ev 43 (E3G) Back
Ev 70 (AEP), Ev w3 (UKC), Ev w7 (CoalPro) and Ev w33 (EDf) Back
Ev 73 (Green Alliance) Back
Q 31 (Turner) Back
Ev 68 (CBI), Ev 70 (AEP), Ev w28 (RWE npower), Ev w37 (E.ON) and
Ev w64 (IPR) Back
Ev 68 (CBI) Back
Q 60 (Molho) Back
Ev 43 (E3G), Ev 61 (WWF-UK and Greenpeace-UK), Ev w54 (Sussex
Energy Group) and Ev w66 (GE) Back
Q 146, Ev 43 (E3G), Ev 73 (Green Alliance), Ev 79 (ClientEarth)
and Ev w1 (Richard Marcrory) Back
Ev w15 (SSE), Ev w37 (E.ON) Back
Ev w15 (SSE) Back
Ev w31 (EURELECTRIC) Back
Ev 61 (WWF-UK and Greenpeace-UK), Ev 73 (Green Alliance) and Ev
w24 (UKCCSC and UKERC) Back
Ev 61 (WWF-UK and Greenpeace-UK) Back
Ev 79 (ClientEarth), Ev w51 (ScottishPower) Back
Ev 43 (E3G) Back
Ev w9 (IMechE), Ev w37 (E.ON), Ev w64 (IPR) and Ev w46 (Centrica) Back