Environmental Audit CommitteeWritten evidence submitted by RWE npower

Summary

1. We believe that the Carbon Budgets are important but Government needs to be clear what is necessary to achieve the level of ambition set by the targets. It is important to separate out issues around decarbonisation of the electricity sector and what will be needed to meet the emissions reductions set by the fourth carbon budget.

2. The key steps for achieving UK carbon budgets are to:

Agree EU wide carbon reduction targets and strengthen the EU ETS for the traded sector,

Focus on emissions reductions in the non-EU ETS sectors to deliver UK carbon budgets,

Recognise the benefits from moving energy use from the non-EU ETS sectors to the capped ETS sector (eg electrification of heating and transport).

Are the Emissions Reduction Targets in the Climate Change Act still Valid?

3. The reduction targets in the Climate Change Act of an 80% reduction in emissions of greenhouse gases by 2050 compared with 1990 levels is consistent with the EU policy goals set out in the Energy Road Map 2050. We believe that it is important that Europe should now agree a long-term binding carbon target with intermediate targets for 2030 and 2040. The UK target should take into account interactions with European targets and we would expect the reduction targets as set out in the Climate Change Act to be broadly consistent with future European targets.

Operation and Management of the Carbon Budgets

4. We are concerned that in discussing carbon budgets there seems to be a lack of understanding around the principles used for carbon accounting in relation to reporting against targets. In reporting emissions reductions against all of its targets, the UK takes account of emissions trading through the flexible mechanisms defined by the UNFCCC and the Kyoto protocol. In particular this reporting takes account of trading under the EU ETS. Taking emissions trading into account within the context of the UK’s reported emissions, affects the results by increasing (or decreasing) the level of emissions by the amount of EU ETS allowances sold (or bought) in a year such that the amount reported against the “traded sector” part of the UK Carbon Budgets always equates to the UK share of the overall EUETS cap and not the total emissions from these sectors.

5. The interaction between Carbon Budgets and the EU ETS needs to be made clearer. While the EU ETS is in place, any emissions reductions from the sectors in the EU ETS will be constrained by the overall level of the EU ETS cap. Hence the UK’s carbon budgets are linked to the ambition of EU ETS carbon targets and the UK’s pro rata share of the overall cap. The only ways to break this link (assuming the UK continues to be part of Europe and/or the EU ETS) would be for the UK Government to choose not to auction a part of its allocation of EU ETS allowances or to buy and cancel allowances from the scheme.

6. The announcement of this current inquiry talked about the possibility of whether the fourth carbon budget should be relaxed in light of a weak EU ETS carbon price. However, it is not the carbon price but the level of the EU ETS cap that will impact on meeting the UK carbon budgets—if the EU cap remains as it is the only way for the UK to achieve its carbon budgets is through greater reductions in the non-EUETS sectors (particularly heat and transport). Clearly there is a link between the cap and carbon prices but this just underlines the need for Europe to agree on long term carbon targets and revisions to the EU ETS caps.

7. As an example to illustrate this point, it is worth considering a situation where the UK has completely decarbonised electricity generation by 2025. In this case although the actual emissions from the sector would be 0 the emissions reported against carbon budgets, according to the Carbon Accounting Regulations (2009),1 are estimated at around 120 MtCO2 (based on 2010 emissions from power stations and following the current EU ETS trajectory for the reduction in the overall cap).

8. If the link between carbon budgets and the EU ETS is not recognised the debate on carbon budgets will continue to be confused by discussion around decarbonisation of the electricity sector. While decarbonisation of electricity is clearly central to meeting carbon reductions in the long term, unless this decarbonisation also happens at a European level, it will have no impact on achieving UK Carbon Budgets given the over arching nature of EU ETS targets.

9. It is important to separate out the issues around decarbonisation of the electricity sector and what is needed to meet the fourth Carbon Budget.

10. The cap for the traded sector that is needed for consistency with the fourth Carbon Budget is calculated by the Committee on Climate Change to be 690 Mt (over the five year period). If there is no revision to the current EU ETS trajectory the actual cap for the sector is estimated to be around 890 Mt CO2 over the same period. The key issue is therefore how to achieve this additional 200 Mt CO2 reduction over the period 2023–27.

11. The important steps for achieving UK budgets are to:

Agree EU wide carbon reduction targets and strengthening the EU ETS for the traded sector.

Focus on emissions reductions in the non-ETS sectors to deliver UK carbon budgets.

Recognise the benefits from moving energy use from the non-ETS sectors to the capped ETS sector (eg electrification of heating and transport). As an example DEFRA’s2 greenhouse gas reporting guidelines (which may be used by listed companies reporting under the Climate Change Act requirements to report greenhouse gas emissions) do not currently give any recognition to these carbon benefits from electrification.

Government’s Response to the Committee on Climate Change June 2013 Assessment of Emissions Reduction Performance

12. The focus for the June 2013 assessment of emissions reduction performance should be on the non-traded sector and progress towards meeting reductions in emissions from heat and transport.

13. For the traded sector the focus must be on progress towards agreement of future targets at EU level. In particular Government should set out progress and timescales for agreement on the 2030 energy and climate change package and structural reform to the EU ETS and what actions it is taking across Europe to deliver this.

16 May 2013

1 Guidance on carbon accounting and the net UK carbon account DECC December 2009
http://webarchive.nationalarchives.gov.uk/20121205174605/http://www.decc.gov.uk/assets/decc/Consultations/Carbon%20Accounting/1_20091211101501_e_@@_guidancecarbonaccounting.pdf

2 DEFRA Guidance on how to measure and report your greenhouse gas emissions
https://www.gov.uk/government/publications/guidance-on-how-to-measure-and-report-your-greenhouse-gas-emissions

Prepared 3rd October 2013