29.As soon as is reasonably practicable after making an order setting the carbon budget for a budgetary period, the Secretary of State must lay before Parliament a report setting out proposals and policies for meeting the carbon budgets for the current and future budgetary periods up to and including that period.76 The Climate Change Act explains that:
The report must, in particular, set out (a) the Secretary of State’s current proposals and policies […], and (b) the time-scales over which those proposals and policies are expected to take effect. […] The report must explain how the proposals and policies set out in the report affect different sectors of the economy [and] outline the implications of the proposals and policies as regards the crediting of carbon units to the net UK carbon account for each budgetary period covered by the report.77
30.The last report, referred to as the “carbon plan” was published in December 2011, setting out proposals for meeting the first four carbon budgets.78 In 2013, the Environmental Audit Committee warned in its report on carbon budgets that “the Carbon Plan—the Government’s plan for meeting the carbon budgets—is out of date and requires revision”.79 The CCC warned in its 2015 progress report to Parliament that there currently is a “policy gap,” whereby a shortfall in terms of the carbon savings that are required to meet the budgets can be expected, even if all current policies are delivered in full. The report concluded that “action is needed in this Parliament to ensure the pace of emissions reduction accelerates whilst supporting economic growth”.80 In their response to the CCC’s June 2015 Progress Report, the Government stated:
After we set the fifth carbon budget (by the end of June 2016), we will be able to set out more detail about our expectation for how we intend to meet the targets. Our new emissions reduction plan towards the end of 2016 will set out our proposals in full.81
Many contributors stressed that addressing this policy gap and meeting the targets will require Government to provide consistent messages as to the direction of policy over the next decades.82 We heard that setting the carbon budgets was an integral part of this signal.83
31.However, concerns remain that Government was not yet providing the clear signals needed, and that recent policy changes had undermined investor confidence.84 Scottish Renewables warned that “there is significant concern with the ability of the market to deliver the level of low-carbon capacity required”.85 Dr John McElroy, Director of Policy and Public Affairs at RWE, warned that “the various changes and interventions that we have seen over the last 12 months have played their part on demanding investor confidence”,86 and added that “the immediate priority has to be to restore investor confidence”.87
32.Clarity over support for low-carbon policies will be central to providing this certainty. Our Investor confidence in the energy sector report published earlier this year covered this subject in greater detail. Our report emphasised that clarity and transparency over the support for low carbon technologies — both through updates on the Levy Control Framework88 (LCF) and future Contracts-for-Difference rounds — was crucial to provide the right signals to investors. We recommended that DECC should set out more detail about the CfD auctions that are due to take place this decade, and on how the Levy Control Framework is managed pre-2020. We also recommended that clarity be provided about the Levy Control Framework post-2020.89
33.We heard calls for certainty on the LCF and CfDs throughout this inquiry as well.90 We were pleased that the Chancellor’s Budget statement made on 16 March 2016 provided some further details regarding the future rounds of CfDs in this Parliament.91 However, it fell far short of the level of detail we had called for, and clarity over the LCF post-2020 is still missing. We expect a more detailed response from Government to all of our recommendations made in that report next month and will follow up with Ministers as appropriate.
34.Meeting the fifth carbon budget will require efforts across all sectors, including power generation, energy intensive industries, heat, transport, buildings and agriculture. Effective drivers need to be put in place by Government to encourage innovation and investment across the board. The Committee on Climate Change stressed that:
It is important to signal this direction in advance given the time required to develop new policies, to grow currently nascent markets, for consumer behaviours to adapt and to invest in supporting infrastructure and innovation.92
35.The CCC’s report stressed that priorities for the fifth carbon budget period included:
36.Given the policy gap identified by the CCC, it is important that the new plan provides the certainty needed to drive low carbon investment across all sectors, “[taking] into account what is achievable in practice by 2028 to 2032”.94 The evidence we received for this inquiry called for policy certainty in a number of specific areas:
37.We heard that decarbonising the power sector would be critical, not just in the context of electricity generation, but also to decarbonise other sectors such as heat and transport, where emissions reductions might in part be achieved through increased electrification.99 Energy UK explained that the key challenge in the power sector was “how to continue to attract the investment required in new low carbon plant, particularly given that this finance is internationally mobile”.100
38.To drive cost-effective emissions reduction across the UK economy, the CCC’s fifth carbon budget report concluded that policies should be developed to reduce the power sector carbon intensity to below 100 gCO2/kWh101 in 2030 (compared to 450 g/kWh now and 200 to 250 g/kWh expected around 2020).102 The CCC explained that this reduction could be delivered by a range of different mixes of low-carbon generation to reach a total share of around 75% of generation by 2030.103 Dr Nina Skorupska, CEO if the Renewable Energy Association, explained why such a target was important:
There are no renewable energy targets anymore beyond 2020. All we hear about is that it is technology-neutral and it is based on market, and at the moment all those market instruments are not working to drive down the ambition to hit lower than 220 grams per kWh by 2020 and to achieve that 100 grams per kWh on the power sector by 2030. We are missing those clear step-wise signals of how we are going to drive and persuade technologies to move that way.104
39.We heard that setting such a target was necessary to deliver the UK’s long-term target and its contribution to the Paris agreement,105 and would provide the certainty needed to drive investment in low carbon technologies. RES, an independent renewable energy developer, said:
By setting a clear carbon intensity target for the power sector, Government will eliminate a lot of investment risk going forward. This will ensure investment in the right generation technologies as well as ensure lower risk premiums, driving down costs.106
EDF Energy on the other hand did not advocate a specific target, stating that it was “more important to focus on ensuring that the right set of policies are in place to incentivise the investment required to deliver a diverse, low carbon generation mix”.107
40.One of the Government’s current policies is to develop new gas-fired generation assets.108 However, this drive, coupled with a lack of a firm framework for fitting these new power stations with CCS to mitigate their emissions, could make meeting a power sector carbon intensity target challenging.109 Statkraft, Europe’s largest renewable energy company, explained that:
Gas-fired power stations have a role to play in the energy mix; but this needs to be a limited one given the need to reduce emissions as set out in the fifth carbon budget. Gas is not a low carbon energy source. Emissions of modern CCGT gas-fired power stations are estimated at around 360g CO2/kWh, – well above the CCC’s 100g CO2/kWh target – so there will need to be a considerable proportion of the UK’s energy generation from renewables and other low carbon sources , supported by interconnection and storage.110
We discussed the role of carbon capture and storage in depth in our Future of carbon capture and storage in the UK report.111 In light of the cancellation late last year of the CCS competition, we called for Government to produce a new CCS strategy by the summer of 2016. We will analyse DECC’s response to our report and will continue to monitor developments in this area.
41.The call for a specific carbon intensity target to drive down the carbon emissions of the power sector in real terms has been called for in the past, not least by our predecessor Committee. In its pre-legislative scrutiny of the draft Energy Bill 2012, the then Committee recommended:
The Government should set a 2030 carbon intensity target for the electricity sector in secondary legislation based on the recommendation of the Committee on Climate Change. […] We believe that setting a decarbonisation target should be a duty on the Secretary of State.112
However, the then Government decided against this approach. WWF-UK said that “it appears unlikely that the [current] Government will follow this advice, as it has already refused to use its power granted under the Energy Act 2013 to set a 2030 decarbonisation target”.113
42.Given the importance of the power sector, not least as electrification of other sectors such as heat and transport becomes more prominent, it is crucial that clear decarbonisation signals are in place. We recommend that the Government set a carbon intensity target of 100 gCO2/kWh for 2030, in line with the advice from the CCC and as argued for by our predecessor Committee.
43.In addition to clarity in the power sector, the carbon plan must provide certainty across the building,114 heat115 and transport116 sectors. Contributors also called for a more joined-up approach from Government on energy policy to meet the budgets,117 with “greater cross departmental working between the Department for Energy and Climate Change, Department of Health and Department of Communities and Local Government”.118 For instance, Philip Sellwood, CEO of the Energy Saving Trust, said that “there definitely needs to be a much clearer joining up of personal transport and personal energy”.119
44.On buildings, adequate policies to drive the take up of energy efficiency measures will be crucial. Our Home energy efficiency and demand reduction report recommended that Government renew its efforts to drive demand for energy efficiency for ‘able-to-pay’ consumers, commission, and publish, research to help it understand behaviour change in energy efficiency and demand reduction and reinstate the zero carbon homes policy.120 There are also questions around the Government’s approach to non-domestic buildings, which we have not yet looked at in detail.
45.Low carbon heat in particular was identified as a key priority and challenging area.121 Dr John McElroy, RWE, explained:
Heat is difficult and partly it is difficult because of the current approach in the UK where we basically have a gas network and for most consumers or small businesses it is a gas boiler. We do not have the experience of Scandinavia in delivering heat networks, and so on. There is a need for a significant mindset change. If we are going to persuade people that heat networks have a role to play, the issue then is what does that mean for consumer choice and are they going to be treated fairly. There are a lot of technologies there but it is the issue of the cost and the hassle factor. Heat pumps are not easy to install in terms of just replacing a conventional gas boiler.122
RWE npower warned that they were “concerned that well before 2030 the focus should also move to measures that are necessary to decarbonise other sectors and in particular heating and transport if 2050 goals are to be met efficiently and cost effectively”.123 They added:
Increased electrification of transport and heating will become more important and we support the CCC’s conclusion that meeting the fifth carbon budget will require progress in increasingly difficult areas”.124
Lord Bourne acknowledged this challenge:
In terms of heat […] there are things that we need to do. We will detail these in the emissions reduction plan […] by the end of the year in responding to action on the fourth budget and what we are doing in relation to the fifth by the end of the year. [….] We do agree there is a challenge. There is a significant ramping-up, I think, between the third and the fourth budgets and it is for Government to step up to the plate and do things about that.125
46.Our work on heat networks continues in our Low carbon network infrastructure inquiry.126 We have also recently launched an inquiry into the 2020 renewable heat and transport targets.127 We will return to these issues through our work on these two areas and provide specific recommendations in the relevant reports.
76 Climate Change Act 2008, section 14
77 Climate Change Act 2008, section 14
78 HM Government, The Carbon Plan: Delivering our low carbon future (December 2011)
79 Environmental Audit Committee, Fifth Report of Session 2013-14, Progress on Carbon Budgets, HC 60, para 68
80 Committee on Climate Change, Reducing emissions and preparing for climate change: 2015 Progress Report to Parliament (July 2015), p 9
81 HM Government, Government response to the Committee on Climate Change (October 2015), p 6
82 Q70 [Dr McElroy], Energy Technologies Institute (FCB 009) para 4, Grantham Institute, Imperial College London (FCB 010), Statkraft UK Ltd (FCB 036) para 7, Tees Valley Unlimited (FCB 038) para 4.1, Grantham Research Institute on Climate Change and the Environment at the London School of Economics (FCB 039) para 2, WWF-UK (FCB 047) para 15
83 CPL industries (FCB 014) para 3.1, Good Energy (FCB 028) para 3, RES ltd (FCB 034), WWF-UK (FCB 047) para 15
84 Wolseley UK (FCB 008), Vattenfall (FCB 018), Grantham Research Institute on Climate Change and the Environment at the London School of Economics (FCB 039) para 16, Aldersgate group (FCB 040) para 13
86 Q70 [Dr McElroy]
87 Q86 [Dr McElroy]
88 The Levy Control Framework is Government’s tool for controlling the costs to consumers from pursuing energy policy objectives such as investment in low carbon generation
89 Energy and Climate Change Committee, Third Report of Session 2015-16, Investor confidence in the UK energy sector, HC 542, para 42
90 Q22 [Dr Skorupska], Q70 [Dr McElroy], Q74 [Dr McElroy, Dr Clarke], Energy UK (FCB 012) para 3.1, Vattenfall (FCB 018), RWE (FCB 022) para 1.16, RenewableUK (FCB 026) para 8, 11, EDF Energy (FCB 030) para 6, RES (FCB 034), Aldersgate Group (FCB 040) para 19
91 HM Treasury, ‘Budget 2016: George Osborne’s speech,’ accessed 12 April 2016
92 Committee on Climate Change, The Fifth Carbon Budget, The next step towards a low-carbon economy (November 2015), p 11
93 Committee on Climate Change, The Fifth Carbon Budget, The next step towards a low-carbon economy (November 2015), p 19
95 Q22 [Dr Skorupska], Energy UK (FCB 012) para 3.1, RES (FCB 034), Statkraft (FCB 036) para 9, Grantham Research Institute on Climate Change and the Environment at the London School of Economics (FCB 039) para 15, Sandbag Climate Campaign (FCB 045)
97 Tees Valley Unlimited (FCB 038) para 2.3, UK CCS Research Centre (FCB 042), Sandbag Climate Campaign (FCB 045)
99 Q22 [Dr Skorupska], Vattenfall (FCB 018), Energy Networks Association (FCB 024), EDF Energy (FCB 030) para 9, Statkraft (FCB 036) para 3, Aldersgate Group (FCB 040) para 18, Greenpeace UK (FCB 041)
101 Grammes of carbon dioxide emitted per kilowatt hour of electricity generated.
102 Committee on Climate Change, The Fifth Carbon Budget, The next step towards a low-carbon economy (November 2015), p 12
103 Committee on Climate Change, The Fifth Carbon Budget, The next step towards a low-carbon economy (November 2015), p 16
104 Q15 [Dr Skorupska]
108 Department of Energy and Climate Change, ‘Amber Rudd’s speech on a new direction for UK energy policy,’ accessed 18 April 2016
109 Q32 [Dr Skorupska], Scottish Carbon Capture and Storage (FCB 011) para 4.3, Drax Group plc (FCB 015), Good Energy (FCB 028) para 7
111 Energy and Climate Change Committee, Future of carbon capture and storage in the UK, HC 692
112 Energy and climate change Committee, Draft energy bill: Pre-legislative scrutiny, HC 275-I, para 37, 44
114 Q81 [Dr McElroy], Q116 [Lord Deben], Marks and Spencer (FCB 003) para 9, Wolseley UK (FCB 008), EDF Energy (FCB 030) para 22, RES (FCB 034), Aldersgate group (FCB 040) para 23, Future Climate (FCB 044) para 8, WWF-UK (FCB 047) para 19
115 Good Energy (FCB 028) para 6, Scottish Renewables (FCB 029), EDF Energy (FCB 030) para 24, SGN (FCB 033) para 3, RES (FCB 034), Aldersgate group (FCB 040) para 21, Greenpeace UK (FCB 041), WWF-UK (FCB 047) para 19
116 Qq 118 [Lord Deben], Good Energy (FCB 028) para 6, EDF Energy (FCB 030) para 10, RES ltd (FCB 034)
117 Q22 [Dr Skorupska], EEF (FCB 035) para 7, Statkraft (FCB 036) para 9, Tees Valley Unlimited (FCB 038) para 4.6, Grantham Research Institute on Climate Change and the Environment at the London School of Economics (FCB 039) para 2
119 Q46 [Philip Sellwood]
120 Energy and Climate Change Committee, Home energy efficiency and demand reduction, HC 552
121 Q71 [Dr Clarke], Q75 [Dr McElroy], Good Energy (FCB 028), Scottish Renewables (FCB 029), EDF Energy (FCB 030) para 24, SGN (FCB 033), RES (FCB 034), Aldersgate group (FCB 040) para 22, Greenpeace UK (FCB 041), WWF-UK (FCB 047)
122 Q75 [Dr McElroy]
125 Q129 [Lord Bourne]
126 Energy and Climate Change Committee, ‘Low carbon network infrastructure inquiry,’ accessed 7 April 2016
127 Energy and Climate Change Committee, ‘2020 renewable heat and transport targets,’ accessed 7 April 2016
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25 April 2016