Cutting emissions could save the UK £100 billion – if others take action too
The UK stands to gain economically from reducing greenhouse gas emissions in the 2020s, argues government advisor the Committee on Climate Change – providing the government with no excuse for weakening our carbon-cutting targets. The argument is based on the assumption that other countries take action as well, however.
Chancellor George Osborne wants to change the government’s carbon-cutting plans for the 2020s, on the basis that they may put the country at an economic disadvantage, compared to its European neighbours.
At a meeting of the all party parliamentary group on climate change yesterday, various experts disagreed with this position. The Committee on Climate Change (CCC)’s representative took the argument the furthest – suggesting that sticking to the country’s emissions-cutting plans could save the country £100 billion, rather than cost it money.
It’s hard to change a budget
At the moment, the government is planning to halve the UK’s emissions by 2027, relative to their levels in 1990, under a plan known as the fourth carbon budget.
Carbon budgets were created by the government as a way of keeping the country on track to cutting greenhouse gas emissions by 80 per cent by 2050, as required by the climate change act.
But there’s likely to be a big political fight over the fourth budget. The government is intending to review it within the next few months – and the Treasury is rumoured to want to try and weaken it.
There is provision in the climate change act to allow the government to do this, but it’s only allowed to do so if a budget no longer represents the most affordable, competitive and manageable way of cutting emissions under the climate change act.
The CCC – which has a statutory duty to advise the government on how to meet its targets – says that’s not the case. In fact, it says the UK stands to gain economically from sticking to the fourth carbon budget, and the government has no legal basis for changing its plans.
Gaining £100 billion?
In analysis published in December, the CCC said that reducing emissions in the 2020s would save the country “over £100 billion”, compared to a scenario where action is delayed until the 2030s. At the parliamentary meeting this morning, its chief economist Adrian Gault cited the figure.
It’s important to understand exactly what this means. The CCC isn’t saying that reducing emissions will save the country £100 billion – it’s saying that reducing emissions in the 2020s is £100 billion cheaper than reducing them in the 2030s.
In both scenarios, the country ultimately cuts greenhouse gas emissions by 80 per cent by 2050. It’s just that it’s cheaper to do the job earlier, rather than leave it to the last couple of decades before the deadline.
The CCC’s figure is also based on the prediction that the European carbon price – which applies to the power sector throughout the European Union – will rise over the next few decades. The red line in the graph below shows the committee’s ‘central’ projection for the future carbon price:
Image - Screen Shot 2014-02-12 At 15.03.37 (note)
The £100 billion figure is based on the assumption that the carbon price will rise according to the central projection for the carbon price.
At the moment, the EU-wide carbon price is languishing at about £5 as a result of political disagreement over the future of the EU-wide Emissions Trading Scheme (ETS), although it may rise soon. So the committee’s making some fairly big assumptions about what the carbon price is likely to do over the next few decades.
Everyone takes action
At the centre of this argument are assumptions over whether the UK, Europe and the world will stick to plans to reduce greenhouse gas emissions over the next few decades.
In its analyses, the committee assumes that the UK will stick to its plans to reduce greenhouse gas emissions under the climate change act. It also assumes that – to some extent at least – other countries also take action to do so. In its discussion of future carbon prices, for example, the committee says:
“Although lower [carbon] prices are possible if the world fails to act sufficiently â?¦ this would not be consistent with keeping expected global temperature increase close to 2°C or with the UK 2050 target to reduce emissions by 80%. Lower prices would therefore not be an appropriate basis for the carbon budget analysis.”
If the EU is going to hit its target for reducing greenhouse gas emissions to 2030, the carbon price will need to rise. But despite the commitments being made, it’s not yet clear whether that’s going to happen.
The wrong time for a review
At the parliamentary meeting yesterday, the CCC’s chief economist Adrian Gault argued that the budget review should take place in 2016 instead of 2014.
By that time, the international community will have undertaken another big meeting – slated for 2015 – to discuss plans for tackling climate change. We may also know more about the EU’s plans for cutting emissions and reforming the ETS. The government will therefore have more information about action other countries are likely to take, and therefore whether it makes financial sense to weaken the budget.
But this is a bit chicken and egg – because the UK’s plans for tackling climate change are also likely to have an impact on what the international community, and the EU, decides in the next couple of years.
Former climate diplomat John Ashton argues that developed countries like the UK must show they can cut greenhouse gas emissions, and make low carbon growth work, in order to spur others to action on the international stage.
So the UK’s commitment to the fourth carbon budget could have wider repercussions. If the government decides to lessen its commitment to cutting emissions in the next twenty years, it may inadvertently prompt other countries to pull back from their own promises as well. And – as the recent flooding in the UK illustrates – that could also be an expensive decision.