2030 target: investor certainty or certain failure?
The Department of Energy and Climate Change’s plan to include a target to decarbonise the electricity sector by 2030 in the UK’s new Energy Bill was put on ice late last year. The decision on whether there should be a target has now been delayed till after the next election. But is such a target, which would require power companies to keep carbon intensity below a certain level, really a good idea? We’ve asked a range of experts for their views.
The arguments against
The government says the reason it wants to wait till 2016 to agree a carbon intensity target for the power sector is because the UK’s fifth carbon budget will not be set until 2015. So presumably it wants to ensure that the two do not give conflicting directives.
Carbon budgets are agreed every five years, with the aim of helping the UK meet its legally-binding target of reducing its carbon emissions by 80 per cent by 2050 under the Climate Change Act. They dictate how much carbon dioxide each sector of the economy – including power generation- would be able to emit while keeping the UK on track to meet its emissions goals.
So could the 2030 target be one target too many? Professor Dieter Helm, an energy specialist at Oxford University thinks so. He told the House of Commons Energy Bill Committee on Tuesday that a 2030 target would clash with the coming fifth carbon budget, given that both will contain – possibly competing – prescriptions for how much carbon dioxide the UK power sector will be able to emit. If investors are uncertain about the level of carbon intensity permitted under the budget or the 2030 target, he said the situation would create a disincentive.
Meanwhile, Guy Newey, head of environment and energy at thinktank Policy Exchange, told Carbon Brief that the 2030 target is a “sideshow” when our focus should be on setting a long term European-level cap through the EU Emissions Trading Scheme. He says:
“What matter is overall decarbonisation, not the decarbonisation of one sector of the UK economy on a particular date. The drive for a 2030 target is part of an obsession with sub-targets, like the Renewable Energy Target, which risks making carbon emissions more expensive than they need to be and falls into the trap that we can predict the future cost of technologies in 20 years time.”
He adds that the target could also mean “we pay more than we need to, pushing up bills unnecessarily, and undermining important action on climate.”
There’s also the question of what signals a 2030 target would send to other countries. Jeremy Nicholson, director of the Energy Intensive Users Group, suggests that the target could have an adverse effect in dealings with other nations. He told us:
“The government is right not to commit to a 2030 target at this stage. Unconditional unilateral commitments like this simply undermine the UK’s negotiating position in international climate negotiations whilst doing nothing to render low carbon power generation commercially viable.
“Trade-exposed industrial electricity users need competitive power prices, not political grandstanding of the ‘my target’s bigger than yours’ variety.”
Arguments in favour of a 2030 target
Those who argue in favour of a 2030 target say it would provide one huge benefit: certainty for investors in low-carbon markets.
Professor Catherine Mitchell at Exeter University also gave evidence on this subject to the energy bill committee last week. She claims that critics of the 2030 target focus only on economic arguments and ignore the much trickier reality of UK politics. Mitchell says the UK’s ‘all of the above’ approach to energy – rather than supporting a particular technology – makes it hard for investors to know where to put their money without the target. So while it may not be perfect, a 2030 target would stimulate investment.
Dr Rob Gross, director of Imperial College’s Centre for Energy Policy and Technology, told Carbon Brief that the target is needed to come in as other incentives, such as the EU 2020 renewables target, expire. He says:
“Investors fear a cliff edge, with deployment largely ceasing post-2020. This cliff edge discourages investment in a UK based supply chain, thus a 2030 target would help to ensure more of the jobs and other economic benefits associated with renewable energy investments are retained in the UK.”
Alastair Harper, a senior policy advisor at thinktank Green Alliance told Carbon Brief that this certainty could make the UK a world leader in low carbon markets. He says a long term goal for decarbonising electricity would help the UK get the maximum benefit from making that transition by attracting investors who can see a future in the country beyond the next few years. He says:
“This would make the UK exporters, not importers, of low carbon infrastructure. Ultimately, a 2030 target is test of competence: Can a government ensure ideology does not get in the way of the needs of our economy?”
It’s not just investors in energy technologies who need certainty. According to Will Straw, the Institute for Public Policy Research’s Associate Director for globalisation and climate change, the target is needed to insulate consumers from volatile gas prices. Straw says:
“Britain must wean itself off gas in the medium term since this has been the main contributor to volatile and rising energy bills. Since we are going to invest £7 billion per year in renewables over the next seven years, we must ensure that domestic suppliers, like steel manufacturers, think we are serious about our ambition in the 2020s. Finally, we must give other sectors, like transport, every reassurance that we are decarbonising the grid. A target to cut power sector emissions to 50g CO2/kWh by 2030 is the only way to achieve these goals.”
And on international negotiations, Anthony Hobley, head of climate change at law firm Norton Rose, told Carbon Brief the target could help, rather than hinder, international climate action. He adds, however, that to show true leadership internationally the UK should take account of its carbon consumption – which is estimated to double the country’s carbon footprint – not just emissions.
There’s also the argument that the target is needed just to ensure action on decarbonisation happens at all. Labour peer and founder of the NGO Sandbag, Bryony Worthington, says in a briefing sent to Carbon Brief that the reforms laid out in the energy bill “do not provide any guarantee decarbonisation will occur.” She says:
“Explicit decarbonisation targets are necessary, even though they are relatively easy to meet, because it is far from certain that decarbonisation will be delivered by the proposed policy framework.”
Though there’s universal acknowledgement that the power sector needs clear signals, it’s clear there’s disagreement about whether the 2030 target would provide them. And given that the decision has now been pushed back for three years, much could happen before the target’s fate is finally decided. The Treasury last year signalled it may look to water down the UK’s commitments under the Climate Change Act. So those in favour of decarbonising the economy may have enough on their hands defending the existing targets contained in the carbon budgets, let alone pushing through a new one.