Aldersgate Group: Carbon Budgets
June 2011
EAC Inquiry
The Environmental Audit Committee (EAC) is conducting an inquiry into the
Government’s plans for delivering the carbon budgets under the Climate Change Act.
The inquiry will examine the fourth carbon budget and the implications of the
Government’s decision on setting this budget. The inquiry will also examine how
government departments, and potentially local authorities and others, should be
apportioned responsibility for achieving the carbon budgets, and how the Government’s
Carbon Plan will be used to deliver the carbon budget targets. The Committee will
examine the extent to which the Carbon Plan provides an appropriate tool for both
delivering the climate change targets and for monitoring the Government’s performance
towards them.
Aldersgate Group (AG)
The AG is an alliance of leaders from business, politics and society that drives action for
a sustainable economy. The views expressed in this document can only be attributed to
the AG and not individual members.
Summary
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Strong and clear action on climate change, based on the science, is essential for
long-term economic growth, jobs and competitive advantage.
Failure to act at sufficient scale and pace will mean that the costs of tackling climate
change in the future will be much higher and the UK will miss out on commercial
opportunities associated with the low carbon economy.
The AG supports the government decision to accept the fourth carbon budget which
was based on consideration of the latest climate science, the evolving international
framework, feasible and cost-effective emissions reductions in the UK through the
2020s, plausible paths to the 2050 target and the impact on fiscal revenue and
competitiveness.
The AG welcomes the support from the opposition for the fourth carbon budget, as
cross party consensus is vital to make progress in meeting carbon targets.
Reducing emissions domestically would maximise competitive advantage and the
commercial opportunities for British-based firms and send the strongest possible
signal to the international community that it is possible to build a dynamic, low carbon
economy.
The Government should address competitiveness concerns for energy intensive
industries but must take into account that claims of carbon leakage are often
exaggerated and are only a genuine threat in a very limited number of sectors.
If a review of the carbon budget takes place in 2014, it must be preceded by
recommendations from the Committee on Climate Change.
Greater transparency about the UK’s total carbon footprint (including consumption of
imported goods and services) is required for a system of domestic carbon budgets to
address effectively an international challenge such as climate change.
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A step change in policy is still required to meet the first three carbon budgets and
should be accompanied by a comprehensive green growth strategy to ensure the UK
maximises the economic opportunities of the low carbon transition.
The commitment to a whole Government approach in the Carbon Plan is welcome,
alongside the system of departmental carbon budgets. Delivery could be made more
robust if monitored by an independent body such as the CCC and the achievement of
targets were clearly linked to annual performance reviews of senior civil servants.
HM Treasury’s carbon budget should include changes in taxation and spending that
could have a major impact on carbon emissions and on levels of investment in low
carbon industries.
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Aldersgate Group Evidence
1. The AG believes that high environmental standards are essential for long-term
economic growth, job creation and competitive advantage. It supports the
recommendations from the Committee on Climate Change (CCC) on the fourth
carbon budget as this provides robust analysis of feasible and cost effective
emission reductions in the 2020s.
2. The AG wrote to the Prime Minister and Deputy Prime Minister in support of the
fourth carbon budget on the 18th May 2011, the day after the Government
confirmed it would accept the advice from the CCC. The letter was supported by
a wide range of businesses, investors, industry bodies, trade unions and
environmental groups. The signatories were ACCA, Aviva, Aviva Investors, AXA
Investment Managers, Bank of America Merrill Lynch, Biffa, Bioregional, BT,
Cable & Wireless, CCLA, Cisco, CIWEM, eftec, Environmental Industries
Commission, Environmental Sustainability Knowledge Transfer Network,
Eurostar, Friends of the Earth, Green Alliance, Grontmij, Hg Capital, IEEP, IEMA,
IKEA, InterfaceFLOR, IPPR, Jaguar Land Rover, Johnson Matthey, Knight Frank,
L&Q, Microsoft, MITIE, National Grid, Ownergy, Pepsico UK & Ireland, Philips,
Reed Elsevier, RSPB, Siemens, SKM Enviros, Solar Century, Speechly Bircham,
Sustain, Thames Water, The Co-operative, Trucost, TUC, UK CEED, UK Green
Buildings Council, UK SIF, Unilever, Veolia Environmental Services, Willmott
Dixon Group, Woodland Trust, Worchester Bosch Group, WWF and WYG.
3. The letter states that:
Strong and clear action on climate change, based on the science, is essential for
long-term economic growth, jobs and competitive advantage. Failure to act at
sufficient scale and pace will mean that the costs of tackling climate change in the
future will be much higher and the UK will miss out on commercial opportunities
associated with the low carbon economy.
As such, we support the UK reducing its greenhouse gas emissions by at least
80% by 2050 on 1990 levels as legislated in the Climate Change Act and the
advice from the Committee on Climate Change to adopt a fourth carbon budget
consistent with 1950 MtCO2e and a 2030 milestone of at least 60% reductions.
This is based on consideration of the latest climate science, the evolving
international framework, feasible and cost effective emissions reductions in the
UK through the 2020s, plausible paths to the 2050 target and the impact on fiscal
revenue and competitiveness. We therefore support the Government’s decision
to accept the recommendations on the level of the fourth carbon budget from the
Committee on Climate Change.
The global race to develop and adopt low carbon technologies will help define
prosperity in the twenty-first century and the UK must ensure that its overall policy
framework maximises the economic opportunities.
4. The AG also supports the statement made by Chris Huhne to Parliament that
providing long-term clarity for investors, the fourth carbon budget places the
at the leading edge of the global low carbon industrial transformation. It will
Britain on the path to green growth, establish our competitive advantage in
“by
UK
set
the
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most rapidly growing sectors of the world economy, generate jobs and export
opportunities in those sectors, maintain energy security and protect our economy
from oil price volatility. It is a framework not just for action on climate but for
growth and prosperity.”
5. It is welcome that the fourth carbon budget is supported by the opposition. Cross
party consensus is vital to make progress in meeting carbon targets and provide
greater certainty to business.
6. It is essential that the Government fulfils its aim to reduce emissions domestically
as far as is practical and affordable. The CCC recommends that the Government
should aim to achieve carbon reductions through domestic emission reductions
only (i.e. without recourse to purchasing credits in international carbon markets,
including through the EU ETS). This would maximise competitive advantage and
the commercial opportunities for British based firms, and send the strongest
possible signal to the international community that it is possible to build a
dynamic, low carbon economy.
7. The Government is committed to ensuring that energy intensive industries remain
competitive and that it sends a clear message that the UK is open for business.
Before the end of the year, it will announce a package of measures for the energy
intensive businesses whose international competitiveness is most affected by our
energy and climate change policies. This is in response to a number of
competitive concerns that have been raised from energy intensive industries,
such as the potential risk of carbon leakage.
8. While, in a limited number of industries, these costs can be significant and must
be addressed, often they are exaggerated and the potential economic benefits
ignored. For example, analysis by the Carbon Trust is the “nail in the coffin for the
myth that the EU ETS presents a threat to overall business competitiveness”, as
it finds that carbon costs remain trivial compared to other influences on
international competitiveness for more than 90% of UK manufacturing activities1.
When businesses decide on a production location, environmental costs tend to
be low relative to considerations of the cost of capital, fiscal regime, wage costs,
workforce skills, exchange rate fluctuations, infrastructure and proximity to the
market. Another Carbon Trust study finds that low carbon manufacturing would
be severely weakened if all sectors currently deemed at risk of carbon leakage by
the European Commission received free allocation of permits2.
9. The Government stated that it will review progress towards carbon reductions in
the traded sector in early 2014. If at that point domestic commitments place the
UK on a different trajectory from the one agreed in the EU ETS, the Government
will revise up its budget as appropriate to align it with the actual EU trajectory. If
this is the case, it is essential that the review is preceded with recommendations
from the CCC.
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Carbon Trust (January 2008) Press Release: EU ETS to have marginal impact on competitiveness of EU
industry.
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Carbon Trust (March 2010) Tackling carbon leakage: Sector-specific solutions for a world of unequal
carbon prices.
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10. The AG believes that more transparency about the UK’s carbon footprint is
required for a system of domestic carbon budgets to address effectively an
international challenge such as climate change. If carbon emissions are
calculated on the basis of consumption rather than production (allowing and
adjusted for carbon intensive imports and international travel), the UK’s
performance on carbon emissions between 1990 and 2005 is transformed from a
19 percent reduction to a 15 percent increase3. Research by the Carnegie
Institute of Washington in California finds that UK demand for imported goods is
responsible for more GHG emissions abroad than any other European country,
and is third worldwide, behind only the US and Japan4. This does not justify
weakening climate change policy. It does, however, put greater responsibility on
an increasingly service-based economy to help developing countries reduce their
GHG emissions. It also emphasises the importance of securing a just
international climate change treaty.
The Carbon Plan
11. The Government is committed to publishing a report setting out the policies and
proposals required in the medium and long term to meet the fourth carbon budget
in the form of a revised Carbon Plan later this year, following the publication of
the interim version in March.
12. In his statement to Parliament, Chris Huhne stated that “the UK’s existing policies
already put us on track to meet the first three carbon budgets”. However, the
CCC demonstrates that additional policies are required. It finds that “progress in
reducing emissions during the first budget period has so far primarily reflected the
recessionary effect, and it remains essential to achieve the step change in the
pace of underlying emissions reductions that we called for in both the October
2009 and June 2010 progress reports. New policies to drive the step change
include approaches to energy efficiency improvement in residential and nonresidential buildings, roll-out of smart meters, consumer behaviour change in
transport, and more widespread use of carbon-efficient practices on farms”.
13. Analysis by Cambridge Econometrics finds that the UK is set to miss the carbon
budget targets narrowly in the first two budget periods (2008-12 and 2013-17),
and by a wider margin in the third budget (2018-22), unless the Government
introduces firm policies to promote renewable energy and energy efficiency in the
key sectors of the economy not covered by the trading arrangements of the EU
ETS5.
14. New policies are not only required to meet carbon targets but also to ensure the
UK maximises the economic opportunities of the low carbon transition. The UK
requires a comprehensive green growth strategy that goes beyond reducing the
budget deficit and drives a dynamic economic recovery. The UK is losing
Dieter Helm, Jonathon Phillips and Robin Smale (2007) Too good to be true? The UK’s climate change
record.
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Carnegie Institute of Washington (March 2010). Reported in the Guardian: UK import emissions are the
highest in Europe, figures show (8th March 2010).
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Cambridge Econometrics (May 2011) The decline in UK's carbon emissions is set to accelerate after 2020
as power generation makes good progress towards de-carbonisation.
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momentum in the green economy race and there is only a small window of
opportunity to assert leadership in the years ahead. A strong regulatory and fiscal
framework will be vital for success, combined with a concerted push to get behind
those sectors that have competitive advantages. The detailed recommendations
for what a green growth strategy should encompass are set out in the AG’s report
Greening the Economy (March 2011).
15. A key principle of the Carbon Plan is to take a whole Government approach,
which ensures that action is the “responsibility of every part of government,
central and local, and the wider public sector.” This is vital, as wide ranging
environmental challenges cannot be effectively addressed through segmented
government. The transition to a low carbon and resource efficient economy
affects every sector in the economy and requires unprecedented crossdepartmental co-ordination.
16. Accountability and responsibility should be greatly improved with the introduction
of departmental carbon budgets with targets to reduce emissions from the sector
of the economy relative to its degree of influence. The system can be improved
by ensuring that the delivery process is more robust. It should be monitored by an
independent body such as the CCC and the achievement of targets should be
clearly linked to annual performance reviews (that determine the career prospects
of senior civil servants).
17. HM Treasury also needs to take greater responsibility. Its departmental carbon
budget is based solely on the carbon savings it expects to make on its own
estate. This is inadequate given its role as manager of the economy and
extensive influence over the public sector. Its carbon budget should also include
changes in taxation and spending that could have a major impact on carbon
emissions and on levels of investment in low carbon industries. This is a key
recommendation by the Environmental Audit Committee, which rightly states that
the “management of the carbon budget is as vital as the management of the fiscal
budget”, and so requires the same level of political attention and civil service
commitment.
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