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8/14/2019 The Analytical Annex to the UK Low Carbon Transition Plan. Power outages in the offing.
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Analytical AnnexThe UK Low CarbonTransition Plan
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1
List of Charts 2
List of Tables 3
List of Boxes 3
Executive Summary 5
Structure of the Annex 9
Chapter 1:The Long Term 13
Chapter 2:
Getting there: transforming the UK economy
and energy system to 2050 17
Chapter 3:
Reducing UK emissions of greenhouse
gases from 2008-2022 29
Chapter 4:
Aggregate costs of the package
of policies 53
Chapter 5:
Estimated impacts of the package of policies
and proposals on energy prices and bills 61
Chapter 6:
High level summary of impacts on
energy security 79
Chapter 7:
Macro-economic costs of climate change
mitigation measures 89
Chapter 8:
Sustainability 99
Contents
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3
Chart 27 GDP costs (relative to baseline) by sector 95
Chart 28 CO2 cost screen: sectors potentially exposed under unilateralCO2 pricing 96
Chart 29 The net air quality benefit associated with Climate Change measures 104
List of Tables
Table 1 MARKAL scenarios 22
Table 2 Carbon budgets level 30
Table 3 Impacts on emissions in policies from this Transition Plan (MtCO2e) 45
Table 4 Detailed breakdown of savings delivered by Transition Plan policies bybudget period (MtCO2e) 46
Table 5 Overall costs of the package 55
Table 6 Net Present Value and cost-effectiveness of policies achieving savings inthe non-traded sector 58
Table 7 Policies assessed in the Department of Energy and Climate Changemodels on Climate Change Impacts 63
Table 8 Estimated impact of energy and climate change policies on averagedomestic energy bills 66
Table 9 Estimated impact of energy and climate change policies on averagedomestic gas bills 66
Table 10 Estimated impact of energy and climate change policies on averagedomestic electricity bills 67
Table 11 Industrial Gas Eurostat size band Annual consumption (MWh) 68
Table 12 Industrial Electricity Eurostat size band Annual consumption (MWh) 68
Table 13 Estimated impact of package on average non-domestic energy bill atvarying levels of energy consumption 69
Table 14 Estimated impact of package on average non-domestic gas bill formedium sized consumers 69
Table 15 Estimated impact of package on average non-domestic electricity billor medium sized consumers 70
Table 16 Estimated impact of energy and climate change policies on averagedomestic energy bill 71
Table 17 Estimated impact of energy and climate change policies on averagenon-domestic energy bill for medium sized consumers 71
Table 18 Projected Impact of Transition Plan Measures on Fossil Fuel Consumption 81
Table 19 Projected Percentage of UK Consumption Imported Before and AfterTransition Plan Measures 83
Table 20 MARKAL-MED cost estimates for scenarios 91
Table 21 Technologies, learning rates and cost-reductions in the MARKAL model 92
List of BoxesBox 1 HMRC Computable General Equilibrium (CGE) model 90
2Contents 3
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ExecutiveSummary
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6 The UK Low Carbon Transition PlanAnalytical Annex
This annex provides the analysis and
evidence underpinning the conclusions of the
main body of the UK Low Carbon TransitionPlan. It focuses in particular on the impacts
of the policies set out in the Transition Plan,
including impacts on emissions over the
first three budget periods, on security of
supply and on the local environment. It also
assesses the overall costs of the policies and
how they are borne among different parts
of society.
The package of policies saves about 700
million tonnes of CO2e (MtCO2e) and putsthe UK on track to meet the first three
carbon budgets. Taking into account the
impact of the Transition Plan policies, central
emissions projections show emissions below
each of the first three carbon budgets with a
cumulative over-achievement of 147 MtCO2e
by the end of the third budget.
There is substantial uncertainty over
emissions projections and the 147 MtCO2e
of projected over-achievement provides acontingency reserve to draw on in the event
that emissions are higher than projected.
In combination with the flexibility to bank
over-achievement from one carbon budget
period to another and other policy options
being considered within Government, the
projected contingency provides confidence
that the UK will meet carbon budgets
domestically. This prepares the UK for tighter
carbon budgets following a comprehensive
global deal.
Overall the package comes at a cost of
25 to 29 billion.1 This is consistent with
other estimates of the costs of action to
the UK. These costs, though significant,
are substantially lower than the damage
costs which would be associated with
unmitigated climate change. These were
estimated at between 5 and 20% of GDP
in the Stern Review2, estimates which LordStern has recently commented are likely to
substantially underestimate the damages.
The package of climate change and energy
measures set out in the Transition Plan will
have an impact on energy consumers across
the UK. Compared to the counterfactual
scenario in which none of these policies
are in place, on average, domestic energy
bills will be 9% higher in 2020 and industrial
energy bills 21% higher. The additionalimpact in 2020 of the policies in this
Transition Plan relative to today is 76, which
is equivalent to approximately 6% of current
bills. Similarly, for an indicative non-domestic
user, we estimate that these policies make
up approximately 101,000, or 8%, of
current non-domestic bills. The additional
impact in 2020 is estimated to be 212,000,
equivalent to approximately 15% of current
bills. Government has sought to mitigate
these increases, through policies which help
households and businesses improve their
energy efficiency.
There will be a variable impact on individual
houses owing to differential take up of
energy efficiency, renewable heat and
micro-generation measures those who
take up measures will find impacts on bills
substantially reduced. Sustained higher
prices for fossil fuels would reduce the cost
of some climate change policies, lowering
the cost passed through onto consumer
bills. A sustained oil price of $150 per barrel
means that policies set out in this Transition
Plan in 2020 would reduce bills slightly
compared to the projected bill in 2020
without these policies.
1 This is a one-off figure covering the lifetime of the measures that the policies in the package implement.
2 Stern Review on the Economics of Climate Change Available at:http://www.hm-treasury.gov.uk/sternreview_index.htm
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Structure of theAnnex
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10 The UK Low Carbon Transition PlanAnalytical Annex
This annex presents the analysis and
evidence underpinning the conclusions of the
main body of the Transition Plan. It focusesin particular on the impacts of the Transition
Plan package of policies. It is divided into two
main sections.
The first section considers the long term,
focusing on our 2050 target of reducing UK
net emissions of greenhouse gases (GHG) to
at least 80% below 1990 levels. This section
sets out the size of the task, and assesses
the costs and benefits both for the UK and
globally of meeting our 2050 goals. It alsoconsiders the different possible pathways
to 2050 and beyond, including the variety of
technologies that will need to be brought on.
The second section assesses the impacts
of the policies set out in this Transition Plan
for the period covering the first three carbon
budgets. This section considers the impacts
of the package on the UKs GHG emissions,
the costs of the package and how these are
distributed, the impact of the package onsecurity of energy supply, macro-economic
costs and finally wider environmental impacts.
GHG emissions. In the third carbon
budget period (2018 2022) the UK has
committed to reduce its net emissions of
GHGs to at least 34% below 1990 levels,
a level which puts the UK on track to meet
its 2050 emissions reduction target.
The annex presents projections for UK GHG
emissions and shows that the policies setout in this Transition Plan give us confidence
that our carbon budgets will be met.
Costs and their distribution. Policies
to reduce emissions or improve energy
security will impose costs on sections
of the UK population and UK economy.
Overall the costs of action will be lower
than the costs of unchecked increases
in global GHG emissions and they will
also be distributed more fairly, as climatechange would hit the poorest in the world
hardest. However, it is important to ensure
that the burden of action does not fall
disproportionately on some sections of theUK population or sectors of the economy.
This annex considers the distribution of the
costs within the UK.
Security of energy supply. The package,
particularly the policies relating to the
renewable energy target in 2020, will have
an impact on security of energy supply.
Continuity of energy supply is fundamental
to the functioning of our economy and a
central element of the Governments longterm energy policy. Overall security of
energy supply may be expressed in different
ways, but embraces at least the following
three components in the long term:
Physical security: avoiding involuntary
physical interruptions to consumption
of energy.
Price security: avoiding unnecessary
price spikes due to supply/demand
imbalances or poor market operations
and maintaining competitive prices
relative to other countries.
Geopolitical security: avoiding undue
reliance on specific nations as sources
of energy so as to maintain maximum
degrees of freedom in foreign policy.
The macroeconomic and transitional
costs. Macroeconomic modelling of
the costs of transforming the UK to alow carbon economy is considered.
This modelling consistently suggests
that the costs in both the short and the
long term, though significant, are likely
to be manageable. The costs, as part
of co-ordinated global action, are much
lower than the damages associated with
dangerous climate change.
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1111
wider environmental impacts
of the package are considered. The Climate
Change Act 2008 states that proposalsand policies for meeting carbon budgets
must, when taken as a whole, be such as
to contribute to sustainable development.
Considering the impact of the package
on greenhouse gas emissions, energy
security, fairness and economic growth
goes a great way towards assessing the
sustainability of the package. However,
it is also necessary to take account of
wider environmental impacts such as air
quality, biodiversity and the landscape. Thisannex values these wider environmental
impacts wherever possible and provides a
qualitative analysis in other cases.
Structure of the Annex
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16 UK Low Carbon Transition PlanAnalytical Annex
rise for a mitigation scenario (the CCC
mitigated scenario) in 2050 would be 1.8oC
but crucially it would only be about 2oCin 2100.10
The key point is that while temperatures
in 2050 may not be that different between
the mitigated and the most optimistic
unmitigated scenarios, by 2100 there will be
a huge difference the difference between
catastrophic global warming and mere
warming, which while very challenging,
is something to which human society can
adapt. The main beneficiaries of urgentaction now, because of the long life time of
greenhouse gases in the atmosphere, will be
our descendants.
The CCC estimated that the costs to the
UK of meeting an 80% target would be
in the order of 1-2% of GDP in 2050.Government has published its own estimate
of the costs of meeting the 80% target
in the Impact Assessment of the Climate
Change Act.11 This estimate drew upon a
variety of modelling work including the work
commissioned by the CCC and estimated
costs to be of a similar order of magnitude.
Overall, the costs to the UK of meeting
our 2050 target are affordable given the
consequences of not acting providing wereduce emissions cost-effectively as part
of co-ordinated global action. This means
bringing on the right technologies and getting
the policy mix right. This is explored in the
next section.
10 These are global mean average temperatures which are averaged over land and sea. Land temperatures are generallyhigher and temperatures in summer are higher than temperatures in winter. UKCP09 downscales global models togive projections for climate variables for the UK. For the UK, it is possible that the summer temperature for the CCCmitigatedscenario, where we are on track to reach an 80% reduction in GHG emissions by 2050, will be about 3 oChigher than pre-industrial levels, similar to the most optimistic unmitigated scenario.
11 Available from http://www.decc.gov.uk/en/content/cms/legislation/cc_act_08/cc_act_08.aspx
http://www.decc.gov.uk/en/content/cms/legislation/cc_act_08/cc_act_08.aspxhttp://www.decc.gov.uk/en/content/cms/legislation/cc_act_08/cc_act_08.aspx8/14/2019 The Analytical Annex to the UK Low Carbon Transition Plan. Power outages in the offing.
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1117
Chapter 2:Getting ThereTransforming the UK Economy and Energy System to 2050
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1119
13 Road to Copenhagen DECC p43 http://www.actoncopenhagen.decc.gov.uk/en/ambition/road-to-copenhagen/
14 Carbon Valuation in the UK Policy Appraisal: A Revised Approach (July 2009) www.decc.gov.uk
15 The GLOCAF (Global Carbon Finance) model combines bottom up abatement cost curves from all regions of the world.The model provides analysis of the global finance flows that result from global deals, with regional burden shares andvarying limitations on international carbon markets.
16 Real 2009 prices.
Use of international
carbon trading to meetthe 2050 targetThere is uncertainty over the extent to
which the long term target will be met by
reducing UK territorial emissions or through
purchasing international carbon allowances.
In 2050, the UKs vision for international
action to reduce emissions includes a global
carbon market, where global emissions are
capped and the purchase of an internationalcarbon allowance will fund an additional
tonne of abatement elsewhere. Trading
enables the same environmental outcome
to be achieved at lower cost, by allowing
nations with relatively high cost abatement
options to fund emissions reductions in
countries with lower cost opportunities,
while also contributing to decarbonisation
in developing countries. An effective global
market would provide a mechanism to
ensure these low-cost opportunities arefinanced in the most efficient way. Estimates
suggest that through an effectively designed
carbon market the global costs of the action
required by 2020 could be reduced by at
least one third and possibly up to two thirds
depending on market design.13 National
costs of abatement will differ, owing to
differing geographies and endowments of
natural resources, infrastructure stock and
specialisation in production. An efficient
delivery of the UKs long term target
would therefore involve the UK purchasing
international carbon units where they are
cheaper than the cost of reducing emissions
in the UK or, alternatively, undertaking
additional abatement in the UK and selling
the excess internationally where the
international price is higher than the marginalcost of abatement in the UK.
In assessing which of these scenarios is
likely to hold, it is important to note that
international carbon allowances are likely to
be scarce in 2050. The absolute quantity of
allowable global emissions in 2050 would
be at least 50% below 1990 levels and
the global economy would be expected
to be several times larger. As part of the
Governments review of carbon valuation,published in July 200914, Government
analysts have estimated global carbon
prices in 2050 using the GLOCAF15 model
and estimates available from other models
and evidence. On the basis of this work,
Government economists have adopted,
for 2050, a central estimate of 200/tCO2e,
with a low sensitivity of 100/tCO2e and a
high sensitivity of 300/tCO2e.16 The range
reflects uncertainty in the global availability
and cost of abatement in 2050.
Even at the lower end of the spectrum, these
carbon prices are a significant increase on
current market prices for carbon. In 2050,
it is likely to be cost-effective for the UK to
undertake substantial domestic action and it
is anticipated that much of the UKs long-term
target would be achieved through domestic
abatement. Analysis by the Committee on
Climate Change (CCC) suggests that in most
2050 scenarios, when access to allowances
is unrestricted, international allowances do
not contribute more than 10% of total UK
emissions reduction effort. This reflects the
relatively cost-effective nature of domestic
Chapter 2:Getting There
http://www.actoncopenhagen.decc.gov.uk/en/ambition/road-to-copenhagen/http://www.decc.gov.uk/http://www.decc.gov.uk/http://www.actoncopenhagen.decc.gov.uk/en/ambition/road-to-copenhagen/8/14/2019 The Analytical Annex to the UK Low Carbon Transition Plan. Power outages in the offing.
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20 The UK Low Carbon Transition PlanAnalytical Annex
abatement options, although the CCC analysis
suggests a changing use of credits over the
timeline to 2050.
Government analysis suggests that
international carbon trading might play a
greater role in meeting the UKs long term
target. This analysis17 used GLOCAF for
all abatement costs meaning that both
domestic abatement costs (within the
EU) and international abatement costs
were modelled using the same underlying
methodology.18 However, interpreting
the results for implications to the UK iscomplicated as GLOCAF carries only regional
abatement costs. Each region was given
a burden share of international action to
meet the goal of stabilising atmospheric
concentrations at 450ppm in the long term.
The European burden share was an 80%
reduction on 1990 emissions.
The modelling indicated that Europe would
meet its target most efficiently by importing
20% of its reduction target in the form ofinternational allowances, reducing emissions
within the EU to 64% below 1990 levels. If
it is assumed that the UK is typical of the EU
as a whole, then the GLOCAF modelling can
provide an insight into the extent to which
the UK would achieve its target domestically
under a global least cost approach to avoiding
dangerous climate change.
In summary, uncertainty about the relative
national and international costs of abatement
implies uncertainty about what the UKs
80% reduction target means for the level
of reduction in UK territorial emissions by2050. This highlights the importance of
flexible market based instruments such as
international trading to ensure that climate
change is tackled cost-effectively.
The underlying uncertainty about the level of
domestic abatement in 2050 is captured in
the scenarios set out below, which consider
both a case where the domestic energy
system decarbonises by 90% relative to
1990 levels in 2050, and one in which a 70%reduction is required.
Modelling of the UK energysystem and associatedcarbon dioxide emissionsto 2050Government and the CCC have previously
commissioned research using the
MARKAL-MED19 model, which models the
UK energy system and associated carbon
dioxide emissions.
Different scenarios have been analysed,
which consider various constraints on
the level of allowable emissions in 2020
and 2050 and variations in the underlying
availability and cost of energy technologies.
Given these constraints on emissions and
costs, the MARKAL model finds the lowest
cost way to meet UK energy demand.
17 Previously published in the Climate Change Act Impact Assessment.http://decc.gov.uk/Media/viewfile.ashx?FilePath=85_20090310164124_e_@@_climatechangeactia.pdf&filetype=4
18 The CCC analysis modelled domestic and international abatement using two different models with different underlyingcost data MARKAL15 and GLOCAF. The UK Market Allocation (MARKAL) model is a least cost optimisation modelof energy use that investigates least cost solutions to meeting energy service demand while meeting emissionsconstraints. Most notably, the model is rich in technological detail (e.g. costs, lifetime and efficiency) and itsassumptions have been extensively peer reviewed. The main limitation of this modelling approach is the unrealisticassumption of perfect foresight out to 2050. Owing to this assumption, the modelling estimates produced by MARKALshould be interpreted as the lower bound estimates of the long term costs of carbon abatement.
18 Previously published in the Climate Change Act IA.
19 The Markal MED model is an extension of MARKAL with more complex treatment of demand elasticities. Additionalinformation on the Markal MED can be found in MARKAL-MED model runs of long term carbon reduction targets in theUK: http://www.theccc.org.uk/reports/supporting-research
http://decc.gov.uk/Media/viewfile.ashx?FilePath=85_20090310164124_e_@@_climatechangeactia.pdf&filetype=4http://www.theccc.org.uk/reports/supporting-researchhttp://www.theccc.org.uk/reports/supporting-researchhttp://decc.gov.uk/Media/viewfile.ashx?FilePath=85_20090310164124_e_@@_climatechangeactia.pdf&filetype=48/14/2019 The Analytical Annex to the UK Low Carbon Transition Plan. Power outages in the offing.
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22 The UK Low Carbon Transition PlanAnalytical Annex
Forecasting these variables out to 2050
is inherently uncertain and changes in
assumptions can lead to significantlydifferent modelling results. Depending on
the scenario, different sectors contribute
to a greater or lesser extent to the overall
reduction in UK emissions. The technologies
within a sector can also differ significantly.
A further uncertainty is the possibility of
one or more technology shocks. Over the
period to 2050 there could be breakthroughs
in low carbon technology, unanticipated in
the MARKAL model, which could radicallyalter the lowest cost approach to reducing
emissions.
In combination, these factors mean that
it is not possible for a precise pathway for
the UKs transformation to a low carbon
economy to be forecast. To demonstrate
this point, Table 1 below describes eight
scenarios produced by the MARKAL model,
which are all consistent with meeting the
2050 target for an 80% reduction in net UK
GHG emissions relative to 1990, but whichdiffer in their assumptions relating to the
price and availability of key technologies and
the extent of domestic abatement from the
UK energy system.
It should be noted that these scenarios have
been commissioned for a variety of purposes
over the last two years, and have not
therefore been defined with a constraint that
they must be consistent with the package
of policies contained in this TransitionPlan. We have, however, commissioned
three scenarios the 70%, 80% and 90%
renewables scenarios that meet the
constraint of meeting the UKs renewable
energy target. The purpose of presenting
these runs here is not to make a prediction
about the future, but to illustrate the extent
of uncertainty and commonality in possible
future pathways to our 2050 goal.
Table 1
MARKAL scenarios
Scenario
CO2 Emissions
reductions
(relative to 1990)
Other assumptions
70% scenario 29% in 2020,
70% in 2050
Commissioned by the CCC. Max nuclear
and CCS build rate 3GW p.a. in the 2020s,
5GW p.a. thereafter.
70% RES 29% in 2020,70% in 2050
Commissioned by DECC for this TransitionPlan. Model constrained to deliver
sufficient renewable generation in 2020 to
meet the Renewable energy target.
80% base case 33% reduction by
2020. 80% reduction
by 2050
Commissioned by the CCC. Max nuclear
and CCS build rate 3GW p.a. in the 2020s,
5GW p.a. thereafter.
80% high bio-energy 31% in 2020,
80% in 2050
Commissioned by Defra in 2007. High
availability of domestic and imported
biomass, with high capacity for biomass
liquids to meet transport energy demand.
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1125Chapter 2:Getting There
All scenarios share some characteristics.
These include by 2050, electricity
accounting for an increased shareof energy consumption, a radical
de-carbonisation of electricity supply and
a dramatic improvement in
energy efficiency.
Chart 7 shows the carbon intensity of
electricity for each of the scenarios over the
period to 2050. Substantial decarbonisation
of electricity supply is achieved in all
the scenarios, but there is considerable
divergence in the rate at which the
decarbonisation is achieved. The MARKALmodelling indicates that a relatively wide
range for the carbon intensity of grid
electricity in particular years, such as 2030,
would be consistent with reaching the long
term goal of an 80% decarbonisation.
Chart 7
Rate of decarbonisation of the electricity sector under MARKAL scenarios
Source: Department of Energy and Climate Change chart based on MARKAL (2009)
500
400
300
200
100
0Averageemissionfrom
powergeneration
(gCO
2p
erkWh)
70% base
80% resilience
70% RES
80% RES
80% base
90% base
80% high bio
90% RES
2010 2015 2020 2025 2030 2035 2040 2045 2050
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26 The UK Low Carbon Transition PlanAnalytical Annex
Chart 8
Energy consumption across scenarios
Source: Department of Energy and Climate Change chart based on MARKAL (2009)
Note: This chart compares energy consumption in 2005 with energy consumption scenarios in 2050.
0
200
400
600
800
1000
1200
1400
1600
1800
2005 70% 70% RES 80%
base
80% high
bio
80%
resilience
80% RES 90% 90% RES
TWh
Achieving the UKs climate change
mitigation goals will require the use of many
technologies in the power sector thereis no silver bullet. The MARKAL modelling
provides evidence that there will be a
significant role for renewables, coal and gas
with carbon capture and storage (CCS) and
nuclear to achieve the required
emissions reductions.
Analysis indicates that energy efficiency is
essential to meeting our 2050 target and is
cost-effective too. Achieving a greater than
tenfold reduction in the carbon intensityof the UK economy in 2050 will not be
achievable solely through a de-carbonisation
of the UK energy supply but will also require
a much more efficient and less wasteful
use of energy. Cost-effectiveness analysis
indicates that energy efficiency should be the
first choice of measure in moving to a low
carbon economy.
Chart 8 compares the energy demand for
each of the scenarios in 2050 with the energy
demand in 2005. Significant energy demandreductions of between 26 and 43% are
achieved across the scenarios. Taking into
account the higher level of GDP we would
expect in 2050 this is equivalent to the energy
intensity of GDP falling to around a quarter
of the 2009 level. MARKAL modelling shows
that this can be achieved primarily through
energy efficiency measures, but there will
also be some energy demand reduction from
substitution to less energy intensive activitiesand less waste of energy. These last two
effects are encouraged by the higher energy
prices that are the result of adopting low
carbon technologies.
To achieve a tenfold reduction in carbon
intensity of GDP by 2050 (see the first section
of this chapter), energy supply will also need
to be decarbonised. The MARKAL modelling
shows that the carbon intensity of energy
falls between 50 and 80% by 2050.
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1127Chapter 2:Getting There
The policy regime for
the futureAs the above discussion shows, there are
some commonalities in the outcomes of the
different scenarios assessed. Where there
is a clear pathway policy should focus on
removing constraints and barriers that prevent
or slow progress. Accordingly, the package
of policies in the Transition Plan seeks to
address barriers that act to slow the uptake
of energy efficiency measures and to support
key low carbon generation technologies.
Conversely, where there is significant
uncertainty in predicting the least cost
pathway towards achieving our 2050 targets,
flexibility in policy design is important there
is a danger that if policies are too prescriptive
about the route map in the long run, then we
may lock ourselves in to a high cost emissions
reductions path if certain technologies turn
out to be more or less costly than anticipated
or assumptions about the future turn out tobe wrong. This is an argument for providing
a clear and stable investment framework
underpinned by the 2050 target but
allowing individual investors to decide which
technologies to deploy to meet it.
The level of investment in low carbon
technology research and development is
an important determinant of the future
costs of abatement. Market and regulatory
failures with respect to investment ininnovation justify intervention to minimise
the medium to long term costs of meeting
carbon budgets. Intervention could increase
investment by addressing:
positive externalities arising from
investment in innovation; and
the short term weakness of the carbon
price signal arising from immature carbon
markets and regulatory uncertainty over
future global deals and caps on emissions.
Overall, the policy package put forward in this
Transition Plan is designed to meet the long
term investment and innovation challengescreated by the 2050 target. It comprises:
A transparent regime for pricing carbon in
the long term, through international carbon
trading systems (such as the EU Emissions
Trading System).
Direct support for individual technologies,
or groups of technologies, where there is a
compelling argument that they are needed as
part of the global effort to reduce emissionsand yet are unlikely to be brought on through
the carbon price alone. Key technologies
may not be brought on sufficiently quickly
without direct support until deeper
emissions reductions targets are agreed
globally resulting in a stronger and more
credible carbon price signal, and without
intervention to address innovation market
failures. Government has chosen to support
directly renewable and low carbon energy
technologies through the policies in theRenewable Energy Strategy and to support
Carbon Capture and Storage demonstration.
Broader support for a range of potentially
viable technologies where there is greater
uncertainty over which will be the lowest
cost solution.
A stable, credible regulatory regime for
reducing emissions in the UK in the long
term, based around the 2050 target and
interim five yearly carbon budgets,
to give companies sufficient confidence
to invest in low carbon technologies.
The budget levels that have now been set
by Government for the period 2008 2022
put us on track to meet the 2050 target
and reflect the key importance of achieving
a global deal on climate change.
These principles are discussed in greater
detail in relation to the Transition Plan
package of policies in Part Two.
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Carbon budget levels
The CCC proposed two sets of carbonbudgets for the UK, one to apply now
before a global deal on climate change is
reached (Interim budgets), and a more
challenging set to apply once a global
deal on climate change has been agreed
(Intended budgets). Based on this advice,
the Government has set carbon budgets that
are based on the CCCs Interim budgets,
consistent with the UKs share of the EUs
target to reduce greenhouse gas emissions
to 20% below 1990 levels by 2020.
The CCC recommended that, in the event
of a satisfactory global agreement through
the Copenhagen negotiations, the UK
should move to its Intended budgets.
The Government agrees that as part of a
successful global deal it should move to
tighter carbon budgets. The appropriate
level of the tighter budgets will depend on
the outcome of international negotiations on
climate change. The CCC will therefore be
asked to review its recommended Intended
budgets following a global deal and once
proposals on sharing out the new EU target
are agreed. The Government will amend
the carbon budgets in the light of those
discussions and taking into account the
advice of the CCC.
In the event of successful negotiation of
a global deal the EU would adopt a more
ambitious target of up to a 30% reductionin GHG emissions across the EU by 2020
over 1990 levels. The intra-EU effort share
of this more stringent target has not been
negotiated; however, the UK would take on
a tougher target than under the current EU
Climate and Energy Package. In line with
CCC advice and the requirement of the
Climate Change Act, the Government will
tighten carbon budgets in response to these
more stringent international obligations.As the final shape of the 30% EU package
has not been negotiated it is not possible
to be precise about the level of the more
ambitious UK carbon budgets following a
global deal. However, the CCC provided
illustrative estimates of the level of tighter
Intended budgets. These showed a smaller
UK share of a tighter EU ETS cap, with a
consequent reduction in UK emissions in
the traded sector. In the non-traded sector,
the intended budgets required the UK
to achieve an additional 140MtCO2e of
abatement over budgets two and three.
20 Comparing average annual emissions over the budget period to UK emissions in 1990 of 777.4 MtCO2e based on 2007inventory methodology.
Table 2
Carbon budgets level
Budget 1
(2008-2012)
Budget 2
(2013-2017)
Budget 3
(2018-2022)
Budget level (MtCO2e) 3018 2782 2544
Percentage reduction
below 1990 levels2022% 28% 34%
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21 See the following section for a description of the net UK carbon account.
22 Section 10 of the Climate Change Act lists the matters to be taken into account in connection with carbon budgets.http://www.opsi.gov.uk/acts/acts2008/pdf/ukpga_20080027_en.pdf
23 Meeting the current non-traded portion of carbon budgets domestically prepares the UK to meet the tighter budgets.Purchase of international credits might be expected to form an important part of the additional effort required to meetmore challenging carbon budgets. The CCC advice stated that use of credits from outside the EU, under the tightercarbon budgets to be set following a global deal, would be acceptable given the feasibility and cost-effectiveness ofgoing further domestically.
24 Climate change is caused by various greenhouse gases. The Kyoto Protocol applies to emissions of a basket of
six greenhouse gases: Carbon Dioxide (CO2), Methane (CH4), Nitrous Oxide (N2O), Hydrofluorocarbons (HFCs),Perfluorocarbons (PFCs) and Sulphur Hexafluoride (SF6). Non-CO2 greenhouse gas emissions arise from a number ofsources including agriculture and land use change (largely methane from livestock), the waste sector (e.g. from landfill)and industrial process emissions, for example in the cement and paper industries.
The Climate Change Act does not specify a
trajectory towards the 80% 2050 emissions
reduction target, other than requiring aminimum reduction of 34% in the net UK
carbon account in 2020 relative to 1990.21
The trajectory will be established through the
level of the carbon budgets which will be set
with regard to criteria22 including technology
relevant to climate change and the implications
for the feasibility and cost of achieving
emissions reductions in a given period.
The trajectory implied by the current level
of carbon budgets from 2008 2022 isless stringent than that required to meet
an 80% 2050 emission reduction target on
a straight line basis. But the CCC believes
this is sufficient to put us on track if met
through domestic emissions reductions.
However, were a successful global deal to
be negotiated, the level of budgets would be
amended, setting the UK on a much more
stringent trajectory.23
In practice, this means that if a comprehensiveglobal deal can be achieved at Copenhagen
this year, the UK and other EU member
states will take on greater action, earlier.
While evidence (e.g. from the IPCC 4th
Assessment Report) suggests that delaying
action to reduce emissions risks increasing
costs by locking in investments in carbon-
intensive infrastructure, the argument for this
approach is clear making highly ambitious
action by the EU contingent on action by other
countries is intended to maximise the chances
of achieving a global deal.
Mitigating global emissions will require
co-ordinated global action. Dynamically
adjusting domestic climate change policy inresponse to significant international actions
and commitments will help achieve the
overall required emissions reductions in a
cost-effective manner.
Measuring emissionsUK carbon budgets and the 2050 target
are measured in terms of the Kyoto basket
of greenhouse gases24 and specified in
terms of the netUK carbon account.
To calculate the net UK carbon account,
UK greenhouse gas emissions from the
UK national emissions inventory report
are adjusted to account for the amount of
carbon units which have been bought in
from overseas and retired by Government
and others (including participants in the EU
Emissions Trading System) to offset UK
emissions (credits), and UK carbon units
which have been disposed of to a third party(debits). Meeting the budgets and the long
term target will require a balance of effort
from CO2 mitigation, non-CO2 mitigation and
the purchase of carbon units representing
emissions reductions abroad.
The emissions coverage of UK carbon
budgets is not identical to the scope of the
UKs commitments under the Kyoto protocol.
While carbon budgets cover UK emissions
only, the UKs commitments under the Kyotoprotocol include emissions from the crown
dependencies and certain overseas territories.
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Under carbon budgets, emissions associated
with land use, land use change and forestry are
treated in line with current UNFCCC reporting
requirements, in a more comprehensive way
than under the Kyoto protocol which only
considers a subset of these emissions. As is
the case under the Kyoto protocol, emissions
from international aviation and international
shipping are not included in carbon budgets,
as there is currently no internationally agreed
methodology for attributing these emissions to
individual countries. However, section 10 of the
Climate Change Act requires we take accountof these emissions in setting carbon budgets.
Where we are now:current emissionsThe most recent year for which full inventory
data on UK GHG emissions are available is
2007. In 2007, approximately 85% of UK
GHG emissions were CO2 emissions, the vast
majority of which are energy system related.
The other 15% are non-CO2 GHG emissionssuch as methane emissions from livestock
and waste.
Around 40% of the UKs emissions are
covered by the EU Emissions Trading
System. This is a cap-and-trade scheme
which sets a limit (cap) on emissions in the
EUs power and heavy industry sectors.25
The UKs share of the EU Emissions Trading
System cap in 2007 was 12.5% of the total
cap. Within the UK, emissions of CO2 in theEU ETS (traded sector) were 256.3 MtCO2
in 2007. To comply with the EU Emissions
Trading System, UK installations were net
importers of EU allowances, importing 25.7
MtCO2e of allowances. Within the UK, in
sectors of the economy not covered by the
ETS (the non-traded sector), CO2 emissions
were 286.3 MtCO2.
Non-CO2 GHG emissions were 93.7MtCO2e
in 2007, which is 48% lower than in 1990.This reflects the already substantial progress
that has been made to reduce non-CO2
GHG emissions in a number of sectors. For
example, methane emissions from waste
landfill have fallen by 59% between 1990
and 2007, and are projected to fall by 63%
by 2020 (relative to 1990 levels). Likewise,
overall GHG emissions from agriculture
(predominantly nitrous oxide and methane)
have fallen by 21% since 1990. Overall,
non-CO2 GHG emissions were 48% lower
in 2007.
In total, the net UK carbon account was 610.6
MtCO2e in 2007, in 1990, the corresponding
figure was 777.4 MtCO2e. There has therefore
been a 21% reduction between 1990 and 2007.
25 See Reducing emissions in sectors covered by the EU ETS section later in this chapter for further detail.
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Principles for developing
policies to reduceemissionsAchieving the 2050 GHG emissions
reductions target will require Government
intervention. This section sets out the
economic principles underlying that
intervention and informing the policies set
out in this Transition Plan. These are set out
in more detail in a Government publication
Making the right choices for our future,
published in March 2009.26
There are extensive market failures and
barriers to action, the combined impact of
which lead to a higher level of emissions
than is socially optimal. Without intervention,
the market will under-allocate resources
to reducing GHG emissions. Where policy
instruments address one or more of these
market failures, and do so effectively, overall
welfare will be increased.
The emission of greenhouse gases is a
negative externality. Those who emit
them do not suffer the damages that they
cause. This results in more greenhouse
gas emissions than is optimal for society
as a whole.
There are behavioural barriers to exploiting
low and negative cost abatement options.
For instance imperfect information about the
options and availability of energy efficiency
technology, or the costs of the energy
being used, may lead to under-investment
in reducing energy consumption.
Those investing in innovation create
positive externalities in the shape of
new knowledge and skills which spread
beyond the investor. Owing to this
positive externality, without intervention,
investment in low carbon research and
development would be lower than the
socially optimal level. There are further
barriers to innovation which will further
dampen investment, such as regulatory
uncertainty and information asymmetries.
Individual policy interventions are justified on
their ability to address specific market failures
or barriers which prevent the exploitation
of cost-effective carbon abatement
opportunities. The Impact Assessments of
the individual policies comprising our overall
plan all set out the rationale for intervention
on this basis.
The greenhouse gas emissions externalitycan be addressed through ensuring that those
who release emissions face a price for doing
so, that reflects not just their private costs
of releasing emissions but the wider social
costs too. Increasing the cost of producing
emissions aligns the incentive for individuals
or firms to reduce their emissions with the
social benefit from lowering emissions. It
increases the incentive for individuals or firms
to invest in installing low carbon technologies.
A price can be placed on greenhouse gasemissions through the introduction of carbon
taxes, cap and trade schemes or implicitly
through regulations requiring investments in
more costly low carbon technologies.
There are a diverse set of behavioural barriers
to the exploitation of carbon abatement
options. These range from informational
barriers and split-incentives to psychological
and sociological factors creating inertia.
Policy interventions to address thesebarriers can include regulations, information
campaigns and technologies to raise the
visibility and therefore the awareness of
energy use and the associated emissions.
Tackling the greenhouse gas emissions
externality and behavioural barriers above, is
fundamental in laying the foundation for low
carbon innovation to take place, as it largely
determines the likely level of demand for
future goods and services.
26 http://www.defra.gov.uk/environment/climatechange/research/economics/framework.htm
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34 The UK Low Carbon Transition PlanAnalytical Annex
Government also needs to give support at
the appropriate time and in the appropriate
way if it is to bolster low carbon industriesinnovation. This will depend on the sector,
its market structure and the profile of
organisations operating within it.
Overall, the ideal policy framework is
one that is flexible enough to adapt to
changing circumstances while still providing
businesses and individuals with policy
certainty to make long-term investment
decisions. Fundamental to this effort is
securing a global agreement to reducegreenhouse gas emissions. Designing
domestic climate change policy around
international interventions, and adjusting
it dynamically alongside significant actions
to tackle the problem at the global level,
will help achieve the required emissions
reductions in a cost effective manner.
In estimating the impacts of this plan on
emissions and its overall costs, it is necessary
to define which policies are included in thepackage and to compare the world with their
impact to a baseline case, the counterfactual,
without them. The following section sets out
the approach taken to defining the baseline.
Baseline used in thisanalysisThe Transition Plan sets out a package
of policies to meet the first three carbonbudgets. To assess the impacts of this
package it is necessary to define firstly the
scope of the package which policies are
included and secondly what the baseline for
comparison is the world without the policies.
Defining the scope of the package requires
a decision on the inclusion or exclusion of
particular policies. The decision has been
taken to include those policies which have
been announced more recently than the 2006
Climate Change Programme. Where there has
been an extension to policies which existed
prior to the Climate Change Programme the
extended ambition has been included in the
package. A detailed list of policies includedis shown below. This list includes policies
announced in the 2007 Energy White Paper,
the Renewable Energy Strategy policies and
additional policies set out in this Transition
Plan. This decision has been taken as it goes
far enough back to capture the most active
policies contributing to meet the first three
carbon budgets, and aligns the policy baseline
with that used by the Committee on Climate
Change in their December 2008 report.The policies set out in the Transition Plan
which are included in the package of policies
and proposals are:
The December 2008 EU Climate and
Energy Package agreement to a tightening
of the EU Emissions Trading System cap in
Phase 3 (2013 2020) (baseline assumes a
continuation of the Phase 2 EU ETS cap);
The Renewable Energy Strategy
(Renewable Electricity and Renewable
Heat). This includes the extension of the
Renewables Obligation, Feed-in-Tariffs,
the Renewable Heat Incentive and the
extension of bio-fuels to 10% by energy;
Vehicle efficiency standards, EU new car
average fuel efficiency standards of 130g/
km by 2015, the additional impact of
further new car efficiency improvements
to 95g/km by 2020 and new van average
efficiency standards of 160g/km.
Complementary measures for cars (gear
shift indicators/low rolling resistance tyres/
more efficient air conditioning/tyre pressure
monitoring/ low viscosity lubricants);
Low rolling resistance tyres for HGVs;
SAFED bus driver training;
Illustrative rail electrification of 750km of
single track rail line;
Carbon Reduction Commitment;
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Extension to Climate Change Agreements;
The Carbon Emissions Reduction Target;
Future Supplier Obligations for domestic
energy efficiency;
Community Energy Savings Programme;
Zero Carbon Homes;
Smart-metering (households and business);
Energy Performance of Buildings Directive
Includes Energy Performance Certificates,
Display Energy Certificates for public buildings,inspections for air conditioning systems,
and advice and guidance for boiler users.
Product policy minimum standards and
labelling, in line with ambition announced in
the Energy White Paper 2007;
One-off interest free loans to SMEs;
One-off interest free public sector loans;
Agriculture proposals; and,
Waste proposals (Food to anaerobic
digestion, diverting wood waste and raising
landfill tax in budget 2009).
Meeting carbon budgets:Emissions projections from2008 to 2022The policies set out in this Transition Plan
will allow us to meet our carbon budgets
on central expectations. Chart 9 shows
central projections for the net UK carbon
account up to 202227 with and without the
27 CO2 projections from the DECC energy model, non-CO2 projections are produced under contract by AEA technology Ltd.
Chart 9
Central Projections for the net UK carbon account with and without theTransition Plan Package of Policy Measures
400
0
450
500
550
600
650
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Power & heavy industry
Workplaces Farms & countryside
Transport Homes
GreenhousegasemissionsMtCO2e
Source: Department of Energy and Climate Change (2009)
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1137
for which uncertainty over emissions has
effectively been eliminated the power and
industrial sectors capped by the EU EmissionsTrading System and then the remaining
sectors of the UK economy, emissions from
which show significant uncertainty.
Reducing emissions insectors covered by theEU ETSThe EU Emissions Trading System (ETS)
covers 42% of EU GHG emissions and 41%of UK GHG emissions. There is certainty
in the overall level of emissions within the
capped sectors across the EU as a whole.
The agreement reached in December 2008
achieves an EU wide reduction of 22% in
traded sector emissions in 2020 relative
to 2005 verified emissions. The EU has
committed to a larger reduction in EU
greenhouse gas emissions following an
international deal the proportion of the
additional effort which would come from the
ETS sectors is yet to be negotiated, but once
agreed there would again be certainty over
ETS sector emissions across the whole
of the EU.
The creation of an EU wide cap has the
strengths of providing certainty over the
quantity of emissions, while the flexibility
created through the trading mechanism
allows these reductions to be achieved
efficiently, at least cost.
The net UK carbon account and thetraded sector
The traded sector (the sectors of the UK
covered by the EU ETS) makes a contribution
to the net UK carbon account that is equal to
the UKs share of the EU ETS cap. If EU ETS
installations in the UK emit more than the
UK share of the cap then there will be a net
import of allowances to the UK. Importing
allowances will fund equal and opposite
emissions reductions in the wider EU, or in
developing countries.
Chart 10 above, showing we are on track to
meet our carbon budgets, shows the net UK
carbon account. The projected level of the
net carbon account includes a credit equal
to the level of net imports of EU allowances
from the EU Emissions Trading System or a
debit where the UK is a net exporter. In some
years over the period to 2022, the UK is
projected to be a net importer of allowances,
in other years the UK is projected to be a
net exporter. Over the period as a whole theUK is projected to export a small number of
allowances (13MtCO2e). This means that UK
territorial emissions over the three carbon
budgets will be lower than the projected level
of the net UK carbon account by 13MtCO2e.
Chart 11 shows traded sector emissions in
the UK and the UK share of the EU ETS Cap.
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Reducing territorial UK emissions in the
traded sector reduces the number of
allowances that are imported, or increasesthe number of allowances that are exported
by the UK. This carries an economic benefit
approximately equal to the value of EU
allowances.30 Where the UK can reduce
emissions in the traded sector at a lower
cost than the EU allowance prices there will
be a net benefit to the UK with the overall
cost of complying with the EU ETS reduced.
Policies that address barriers or market
failures in the traded sector, allowing lowor negative cost abatement to be exploited,
will also reduce the price of EU allowances
and so minimise impacts on energy bills for
businesses and consumers across the EU.
Further, successfully exploiting low cost
abatement potential and supporting low
carbon innovation in the traded sector could
facilitate the negotiation of future, ambitious
caps which are consistent with a trajectory
towards the UKs 2050 target.
Reducing territorial UK emissions in the
traded sector may carry other ancillary
benefits, such as improvements to air
quality and energy security. Energy and
process efficiency savings, where these
can be achieved cost-effectively, place UK
companies in an advantageous position for
handling the tighter EU ETS and global caps
in the future.
A wide range of policies are in place to
achieve reductions in emissions in the
traded sector for example policies targeting
improvements in energy efficiency (such as
product regulations) or policies seeking to
support innovation in the traded sector and
bring down the future costs of abatement
(such as Carbon Capture and Storage
(CCS) demonstration).
Residual uncertainty over the UKshare of the EU ETS cap
The EU ETS cap creates certainty over EU
wide emissions in the ETS sectors. However,
there is still some residual uncertainty over
the UKs exact share of the ETS cap for
Phase 3 of the EU ETS, running from 2013
to 2020. Although the share of auctioning
rights allocated to the UK Government has
been agreed, there remains uncertainty
over the exact level of free allocation of
allowances to UK installations owing to
a variety of factors including uncertaintysurrounding the patterns of openings and
closures of plants receiving free allocations.
Further, the detailed implementation of
the revised EU ETS Directive is still being
negotiated, covering issues such as detailed
rules for allocating free allowances to
different industries reflecting technologies
used and the competitive pressures they
face from outside the EU. Should the actual
level of allocations to UK installations differ
significantly from the estimated level used
to set carbon budgets, the traded sector
component of the budget may need to be
amended, taking into account the advice of
the Committee on Climate Change.
Reducing emissions fromsectors not covered by theEU ETS
Governments approach todeveloping policies in sectors not inthe EU ETS
There is a much greater challenge for
Government in tackling emissions from
sectors outside the EU ETS, (the non-traded
sector) since these are not capped. The
general principles for developing policies
to overcome market failures still apply,
30 This is only an approximation owing to second order effects. Lower demand changes the market price of allowanceswhich in turn changes the distribution of EU ETS emissions, and the cost to the UK of its remaining imports ofallowances (or reduce the revenue from exports of allowances).
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but in addition a number of more specific
challenges, relating to the uncertainty
surrounding uncapped emissions, needto be overcome. This section sets out
Governments specific approach to
developing policies to reduce emissions from
these sectors, based on: a clear assessment
of feasible technical potential for reducing
emissions; a focus on the potential of
individual measures to overlap and interact
with each other through the analysis of
packages of measures; and a variety of
approaches to dealing with the inherentuncertainty in emissions from these sectors.
Assessment of emissionsreduction potential
In its December 2008 report31 the CCC
provides an analytical view of the cost-
effectiveness of technical options to deliver
reductions in non-traded sector emissions.
This analysis has been supplemented
by Government analysis to inform the
development of the package of policies.
The CCCs analysis considered feasible
technical abatement potential relative to a
baseline level of emissions. The baseline was
generated for the CCC using 2008 fossil fuel
price assumptions, 2008 growth assumptions
and included the impact of policies up to and
including those which were announced in the
UK Climate Change Programme
2006 (UKCCP).32
The CCCs analysis of the cost-effectiveness
of abatement options can be presented in
the form of a marginal abatement cost curve(MACC). An example MACC is shown in
Chart 12. The MACC presents in order of
cost-effectiveness the options for reducing
emissions in the non-traded sector in 2020.
Each rectangle represents a technical option
for reducing emissions, with the height of
the box determined by the measures cost-
effectiveness and the width by the volume of
abatement that it is feasible for this measure
to achieve in the year 2020.The MACC below shows the high feasible
abatement potential identified by the CCC.
This includes abatement measures from
industry, domestic and non-domestic
buildings, transport, agriculture and waste
sectors. Approximately 33% of abatement
potential is from transport measures and
35% of total abatement potential is negative
cost, i.e. money saved by implementing
the measure would outweigh any costs.
Of this negative cost abatement potential,
about 20% is from non-CO2 measures
(predominantly agriculture), and 28% is from
energy efficiency measures in the domestic
sector, for example, insulating your home.
31 Building a Low Carbon Economy the UKs contribution to tackling climate change (December 2008). Available athttp://www.theccc.org.uk/pdf/TSO-ClimateChange.pdf
32 http://www.defra.gov.uk/environment/climatechange/uk/ukccp/pdf/ukccp06-all.pdf. The CCC baseline level of emissionsdiffers slightly from the no policy projection that is used in this annex. Both the CCC baseline and the no policy andproposal projection were generated by the DECC energy model, however the CCC baseline was generated in 2008
using older fossil fuel price and growth assumptions. There has also been some minor re-evaluation of policy deliveryfrom the UKCCP 2006. Though this complicates the interpretation of the CCC MACC, the differences are not sufficientlymaterial to invalidate the CCC cost-effectiveness analysis, or their assessment of the volume of abatement thatparticular technical measures could deliver.
http://www.theccc.org.uk/pdf/TSO-ClimateChange.pdfhttp://www.defra.gov.uk/environment/climatechange/uk/ukccp/pdf/ukccp06-all.pdfhttp://www.defra.gov.uk/environment/climatechange/uk/ukccp/pdf/ukccp06-all.pdfhttp://www.theccc.org.uk/pdf/TSO-ClimateChange.pdf8/14/2019 The Analytical Annex to the UK Low Carbon Transition Plan. Power outages in the offing.
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Chart 12
A Marginal Abatement Cost Curve in the Non Traded Sector
Source: Committee on Climate Change (2008)
Waste
Agriculture
Industry
Transport
Non-domestic
Domestic
0
100
13,950
150
200
250
4,600
50
900
-100
300
-3,450
-200
-250
-50
-150
650 10 4030 7015 4535205 25 50 55 60
/tCO2e
MtCO2e
Further analysis undertaken by Government
and other bodies indicates that potential
in some areas may be lower than the CCC
analysis suggested or come at a higher cost.
For example:
The CCC MACC analysis assumed that
the capital costs of solid wall insulation
were 4000 for an average 3 bed property.
However, there remains considerable
uncertainty over the future costs of solidwall insulation. A solid wall supply chain
review carried out by the Energy Saving
Trust in April 2009 suggested that the costs
of installing solid wall insulation for a single
property would on average be more than
three times this cost (12600) and that
even for multiple property installations the
costs would still be two and a half times as
expensive (10000).33
Research commissioned by the
Department of Energy and Climate Change
into hidden costs34 has indicated that
there are real and substantial time and
financial costs associated with domestic
energy efficiency and carbon saving
measures that existing cost-effectiveness
analysis neglects. These hidden costs
mean that the CCC analysis overstates
the cost-effectiveness of many household
measures (including, again, solid wallinsulation). This in part explains why
apparently profitable energy efficiency
measures are not being taken up by
households and reduces the cost-effective
potential from the domestic sector.
33 It should be noted that there is considerable uncertainty over learning rates for solid wall insulation which could reduceboth the cost of installation, and the hidden costs associated with the measure (for instance by reducing the thicknessof insulation required or by installing alongside other measures).
34 The hidden costs and benefits of domestic energy efficiency and carbon saving measures ECOFYS, May 2009
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42 The UK Low Carbon Transition PlanAnalytical Annex
In agriculture, some mitigation measures
identified by the CCC were excluded from
elements of Governments analysis offeasible technical potential on the basis
that there was insufficient evidence to be
certain of their effectiveness in the UK
(e.g. nitrification inhibitors), or that they
were currently not permitted for use in the
EU (ionophores and bST hormones). Even
those mitigation measures which have been
identified as offering realistic potential are
subject to significant scientific uncertainty.
However, the evidence base and legislativesituation for some mitigation measures
may change over time and demand or other
factors may change the cost-effectiveness
of other measures. The Governments
policy strategy in agriculture will not be
based exclusively on one piece of analysis
and will consider ways that other promising
mitigation measures can be developed
through Government intervention.
In waste, the measures outlined in this
Transition Plan concentrate on reducing
landfill methane emissions. The CCC
also included abatement potential arising
from renewable energy, which overlaps
with other policies in the Transition Plan,
and hence would be double-counted if
apportioned to waste. In addition, the CCC
assigned lifetime methane savings to the
year that the waste is diverted from landfill
(the emissions savings actually occur over
100+ years), whereas for the purposes ofcarbon budgets it is necessary to assign
methane savings to the years in which
they are actually emitted.
In transport, the potential emissions
savings in the UK may be dependent
on international agreements on the
policies that would deliver the technical
abatement potential identified by the CCC.
For example, the EU new car efficiency
regulation agreed in December 2008 set atarget for new cars sold across the EU of
95gCO2/km by 2020. The CCC therefore
modelled the technology bundles that could
deliver a 95g average for new cars sold inthe UK. However, the regulation does not
prescribe the efficiency of cars that are
bought in any one member state, as the
target is for sales across the EU as a whole.
New car fuel efficiency in the UK has
historically tracked above the EU average
by around 6gCO2/km, and our central
forecast is for the UK to continue to track
above the EU average. Measures could be
implemented to encourage the take-up ofthe lowest emitting cars in the UK, but as
the target is set as an average across the
EU, this would not affect the level of global
emissions, but would displace emissions
reductions elsewhere in the EU.
These views are reflected in the package
of policies that has been developed.
The CCC MACC shows potential abatement
by technical measure (that is, it represents
assessments of the abatement that could bebrought about by the actions and behaviour
of individuals and firms, such as installing
insulation in a home). There are complications
when moving from these technical measures
to a package of policies.
Government intervention rarely targets
individual technologies;
Overlaps between policies create
difficulties in accounting for their overall
impact; and
The UK GHG inventory must be
sophisticated enough to pick up the impact
of the methods that policies incentivise.
Flexible policies
MAC curves provide a guide to the potential
and future costs of technical measures.
However, since these are subject to
considerable uncertainty, policies should not
be overly prescriptive as to the measures
that should be taken up.
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1143Chapter 3:Reducing UK Emissions of Greenhouse Gases from 2008-2022
Flexible market based policies can reveal
the lowest cost measures by harnessing
individual investment decisions. Priceinstruments improve the economics of low
carbon technologies relative to more polluting
substitutes. Those investing will respond
to the carbon price signal, investing in the
technologies that are most cost-effective at
the time they are making the decision.
An example of a price-based instrument is
the Carbon Reduction Commitment which
will place a cap on the emissions of
non-energy intensive businesses and thepublic sector. It does not specify which
abatement technologies must be used
to meet the cap which should result in
abatement being achieved at least cost.
Dealing with overlapping policies
Because climate change policies rarely target
specific abatement measures, several climate
change policies may be encouraging the take
up of the same underlying technical carbonabatement options. For example, a retail firm
which installs more energy efficient fridges
may do so in response to none, some or all of
the following policies: the EU ETS increasing
electricity prices, participation in the Carbon
Reduction Commitment, the Climate Change
Levy, product regulations, Carbon Trust
advice, an interest free loan or feedback from
their smart-meter, etc. If in performing policy
appraisal all of these policies are attributed
the savings associated with the more efficientfridges, then the sum of savings from all the
policies will be overstated.
To minimise the risk of over-stating the
savings from policies a package approach
has been adopted when accounting for the
impact of policies on emissions.
In the transport sector, policies are modelled
sequentially through the National Transport
Model. Transport emissions are modelled
after the introduction of each additional
policy with the additional policy attributed
the change in emissions since the previous
run of the model. This ensures that thetotal savings attributed to individual policies
sum to the total modelled savings from the
package of all the policies acting together.
In the non-transport sector there are three
overarching policies which provide a degree of
aggregate certainty over the level of emissions
reductions that will occur within their scope.
These policies are the Carbon Reduction
Commitment (CRC), the Climate Change
Agreements and obligations on domesticenergy suppliers. Each of these policies and
the policies they interact with are treated as
packages the non-energy intensive business
and public sector package, the energy
intensive business package and the domestic
energy efficiency package respectively.
Some non-transport abatement options
occur outside of the three packages notably
non-CO2 GHG abatement, abatement from
non-energy intensive organisations too smallto be included in the CRC and lifestyle changes
in the domestic sector. For policies targeting
these reductions, particular vigilance is
required to account for policy interactions
when assessing savings.
The costs and benefits of renewable
measures are attributed to the Renewable
Energy Strategy policies owing to the
substantial incentives that these policies
offer. For instance, owing to their eligibility forrenewable incentives, the costs and benefits
of on-site micro-generation installed as part
of zero carbon homes building regulations are
not accounted for in the net present value of
Zero Carbon Homes but in the net present
value of the renewables policies.
Each policy appraisal has been peer reviewed
through the Inter-Departmental Analyst
Group35 to ensure consistency of the policy
appraisal and to ensure that the policyoverlaps have been fully considered.
35 See www.decc.gov.uk
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44 The UK Low Carbon Transition PlanAnalytical Annex
Sensitivity of the inventory
The UK GHG inventory used to record
emissions from agriculture is based on a very
simple methodology, using absolute numbers
of livestock, area of land under arable crops
and amount of fertiliser used. This means
that, in its current form, it would be unable to
account for many of the emissions reductions
which would occur as a result of the measures
currently envisaged for the agriculture sector
within this Transition Plan. In addition, many
of these measures are in any case subject to
significant scientific uncertainty in terms oftheir abatement potential.
Measuring the impact and effectiveness
of these measures would require moving
from the current Tier 1/2 system within the
inventory to a Tier 2 or 3 system, facilitating
a considerably higher temporal and spatial
resolution and a focus on land management
activities at a much more detailed level. This
would allow individual mitigation measures to
be accounted for in a verifiable way. This will
need substantial investment and a proposal
has been drawn up to take this forward.
Overall Impact of Policieson Emissions From 2008to 2020Bringing the analysis of policies together
forms a central estimate of emission
savings from the EU ETS and sectors not
covered by the EU ETS. Table 4 lists the
policies with their carbon savings. The overallcarbon savings differ from the sum of the
individually appraised policy savings owing
to macro-economic interactions that arise
in the Department of Energy and Climate
Change energy model. With the policies
set out in this Transition Plan, we are on
track to meet all three carbon budgets on
the central projections and save in total
around 700 million tonnes of CO2e.
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36 The savings from the package of policies, when modelled in the DECC energy model, do not exactly equal theappraised savings from the policies owing to interactions within the model. The interaction effect is small relative to thevolume of appraised savings.
37 Negative value implies emissions are lower than the budget. Figures may not sum due to rounding.
Table 3
Impacts on emissions in policies in this Transition Plan (MtCO2e)
MtCO2eBudget 1
(2008-12)
Budget 2
(2013-17)
Budget 3
(2018-22)
Budget level 3018 2782 2544
Central projections
Without Transition Plan policies2987 2961 2964
Savings from policies
Package of policies appraised and entered into
the model
12 232 455
Macro-economic interaction
Within the Department of Energy and Climate
Change model361 11 3
Total Savings 13 243 459
Central projections with Transition Plan policies 2974 2718 2505
Carbon budget Gap37 -44 -64 -39
Range for carbon budget Gap -145 to 62 -184 to 65 -170 to 126
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46 The UK Low Carbon Transition PlanAnalytical Annex
Table 4
Detailed breakdown of savings delivered by Transition Plan policies by
budget period (MtCO2e)
MtCO2eBudget 1
(2008-12)
Budget 2
(2013-17)
Budget 3
(2018-22)
Policies (firm and funded) EU ETS
Reduction in UK share of EU ETS cap38 0 155 248
Transport
New Car CO2 standards to 2015 0 5.1 20.1
Additional Renewable Transport fuels, 10% by
energy by 20200 9.1 30.1
Low Carbon Buses 0 0.2 0.9
SAFED training for bus drivers 0.4 1.0 1.0
Households
Domestic energy efficiency package39 9.3 30.4 45.8
Product Policy (additional to the domestic
energy efficiency package)40-0.8 -2.4 -4.5
Zero Carbon Homes 0.1 0.6 2.2
Smart-metering and better billing(lifestyle changes)
0.9 2.1 1.8
Community Energy Saving Programme 0.2 0.1 0.1
Business and Public Sector
Non-energy intensive business and public
sector package410.3 2.4 4.6
One-off interest free public sector loans 0.1 0 0
One-off interest free loans to SMEs 0.2 0.2 0
Product Policy for SMEs -1.1 -2.5 -3.9
Smart-metering for SMEs 0.1 2.2 4.7
38 Reductions due to policies introduced prior to the Energy White Paper 2007 are not shown, and the EU ETS cap for2008-2012 was set before then which means that savings for that period are not shown here. Savings in budget 2 and 3 arerelative to the UK share of the cap in 2008-12.
39 Includes: the full impact of CERT (a minority of this ambition was announced prior to the 2007 Energy White Paper, whereit was extended. It was subsequently further extended in September 2008); Future supplier obligation; Energy performanceCertificates; better billing and smart-metering; product policy, and Heat & Energy Saving Strategy Supporting Measures.In a separate exercise estimated savings from residential smart meters have been revised and, whilst overall CO2 savingsare broadly similar, they are more weighted to the non-traded sector and to later years than is suggested here.See: http://www.decc.gov.uk/en/content/cms/consultations/smart_metering/smart_metering.aspx
40 Product Policy savings are negative because of the Heat Replacement Effect: more energy efficient products create lessambient heat which needs replacing via alternative fuel sources. Overall, products policy provides a significant net benefit,due to savings in emissions in the traded sector and their associated benefits. Non-traded sector emissions increasespresented above for products policy are not the most up-to-date, and should be treated as higher-bound/cautiousestimates, which we plan to improve on in the future as further evidence becomes available.
41 Includes the Carbon Reduction Commitment, Energy Performance of Buildings Directive, Business Smart-metering,Product Policy, Public sector targets and loans, Carbon Trust advice and loans.
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1147Chapter 3:Reducing UK Emissions of Greenhouse Gases from 2008-2022
EPBD for SMEs 0 0.3 0.7
Renewables
Renewable heat (RHI plus supporting measures) 0.7 11.1 42.6
Waste
Increased Landfill Tax (Budget 2009) 0 0.8 1.7
SUBTOTAL (firm and funded policies)
Excluding EU Emissions Trading System
Including EU Emissions Trading System
10.5
10.5
60.7
215.4
147.6
395.8
Further intended abatement
Transport
EU New Car CO2 regulation: 95g/km by 2020 0 1.0 18.5
EU New Van CO2 regulations 1.0 5.2 9.3
Complementary measures for cars 0.3 2.6 3.7
Low rolling resistance tyres for HGVs 0 0.1 1.1
Illustrative Electrification of 750km of
single track rail line0 0 0.8
Business and Public Sector
Energy intensive business package42 0 8.0 8.0
Waste
Diverting food waste away from landfill0 0 3.3
Diverting wood away from landfill
Agriculture
Crop management and fertiliser use
0 0 15.0Enteric fermentation and methane
Manure management
SUBTOTAL (further intended abatement)
1.3 17.0 59.6
TOTAL43
Total savings (appraised and entered into the model) 11.7 232.4 455.4
42 Includes the extension to Climate Change Agreements,
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