Fourth Carbon Budget Review: What Is the Government Waiting For?

The government deserves some credit for having provided clarity on the funding available to renewable energy projects out to 2019. But delaying its acceptance of the Fourth Carbon Budget any longer is bad for business, consumers and the UK's energy security alike.

The government deserves some credit for having provided clarity on the funding available to renewable energy projects out to 2019. But delaying its acceptance of the Fourth Carbon Budget any longer is bad for business, consumers and the UK's energy security alike.

To meet its obligation of reducing carbon emissions by at least 80% by 2050 under its Climate Change Act and to do so in a way that is affordable, the UK needs to gradually reduce its carbon emissions by meeting a series of milestones called carbon budgets. The Government is currently reviewing the Fourth Carbon budget, which covers the period 2023 to 2027 and requires significant cuts in carbon emissions in the UK's power sector. The Government had initially approved that budget in 2011, subject to a review in 2014.

Having received revised advice on the budget from the Committee on Climate Change (CCC) back in December 2013 and having committed to making a decision by the end of the first quarter of this year, it is legitimate to ask why the Government is taking so long to accept the CCC's advice. There are a myriad of reasons why the Government should make a rapid decision on this issue, here are just a few.

In its recent landmark reports, the Intergovernmental Panel on Climate Change (IPCC) warned that left unchecked, climate change was set to have severe impacts on the world economy, ranging from negative impacts on the production of food to an increase in the intensity of extreme weather events. It also made clear that rapidly reducing carbon emissions from the way we generate energy was central to any strategy to avoid the worse impacts of climate change, recommending in particular a tripling to a quadrupling of low-carbon energy sources globally by 2050.

As a country that imports almost half of its food and invests in infrastructure globally on a significant scale through the City of London, the UK is clearly vulnerable to the impacts of climate change beyond its own borders and therefore has an interest in being at the forefront of global efforts to tackle climate change.

The UK's Climate Change Act and its individual carbon budgets, which have now been adopted in other countries such as Mexico, are important here, as they're essentially designed to help the UK cut its carbon emissions in the most cost-effective way possible by spreading effort over time. Delaying action to reduce emissions simply results in the UK having to build more infrastructure in a shorter period of time, which, as the CCC pointed out in its latest advice, could push up the cost of reducing our emissions by around £100bn in present value terms.

Beyond the need to tackle climate change, the ongoing events in the Ukraine have reminded us of the volatility that comes with an energy system that is excessively reliant on fossil fuels. The dominant theme in the UK media in recent weeks has predictably been the need to look for other sources of gas to minimise the UK's future reliance on Russian gas. However, this overlooks the fact that reducing the UK's dependence on fossil fuels is what will make the biggest difference to our energy security, not just for a few years, but for the long term. The best way to do this is to make a rapid transition towards an energy system that is both efficient and low-carbon, which is precisely what the Fourth Carbon Budget is set up to do.

Such a transition will of course not happen overnight. But it has already begun (renewables accounted for just under 15% of electricity generated in the UK in 2013) and its potential to improve the UK's energy security is huge. In its 10 year Annual Gas Statement in 2012, National Grid, the gas grid operator, found that meeting the UK's existing renewables and emissions targets would cut our gas consumption by around 40% by 2030 compared to 2010 levels, a figure that could increase to 50% under a more ambitious (but feasible) roll out of low-carbon technologies and efficiency infrastructure. This, by all accounts, is a genuine game changer for our energy security.

After years of Government divisions on climate and energy policy and with the Conservatives' mind boggling proposal, if elected in 2015, to effectively make it as hard as possible to develop onshore wind farms in the UK (a reliable technology that is rapidly going down in cost and is popular with a majority of Britons), a failure to rapidly adopt the Fourth Carbon Budget would also add to the prevailing climate of uncertainty in the low-carbon sector.

Putting aside the fact that increased political risk increases borrowing costs for energy projects and therefore consumer bills, this could result in a damaging missed opportunity for the UK economy. The UK's low-carbon and environmental goods sector has been one of best performing parts of the UK economy in recent years (it generated sales of £128bn in 2011/12) and offers significant potential to continue growing, as we were reminded just a few weeks ago with Siemens' announcement to build an offshore wind turbine factory in Hull, which is expected to employ up to 1,000 people directly.

In a world where it can take up to ten years to develop major renewable energy projects and would be manufacturers want to have a minimum of clarity on long-term market conditions before deciding to invest in the UK, it is high time for the Government to show it is committed to moving towards a low-carbon economy well into the 2020s. It's worth remembering here that it took Siemens some four years to confirm their decision to invest in the UK, a sure sign that the climate of political uncertainty is slowing down investments.

The cost of moving towards a low-carbon energy system does raise some valid concerns for some energy intensive companies that need to be carefully addressed. But this should not overshadow the fact that the majority of the business world want this transition to happen, both internationally and in the UK, as evidenced by interventions in recent months by major businesses, the Aldersgate Group and the Prince of Wales Corporate Leaders' Group.

The Government deserves credit for taking some important decisions in a difficult political context, most notably by providing clarity on the financial support available to renewable energy projects out to 2019. But after years of political divisions on climate and energy policy and the Conservatives' latest proposal to make life as hard as possible for the cheapest form of renewable electricity, now is the time for the Government to show it has a long-term plan for the low-carbon sector. The Fourth Carbon Budget provides it with the opportunity to do just that.


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