Written evidence from the Grantham Institute, Imperial College London (LEU0015)
Context
The UK has strong national target-setting legislation in the form of the Climate Change Act. This national framework is aligned with the EU’s policy framework and targets on mitigation, and in some respects goes beyond the EU targets, including through its comprehensive approach to climate change risk assessments and progress on adaptation policy.
The UK government is currently considering the policies needed to deliver the emissions reductions required for adherence to the greenhouse gas mitigation targets adopted in relation to the Climate Change Act. Some of the policies that deliver against these targets and strategies are linked to EU frameworks that the UK government helped develop and implement. It is these policies that need safeguarding, and even strengthening as a result of the negotiation and exit process.
The UK has made significant contributions to the EU’s agenda on climate change, often contributing to the level of ambition of the bloc in relation to mitigation, as well as sharing key knowledge and expertise on approaches related to adaptation. The UK government should aspire to continue to play an influential and cooperative role, in as much as is possible in the new paradigm.
Answers to specific questions in the Terms of Reference
The negotiation with the EU may require continued commitment from the UK to adhere to climate change targets with the bloc. It would make sense for the UK government to be willing to commit to its share of these targets, because the Climate Change Act already goes beyond these commitments. The UK may wish to retain the right to its own enforcement approach, which would enable the UK to go beyond the stipulations in the EU legislation.
The flexibility of electricity supply in the UK has been shown to significantly lower the costs of delivering a low-carbon electricity system in the UK. The scale of interconnection to non-UK EU member states may be significant, in a number of scenarios, to achieve the most cost-effective, low-carbon system. The status of interconnectors in the future should be an important priority in the negotiations, including the full range of issues from permitting through to ownership and operation.
Several other existing EU legislative standards may also impact the UK’s delivery of climate change goals, for example, biofuel and biomass sustainability provisions and waste legislation. The UK government will need to decide whether to continue to adhere to EU standards, to go beyond these standards in some instances, or to develop a different approach to legislating these potential sources of energy and greenhouse gas emissions. Negotiations with the EU should then take into account these positions. The UK has potential to go beyond the EU status quo on some standards, and these could be used as negotiation levers.
The UK was instrumental in setting up and developing the EU Emissions Trading System (EU ETS), which has been a vital tool in tackling greenhouse gas emissions in the power and industrial sectors. Our recent report has shown that the EU ETS has been effective, to some degree. in reducing greenhouse gas emissions in these sectors, however, there are still a number of challenges with the policy. Notably, the carbon price signal from the EU ETS has not been sufficient to stimulate new low-carbon generation, and the UK has already introduced a carbon floor price for the power sector to strengthen the carbon price signal.
The EU ETS was chosen as the policy tool for these sectors to produce the most cost-effective emission reduction mechanism for these sectors. It still remains the most cost-effective option, and participating in a trading group across a large number of installations maximises the ability to be cost-effective. Therefore, if reducing the cost of reaching greenhouse gas emission reductions is a priority, then the UK government should seek to remain part of the EU ETS. It is also notable that the UK is a net importer of allowances in the EU ETS at present, and therefore, should UK installations leave the EU ETS, but face the same level of stringency in terms of emissions reductions, it is likely that it would cost this sector more than at present.
In addition, recent research at Imperial (awaiting publication) tests the vulnerability of jobs in the heavy industry and power sectors in relation to differentiated energy prices within Europe, as well as between Europe and countries outside Europe. This research shows that price differences within Europe can have a much more significant impact on job losses than price differences between European countries and non-EU countries. This research points to the value of maintaining price signals between the UK and other European countries and would argue in favour of remaining within the EU ETS, a well as within other EU electricity market structures.
If the UK wishes to the leave the EU ETS, it is important to establish how this separation could work and the alternatives. With the current strict Monitoring, Reporting and Verification (MRV) rules, it would be possible to calculate the contribution of UK-based installations and use this information to develop a new policy framework. However, this change would require a renegotiation of targets amongst non-UK EU member states to understand how large should be the reduced-sized ETS bubble.
Prior to the introduction of the EU ETS, the UK tested a number of policies for the power and industrial sector. These policies included the climate change levy, with associated voluntary climate change agreements, the UK emissions trading scheme and a number of energy efficiency support mechanisms for businesses amongst others. The UK could consider returning to one or several of these policies, or could consider continuing to run the EU ETS but in a UK-only bubble. A departure from the EU ETS could be a moment to push for more significant and rapid emissions reductions from these sectors e.g. through emissions performance standards in the power sector, and through a combination of taxes and supporting subsidies (e.g. CCL + support) in the manufacturing sector. These policies would need to be assessed to understand the environmental, economic, and other benefits of these choices would be over the status quo.
However, if the UK remains a part of the EU ETS, it is important that the UK retains the right to play a role in decision-making about the future of the EU ETS, including detailed elements of policy design.
Without answering this question in a comprehensive manner, we would like to highlight a few areas of key importance.
The wholescale adoption of the EU’s standards on energy efficiency for appliances and related legislation on standards for emissions from vehicles as well as large combustion plants is important. These standards provide an important baseline for strong environmental performance, but often also contribute to safeguarding health.
It is important to note that reducing standards for products, vehicles etc. may have a negative impact on the UK’s ability to act as an innovation engine for low-carbon technologies (see additional answer below). Any lowering of standards may also result in the UK becoming a dumping ground for lower quality products that can’t be sold in other markets. Anecdotal information from other markets (e.g. California within the wider US) indicates that British manufacturers are likely to stick to higher standards anyway, to continue to serve the wider EU market. Therefore, keeping regulation in place keeps UK standards high, contributes to our climate change goals and does not put undue additional pressure on industry.
The EU has recently released drafts of a new EU energy package. The UK should remain actively involved in negotiating the details of this agreement, whilst considering whether or not to participate fully in the package. If the UK does not wish to participate fully, several elements of the package should be treated by UK law anyway including e.g. emissions limits for electricity generators receiving capacity payments, energy efficiency targets and related legislation, biomass sustainability etc.
The UK must continue to be a credible partner in relation to low-carbon innovation. This credibility relies on the government’s commitment to take the lead, bringing the private sector with them, to promote this sector and its development. Retaining high standards in relation to low-carbon products and services and other low carbon policy signals, as outlined above, will help to continue to stimulate innovation at the R&D stage and in commercialisation.
Support for demonstration of new technology and early deployment will also be important to help get nascent innovations off the ground and support the route to commercialisation. Larger demonstrations of technologies like smart grids and carbon capture, use and storage can also help innovators to take the next step towards success, and export potential.
In terms of co-operation with international partners, the UK should continue to develop close relationships with non-UK European partners, as our closest markets, including government parties, financiers, private sector businesses. Ideally, the UK should retain the right to participate in central EU-funded organisations like the Climate Knowledge and Innovation Centre (Climate KIC) and EU R&D collaborations e.g. H2020. The government should ensure a joined-up approach so that the FCO works effectively with UKTI and BEIS to represent the UK’s capabilities to other partners around the world. This joined-up approach could require different structures across the existing network of Embassies and other engagements.
The UK also has the potential to act as innovators in terms of financing low-carbon technologies and the transition to a lower carbon economy. The government should ensure that legislation supports appropriate innovation in the financial sector and represents this type of service, alongside the professional services and manufacturing sectors.
New agreements on movement of people need to be flexible enough to encourage academics and business people at all stages in the innovation chain to work in the UK – this element will be key to retaining leadership.
References:
UK Climate Change Act 2008
http://www.legislation.gov.uk/ukpga/2008/27/contents
Meeting Carbon Budgets, the Implications of Brexit for UK Climate Policy
Climate Change Committee, October 2016
EU proposed clean energy legislative package
European Commission, 30 November 2016
Smart Power: A national infrastructure commission report (and related supporting analysis by Professor Strbac)
March 2016
https://www.gov.uk/government/publications/smart-power-a-national-infrastructure-commission-report
Evaluating the EU Emissions Trading System - Take it or leave it? An assessment of the data after ten years - Grantham Briefing Paper 21
Mirabelle Muûls, Jonathan Colmer, Ralf Martin, Ulrich J. Wagner, October 2016
Professors Jo Haigh and Martin Siegert, Co-Directors
| Alyssa Gilbert
Head of Policy and Translation
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16 December 2016