Where should carbon reduction feature in the UK’s industrial strategy?

31 October 2016

In December 2015, over 190 countries reached a deal on the Paris Agreement, an ambitious goal to limit and reduce GHG emissions over the coming decades. On 5 October 2016, the double threshold for the Paris Agreement to enter into force (at least 55 countries and at least 55% of global emissions) was met.

However the UK was not one of the countries which helped cross these thresholds. Where does this leave the new government’s climate change agenda?

The delay in ratification is unexpected for a country that has been a climate leader for many years. For instance, the UK was the first to legislate action on climate change through the 2008 Climate Change Act, and set carbon budgets which have been emulated elsewhere in the world.

The UK has also been successful in meeting these budgets so far, the first (2008 – 2012) partly as a result of the global financial crisis, but subsequently the second and third budgets are also likely to be met through targeted action on coal power generation and subsidies to renewables such as wind and solar.

As a result, coal use have fallen significantly in the last few years, and for the third year running the UK stayed at the top three of PwC’s Low Carbon Economy Index. This means it is decarbonising faster than other major economies. In 2015, coal makes up around 12.2% of the UK energy mix. Renewables generation continued to rise and has now reached 9.1% of the energy mix. This compares to only two years ago when coal’s share of the energy mix was more than three times that of renewables.

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The UK has shown that progressive policies can make a dent on reducing carbon emissions. However compared against the targets the UK has set itself, these policies look likely to be insufficient to meet future targets. The independent watchdog - the Committee of Climate Change - has warned that current UK progress has been restricted largely to the power sector, while action in other sectors such as heat, industry and transport has been minimal.

Although coal is an obvious target, the complete replacement of coal-fired generation with low-carbon alternatives would still only provide less than half of the total emissions reduction required by 2030. The fourth and fifth carbon budgets are therefore at risk of being missed unless substantial progress is made on the introduction of new policies which tackle carbon reduction in other parts of the economy.

Indeed, many existing studies on ‘low carbon transitions’ place their emphasis on the decarbonisation of power generation and the electrification of passenger cars, but pay less attention to heavy duty vehicles, other parts of the transport system and industrial processes. But these areas all need to come rapidly into focus for the UK to sustain its low carbon trajectory.

And as far as the Paris Agreement is concerned, despite being a strong advocate the UK has yet not come forward to ratify it. This might have been caught up in the merger of DECC and BIS into the newly formed Department of Business, Energy and Industrial Strategy.

Although this is a bit of a missed opportunity to demonstrate UK leadership in this area, the bigger and more important issue for the UK is how to extend its carbon reduction policies to other sectors, and in a way that is as aggressive as its actions thus far on coal.

From this perspective, decoupling climate change from energy and subsuming it under ‘business’ and ‘industrial strategy’ may prove to be a step in the right direction.

 

Nick C Jones | Director of PwC's Public Sector Research Centre
Profile | Email | +44 (0) 207 213 1593

 

Lit Ping Low | Assistant Director
Profile | Email | +44 (0) 207 804 0345

 

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