Do we need a 2030 decarbonisation target for the electricity sector?
Matthew Lockwood, IGov Team, February 5th 2013
It’s widely expected that the electricity sector will lead the transition to a low carbon economy in the UK. Producing about 40% of our carbon emissions, electricity generation plays a central role in determining our overall emissions performance. That is why the Committee on Climate Change (CCC) said in 2011 that they thought it should be emitting around 50 grams of CO2 for every kWh of power produced by 2030, compared with over 440gCO2/kWh in 2011. Not decarbonising electricity a lot early on means we’d be seriously off track for reaching the 2050 target of total emissions reduction by 80% from 1990 levels, and abatement from other sectors would be much more expensive and difficult.
The 2030 milestone became the focus for debate during last year’s tussles over the role of gas in the power sector. In the face of uncertainty about exactly what DECC and Treasury were saying about the future role of gas, calls for a 2030 decarbonisation target for the sector came from, amongst others, the Chair of the CCC, seven of the big power engineering firms, and a range of other businesses and environmental groups. Despite not making it into the draft Energy Bill in September, the target has refused to go away and may be about to rise again in a Parliamentary rebellion by dissident Lib Dem and even Tory MPs. Rumours are circulating that ex-ministers Chris Huhne and Charles Hendry will support a 2030 target, and that while not a done deal, the revolt “has legs”.
The issue of whether we need a sector-specific target for electricity, and why, opens up some important questions about the politics of climate policy in the UK, and in particular the role of and future of the Climate Change Act.
In principle, we shouldn’t really need a 2030 target for electricity. The fourth carbon budget mandated by the Act, covering 2023-2027, should provide the strategic direction that will give certainty to investors. It’s hard to see how one could meet the fourth budget without making serious progress towards 50gCO2/kWh. However, the reality is that the fourth budget was only agreed after a major political battle in 2011, and the Chancellor insisted on a review in 2014, which has of course created the perception of considerable political risk amongst potential investors in low-carbon electricity generation. That is why many, including Rob Gross of Imperial College, Will Straw of the Institute of Public Policy Research and Baroness Bryony Worthington (one of the original architects of the Climate Change Act) argue that you do need a sector specific target to create certainty for investors, especially for firms in the supply chain making decisions about whether to locate factories in the UK, for example to produce turbines for off-shore wind. A target would also help remove the confusion and uncertainty about the role of gas in electricity generation.
My view is that a 2030 target in the Energy Bill may be useful, but I would make two qualifications. One is that while targets can be helpful to reduce political risk, actual investments in specific projects need greater policy detail, like, for example, what will the strike price be for biomass or off-shore wind on the contract-for -difference? In this sense, getting the electricity market reform process finished in as sensible a way as possible might be more useful for unblocking the current investment freeze than a medium term target.
But the second query in my mind is why a 2030 target for electricity in an Energy Act should create any greater political certainty than a carbon budget mandated under the Climate Change Act. My argument here is based on a new working paper available on the IGov website. The underlying problem is not a lack of targets, but rather that our existing targets have not yet created a self-reinforcing political dynamic. Successful policy changes create new constituencies, new vested interests and rewrite what is and is not politically acceptable. Think of the creation of the NHS in the 1940s, which immediately benefitted huge numbers of people previously excluded from health insurance and a large new constituency of health workers with an interest in maintaining the system. Its establishment very quickly became irreversible, and for the post-war period it has been politically unimaginable to dismantle the NHS.
In the case of building a low-carbon economy, sustainable policy change is likely to come through the creation of new vested interests with low carbon investments in energy and transport, through the creation of jobs visibly connected with the low carbon economy, and a sea change in the perception of what an acceptable way of generating and using energy is. There is a boot-straps quality to this kind of change; it is characterised by increasing returns to political change – hard to get going initially, but developing its own momentum and eventually reaching a point of no return.
Germany, whose Energiewende was conceived of from the beginning as a political project, seems to have reached this point, partly through investment in small scale wind and solar power by millions of individuals and farmers rather than big utilities, and partly by the deliberate fostering of jobs and industry in the supply chain. These outcomes were less the result of long term targets, and more the outcome of policies that made investment in specific technologies risk-free for investors of any size. It is interesting that the response to the nuclear crisis following Fukushima from many Länder, including some governed by the conservative CDU ones, is now to want to deepen and accelerate the growth of renewables.
However, none of this inevitable, and in the UK, decarbonisation is politically speaking, an unfinished revolution still at risk. The Climate Change Act was an attempt to lock the UK in to a low carbon future by legal means, but it has so far not produced enough of a political momentum to ensure that it will become irreversible. While a 2030 target might well help, ultimately we need policies that are not only right in terms of the environment and economics, but also make political sense. It is far from clear that we have learned this lesson yet.