The fifth carbon budget: expectation and ambition

Guest blog: Robert Ede, a consultant specialising in energy and environment at the Whitehouse Consultancy, discusses the importance and impact of the UK’s 5th carbon budget

This is an important month for UK energy and climate policy. Whilst everyone’s attention is rightly focused on the outcome of the EU Referendum and its implications, there is an important announcement expected after 23 June which will also prove pivotal in shaping the role of the UK in combatting climate change.

The fifth carbon budget

As outlined in the 2008 Climate Change Act, the government is required to legislate the level of the fifth carbon budget by the end of June. Carbon budgets set the acceptable level of emissions compared to a previous benchmark – in the UK’s case this is 1990 levels. The fifth edition will cover the period from 2028-2032 – effectively setting an end goal for our emissions reductions over the next fifteen years.

Why does it matter?

With such a long time-horizon, why does this budget matter now? There’s a number of reasons, but I have chosen to briefly outline two.

First and foremost, the fifth carbon budget can help send a strong investment signal to the City of London. Accounting for climate risk is now mainstream from financial institutions, and providing a strong regulatory timeframe ensures that investments in future technologies/energy sources are compatible with UK emission reductions scenarios. This has an added benefit in mitigating against the risk of ‘stranded assets’ – whereby investments are rendered effectively un-useable due to climate change. If 2016 is to be the ‘Year of Climate Finance’, as government ministers have stated, then adopting an ambitious budget will be an important first step.

Secondly, setting ambitious carbon budgets is important for giving the UK legitimacy on the global stage. We sometimes forget that the UK remains a major player in international climate negotiations, and this largely stems from having such a robust and ambitious piece of emissions legislation. Strong policy making creates precedent – serving an important purpose in holding other governments to account over their climate strategies. This was particularly apparent during COP21 where a “high ambition coalition” was established. The UK played an important role in signing up major polluters such as Brazil and Canada, and the coalition made a vital contribution to the eventual outcome. The fruition of this kind of diplomacy is already clear; a recent UNEP report found that investment in renewables was higher in developing economies than in developed countries last year. These countries have witnessed the benefits clean technology can provide, and are now able to roll out renewables at an impressive rate.

Competing pressures

A number of attempts have been made to ratchet up the political pressure on the government in advance of the announcement. Two groups of Conservative MPs have written to the Prime Minister on this issue – albeit from contrasting standpoints, with one group of twenty backbenchers calling on the government to fully accept the level recommend from the non-partisan Committee on Climate Change (CCC). Meanwhile, fifteen other MPs have requested for the announcement to be delayed until similar action had been agreed by other European states. But is the UK really that far ahead of its neighbours? Research indicates that far from being a lone decarbonisation advocate, the UK is in the middle of the pack when it comes to building a clean energy system.

The Way Ahead

What is clear is that, if adopted as recommended, meeting the new level will require a radical transformation of our energy use. Whilst current policies have been effective in boosting the proportion of electricity from renewable sources, research from the CCC highlights that the route to decarbonisation in other areas such as transport and heating is less apparent. Much of the low hanging fruit has been successful harvested – therefore the cross-departmental decarbonisation plan to be released by the government later in the year will be hugely important for outlining how momentum is to be maintained.

With the finance community due to descend on London for a Business & Climate Summit in the week immediately following the referendum, the end of June promises to be an significant period for the UK clean energy sector.