Friday, 29 January 2021

Cost of Net Zero and Who Pays? HM Treasury Review: a possible market failure for some.


 

1 Summary

 

In the previous blog paper, dated August 2020, which presented the background to Net Zero, mention was made of the hurried nature at which Net Zero legislation was enacted together with the absence of any cost-benefit analysis before being passed by Parliament in July 2019.   The paper did, however, go on to say HM Treasury planned to issue a retrospective report on the cost of Net Zero in Autumn 2020, and that has now happened.  

 

However, when HM Treasury published their report[i] on the 17 December 2020 it turned out not to be the expected final report, but instead an interim report laying out the background and remit, and inviting stakeholder feedback during January 2021. 

 

December 2020 also saw other Net Zero activity from a range of actors: the Committee on Climate Change (CCC) published the Sixth Climate Budget[ii] on the 9 December while Ofgem launched the Greener, Fairer, Energy Future strategy[iii] on the 15 December.  Finally HM Government published the Energy white paper[iv]a day earlier  – setting out their 10-point plan to achieve Net Zero.

 

There has been, therefore, a huge amount of strategy, in the form of paperwork, issued recently on the subject of Net Zero.  Aspirational no doubt, but still paperwork at this stage – all driven by the CCC’s 2019 report[v] to parliament, with the exhortation that while government policy actions fell well short of meeting the fourth (2023-27) and fifth (2028-32) carbon budgets set under the previous Climate Change Act 2008 the time was now right to achieve Net Zero, and for the same cost.  It is hoped the upcoming HM Treasury final review will therefore determine the accuracy of this claim and identify the parties on whom the costs will fall.

 

This discussion paper forms part of a stakeholder submission made to HM Treasury. In doing so it identifies the issue of vulnerability in certain societies in Scotland and potentially elsewhere in the UK.  Concerns for how HM Treasury will arrive at an accurate cost figure are raised and the question of how various market failures[vi] may present to vulnerable communities as Net Zero progresses is discussed.  Finally, conclusions are presented along with a set of recommendations, which it is hoped HM Treasury will take account of in their final report.  

 

2 Introduction

 

Within the last decade some areas of Scotland, especially rural areas, have experienced at first hand examples of market failure arising from negative externalities.[vii]  Reference here is made to the construction of new overhead line transmission infrastructure to carry large quantities of green electricity from onshore wind generation from low densely populated  rural areas to highly populated urban areas, many in England, where demand exists[viii] [ix].

 

This type of market failure, for those transmission infrastructure projects already built,  has imposed a cost on these rural communities even though they were  uninvolved with the initial transaction and which, in almost every case, they strongly opposed.  These costs, many non-material[x], but which tend to affect human well-being, include, but are not limited to:  the loss of ‘sense of place;’ the irreparable loss of historical and cultural history; impairment of visual amenity and a rise in net outward migration with a resultant increase in population age profile. 

 

Using more conventional economic valuation frameworks that have tangible values and which neglect the social, cultural and political contexts of resources and their use, mentioned above, include: negative impact on tourism, reduced value of housing stock and additional demands for health care from a fall in well-being.  

 

It is ironic, therefore, that onshore windfarm developers and those financing such schemes should financially benefit from public subsidy in such circumstances while monopolistic transmission operators who, by law, must provide network connections to such developers, also gain by increasing the net book value of their company from the addition of more and more transmission assets, which, while regulated by Ofgem, is paid for by the consumer.  

 

It would be remiss not to mention that it is perhaps further ironic that within one rural area of Scotland, Dumfries & Galloway, there is a growing groundswell of public and private opinion that the area, boasting beautiful lowland scenery and which once had a vibrant agricultural sector, and several substantial manufacturing industries, would benefit from a transformation by the creation of a radical public good[xi], namely National Park designation: Scotland’s third National Park.

 

In parts of Scotland, therefore, and in Dumfries and Galloway in particular, there exists a fine balance between the preservation of a public good – in this case the natural assets of the region and the creation of a further public good by the creation of a National Park to preserve, enhance and exploit the value of these assets for the benefit of society, weighed against the negative externality, which seeks – not deliberately, but inevitably, to destroy, degrade, erode, or reduce the value of the natural assets, or public good.

 

This is not an equitable exchange, and unlike England where planning law is balanced more in favour of the views of the community, Scotland, on the other hand, is at a different point on the Environmental Kuznets Curve[xii], and if this hypothesis holds true then Scotland, with its weaker economic position, is not yet in a position to enact the same level of environmental protection as the rest of the UK.  Hence, market failure appears to be an inherent part of Scottish Government policy at this point in time.  

 

Consequently, in Scotland, and particularly in rural areas, there already exists a tension between government  and communities beyond that of the rest of the UK, and without careful thought the ultimate route governments choose towards reaching Net Zero could further increase this tension.  It is hoped, therefore, that HM Treasury will not only take account of the impact of Net Zero on poor households, but also reflect specifically on the consequences of market failure on communities living in rural areas when considering where the costs of Net Zero might fall.  

 

2 Difficulty of arriving at an accurate economic evaluation of Net Zero

 

When the UN International Panel on Climate Change produced their Special Report[xiii] of 2018 on limiting any global average temperature rise to less than 2 Celsius, and hopefully closer to 1.5 Celsius, it was possible, working with ratio variables and drawing upon data going back millions of years - using ice-core samples, to utilise finely honed computer models to predict, within statistical levels of confidence, likely outcomes or trajectories needed to meet this requirement.  Thus, they were able to state with a high level of precision, based on probability theory, whether this target could be met and with the use of confidence intervals - the degree to which it could be met.

 

When Stern[xiv] produced his landmark report in 2008 on the economics of climate change he was not working with ratio variables, nor did he have the benefit of large amounts of historical data to draw upon.  Furthermore, and as was aptly demonstrated during the global financial crash of 2007, dynamic stochastic economic equilibrium models available at that time failed to take account of all the necessary components to adequately assess the policy being tested.  It has to be concluded, therefore, that Stern’s estimate of between 1% and 2% of global GDP needed each year to mitigate the impact of human induced climate change remains just that – an estimate.  An estimate without any attached level of scientific precision.

 

In light of these comments it is surprising that the Committee on Climate Change (CCC), in their 2019 report to Government, still held to the 1% to 2%  of GDP estimate even for the more challenging target of the UK achieving Net Zero by 2050.  However, they based their optimistic assertion on advances in technology and economies of scale and while this may be the case for offshore wind, where costs have fallen significantly through scale, the same cannot be said for technology development.  Carbon capture and storage, for example, while under discussion for several years, still remains at a research stage.  

 

The CCC’s optimism rose even further in their 6th Climate Budget of December 2020 in which they claim the cost will now fall to 1%, or less, of GDP[xv] – a figure that aligns with Stern’s first estimate in 2006.  The CCC go further in this case: they claim now that most of this cost will be met by the private sector, which, while welcome news for government means inevitably that the consumer will be left to pick up the cost.

 

So, set against all this background of optimism and the relatively low level of financial commitment the UK Government published their Energy White Paper in 2010 and HM Treasury was tasked with considering how the transition to Net Zero will be funded and assessing options for where costs will fall. 

 

There is a danger that this analysis by HM Treasury, the first of its kind by any finance ministry, will come to be viewed and cited in the coming years as gospel, as the truth, as beyond question and doubt when,  all the while, the foundations on which the analysis is laid is no more than an estimate: the best estimate the CCC can provide perhaps, but an estimate nevertheless. An estimate similar to that of National Grid’s Future Energy Scenario – based on word models, with the most likely being awarded that title by a range of stakeholders, some with a vested interest.

 

Where this type of estimation fails, unlike that from the IPCC, is in its ability to cater for uncertainty or to deal with unpredictable, or random events.  In the latter case, and even with the best intelligence, the US Government failed to prevent the attack on the World Trade Centre in 2001, while in 2007 governments universally failed to predict the financial crash and in 2019 governments failed to predict the coronavirus pandemic, with many even failing to prepare for such an eventuality.  It seems almost a given that events such as these, that appear to happen all too often, reinforce Taleb’s[xvi] assertion that ‘unassailable beliefs seem to be completely confirmed by empirical evidence.’

 

In the case of uncertainty, therefore, it seems reasonable to question the extent to which the CCC can be sure, working with categorical variables and little or no historical data, what the UK energy needs and outlook might look like – projecting forward some 30 years – in order to meet Net Zero.  Government’s change, as does their policy.  Net Zero, and the hoped-for universal uptake may not materialise at COP26 later this year – if it goes ahead due to Covid-19.  Push-back by organisations connected to or associated with the fossil-fuel industry, or farming, may bring other pressures and interests to the fore and thus slow down implementation of low-carbon policies.  

 

There is also the question of human behaviour: something all too familiar during the recent pandemic, where if behaviour was rational, and the rules followed, the rate of virus transmission would by now have fallen to close to zero.  Behaviour is irrational[xvii], however!  Does anyone know with confidence how the public will react?   To what degree will they comply with or reject Net Zero, especially when they realise there is a price to pay and that it is not simply a public good, and they can no longer be a ‘free rider’[xviii]?  

 

How will the public respond when low-cost airlines are forced to increase prices and annual holidays in Spain, for example, become unaffordable, or when meat becomes more expensive[xix]?  How will motorists, especially those already driving electric vehicles (EV’s), react when, come 2030 onwards, the Chancellor seeks to recover the almost £40bn lost tax take in Fuel Duty and VAT on petrol/diesel[xx], and Vehicle Tax.  The present claim that EV’s are  cheaper to run than petrol/diesel cars may well evaporate if these lost taxes are replaced by a consumption (mileage) tax and/or by a premium on electricity[xxi] for charging EV’s?

 

HM Treasury needs to take a holistic approach with this analysis.  While there are clear aspirations for moving to Net Zero, as set out in the Energy White Paper, at present these aspirations only encompass territorial[xxii]emissions and they ignore consumption emissions, or ‘leakage.’  The fact that so much leakage due to UK imports results in higher equivalent levels of carbon dioxide emissions from developing countries - such as India and China: considered a negative externality, but not accounted by HM Treasury’s analysis, will be seen as a major omission when viewed in the round, at some future time.

 

HM Treasury should not overlook either, that there are other unaccounted for negative externalities arising in developing economies from the ambitions of developed countries to achieve Net Zero.  These take many forms, but prevalent amongst them is environmental pollution, social upheaval, child/slave labour and even civil unrest.   Satisfying the future needs of transport users, in the form of electric vehicles, is high on this list of culprits: from the mining of rare-earth metals used for electric vehicle drive motors to extracting cobalt and lithium salts for Li-ion batteries, for example.

 

HM Treasury should carefully consider how uncertainty and the inevitability of random events occurring over these next three decades or so might impact on the funding needed for Net Zero.  This form of dynamic market failure is also compounded by the complexity and heterogeneity of human behaviour, which will play a significant part in determining the effectiveness of any funding in achieving the overall objective, and, it should  not be overlooked that it was human behaviour that first led to anthropogenic climate change following the Industrial Revolution.

 

It is also recommended that HM Treasury reflect on the fact that while Net Zero will come at a price, it should not simply be the price the UK pays – it should also recognise the internalised social and environmental negative externality costs paid by (usually) poorer nations to help the UK satisfy its aims.  

 

 

3 Net Zero and the likely impact on Rural Communities 

 

In supporting any transition to Net Zero it is hoped that government policy, supported by  HM Treasury’s analysis, will target the various market failures that are identified below.  As part of this process, and by means of this discussion paper several forms of potential market failure are identified  as arising in rural communities in Scotland, and possibly elsewhere in the UK. 

 

Indeed, from what has been said earlier in this paper, rural communities are already expected to internalise the cost of negative externalities arising from more and more onshore windfarm development and the consequent need for transmission/distribution infrastructure to convey this excess energy to areas of the UK where demand exists.  

 

What follows, therefore, are examples of where further negative externalities are likely to arise in the rural and remote rural communities across Scotland, comprising roughly of a fifth of the population (approximately 1 million), due to a combination of the Scottish Government setting more demanding targets than the rest of the UK combined with the particular geography and demographics of the region. 

 

To aid the discussion these potential market failure are identified by sector:

 

Transport

 

In large areas of rural Scotland public transport is woefully inadequate[xxiii].  Consequently, in order to participate in further education, gainful employment or simply for social and pleasure activity access to private transport is a necessity, and not a luxury.  Furthermore, because of the terrain and the geographic location of these rural settings in relation to nearby towns the distance travelled is usually greater than for urban counterparts. 

 

Educational attainment in rural areas, and here reference is made specifically to Dumfries & Galloway[xxiv], tends to be lower than for Scotland as a whole.  Unemployment and low wages are reflected in these rural societies[xxv], as is the prevalence to rent homes, along with fuel poverty[xxvi].  

 

Many of these communities are therefore considerably vulnerable and that introduces the opportunity for static non-price failures arising from information failure[xxvii]: the inability to understand, to appreciate and to make sensible, rational choices in relation to a transition to electric vehicle transport.  This form of market failure, in these rural societies, applies equally to choices relating to heating and power.

 

The transition to EV’s, for new car sales from 2030 in Scotland, presents other market failure options.  Range anxiety[xxviii] is one, resulting in multiple equilibria: due to limited battery life, the longer distances travelled and from the limited density, and frequency of charging points.  For many motorists in rural Scotland this aspect will determine the point at which a switch to EV’s is made.

 

The high cost of EV’s, especially before economies of scale kick-in, will present liquidity constraints[xxix] for those low wage earners living in rural areas.  For these, and many others living in these areas, inertia and bounded rationality[xxx] will play a significant part in the choice of private transport.  The internal combustion engine is well understood and relatively easy and cheap to fix.  By comparison, EV’s appear complex, sophisticated and expensive to fix – with a replacement battery pack costing many £’000.   For a large percentage of those living in such areas it is likely that petrol and diesel engine cars will remain the vehicle of choice for years to come, and this will no doubt help stimulate the 2nd hand car market post 2030. 

 

The as yet unknown policy for what will replace Fuel Duty and the associated VAT on petrol, and diesel vehicles, currently worth around £25bn annually to the Exchequer, adds to the informational market failure.  For rural motorists, the alternative of a road pricing scheme, as reported  in the press, and which may kick-in above a certain mileage, could further penalise rural motorists in relation to urban motorists, due to their higher average mileage.  The present Fuel Duty, on the other hand, at least presents a level playing field.

 

Heating

 

Much of the housing stock in Scotland is old and built without heat energy conservation in mind[xxxi].  Indeed, those built from stone and lime mortar – which is typical of rural properties, are intended to ‘breathe’ as lime is a vapour permeable medium and if insulation is applied to walls, particularly to exterior walls, then dampness problems can ensue[xxxii].  Consequently these traditional built houses can require 2-3 times the heat energy of modern equivalents.  These properties are also off the gas-grid and, therefore, heated from a variety of sources such as: coal, peat, oil, wood, LPG, electricity or biomass.  A significant proportion are occupied by tenants[xxxiii].  

 

In this context market failures are already an intrinsic part of rural life and arise from a combination of information failure, liquidity constraints, and uncertainty and risk taking[xxxiv] – with the latter due to the above forms of heating, with the exception of electricity, suffering from a lack of oversight and regulation of what is an oligopolistic market[xxxv].

 

As part of Net Zero, and for rural properties in Scotland, a move away from fossil fuel heating to electricity would eliminate this dynamic failure and provide a greater degree of certainty, but other forms of failure persist.  Information failure, for example: would switching to electricity be cheaper than oil? Will air source heat pumps increase electricity bills, and to what extent?  Will existing radiators need to be changed?  These are just a small part of the unknown questions for most people in this situation.  

 

Given the large proportion of rented properties in rural Scotland split incentives[xxxvi] pose another problem for Net zero.  How will the landlord recover the capital outlay?  Are tenants prepared to pay more rent for the privilege of eliminating fossil fuel?  And, as far as home owners are concerned: liquidity constraints – what will it cost to change to green energy for heating?  Where will the capital come from?  What is the rate of interest on borrowing and how long will it take to pay back? Not forgetting, what else could the money be better spent on?

 

Power

 

Beyond the present negative externality arising in rural communities from onshore wind, giving rise to: loss of place, the loss of historic and cultural heritage etc., previously mentioned, many rural communities in Scotland will question the ethics of further expansion of onshore wind to satisfy Net Zero because of information failures.  For instance, developers continue to encourage residents and local authorities to support onshore wind by stating that it is the lowest marginal cost producer of electricity.  It seems a reasonable question for rural communities to ask, having already internalised this negative externality, that with over 10GW of onshore wind presently operating in Scotland - displacing more expensive and environmentally unfriendly oil and coal-fired power stations, why do electricity prices continue to rise?  And, if  further expansion of onshore wind takes place will electricity prices rise still further.  This question  appears to avoid answers.

 

Some rural communities in Scotland experience additional forms of information failure that could restrict progress towards Net Zero.  These include poor mobile reception that precludes the use of Smart Meters and thereby limits the availability information on when and how energy is being consumed within homes.  In future it will also constrain the use of agile tariffs as energy distribution companies transition their role in facilitating Net Zero.  

 

This same market failure can exacerbate fuel poverty, especially among older rural residents where, because of a number of factors, such as: lack of IT skills and computer literacy, or even the availability of a broadband connection, many of these older residents are unaware of the range of different tariff options and energy suppliers each year as their contract comes up for renewal.

 

4 Conclusions

 

The cost associated with achieving Net Zero will be felt by all consumers of energy, and in all sectors, to a greater of lesser extent.  It is possible the cumulative cost may exceed the immediate benefit to society, but the alternative socio-economic cost associated with a lack of action – of failing to reach Net Zero, will likely be greater in the longer term.

If the costs attributed to delivering Net Zero fail to account for uncertainty as well as those additional costs arising with negative externalities from consumption emissions then there is a likelihood that any figure reached will be both inaccurate as well as a understatement of the true cost of Net Zero. 

 

The rate of progress towards reaching the goal of Net Zero, almost independent of cost, will likely be influenced by the extent to which human behaviour aligns with government regulation and policy intervention.

 

This discussion paper seeks, in particular, to contextualise the concerns of rural residents of Scotland in moving towards Net Zero.  It outlines their unique vulnerability – exacerbated by existing market failures, as well as those expected to arise with the implementation of Net Zero, and hence it attempts to capture the present challenges as well as the special needs of rural residents in helping meet this goal, going forward.  In this regard rural communities are not equitable with their urban counterparts in so far as they have less resilience and hence greater vulnerability to the challenges and demands a move to Net Zero will bring.

 

5 Recommendations

 

5.1 The HM Treasury analysis will provide a landmark judgement for the rest of the world, not just the UK, on the cost of mitigation measures to achieve Net Zero.   In some respects, and in pure economic terms, it hardly matters if the analysis finds the estimated cost figure of 1% or 2% of GDP if, as Stern suggests, the cost of inaction lies between 5% and 20% of global GDP each year.  What is perhaps more important in this analysis, and where attention should focus, is where these costs will fall - and on whom.

 

5.2 History will decide the veracity of this assessment and how effective its conclusions are in bringing about change to meet Net Zero.  To this end HM Treasury needs to qualify and quantify uncertainty and the potential impact of random events.  The irrational effects of human behaviour also needs to be accounted for.

 

5.3 Net Zero comes at a cost to the UK.  But, if no more than from an ethical perspective, this HM Treasury assessment should also seek to identify the overall internalised cost of negative externalities paid for by developing countries in assisting the UK meet Net Zero.

 

5.4  Rural communities in Scotland are a special case and should be considered alongside poorer households, and treated accordingly.

 

These concerns, if left unaddressed by HM Treasury in their final economic analysis, will severely disadvantage large numbers of people in Scotland, and potentially elsewhere in the UK.  Expressed another way, HM Treasury should not fall into the trap of assuming that everyone lives in towns and cities, is connected to the gas grid and typically drives no more than 10-20 miles each day.   

 



[i] HM Government (2020). HM Treasury Review - Net Zero Review publishes initial analysis of green transition. [Online]  https://www.gov.uk/government/news/net-zero-review-publishes-initial-analysis-of-green-transition

[ii] Committee on Climate Change (2020) Sixth Carbon Budget. [Online] https://www.theccc.org.uk/publication/sixth-carbon-budget/

[iii] Ofgem (2020) Ofgem’s strategy to deliver a greener, fairer future. [Online] https://www.ofgem.gov.uk/news-blog/our-blog/ofgem-s-strategy-deliver-greener-fairer-future

[iv] UK Government (2020)  Energy white paper: powering our net zero future. [Online] https://www.gov.uk/government/publications/energy-white-paper-powering-our-net-zero-future

[v] CCC (2019) Reducing UK emissions – 2019 Progress Report to Parliament. [Online] https://www.theccc.org.uk/publication/reducing-uk-emissions-2019-progress-report-to-parliament/

[vi] Market failure is an economic situation defined by an inefficient distribution of goods and services in the free market. Deciding the right degree of government intervention is key to trying to mitigate a market failure, of which there are many causes – detailed in the various footnotes that follow.  For more information on the theory of market failures and social efficiency (where the marginal benefit to society of producing any given good or service exceeds the marginal cost to society then it is said to be socially efficient to produce more, and vice versa). For more information see – Sloman, J., Hinde, K. amd Garratt, D. (2010) Economics for Business. 5th Ed. Pearson Educational Ltd. Harlow.

[vii] A negative externality arises when the production or consumption of a good or service imposes a cost on a third party that is uninvolved with the initial transaction, imposing a larger cost on society as a whole than on the private actors.

[viii] Scottish Government (2020) Energy Statistics for Scotland Q1 2020 Figures: June 2020.  [Online] https://www.gov.scot/binaries/content/documents/govscot/publications/statistics/2018/10/quarterly-energy-statistics-bulletins/documents/energy-statistics-summary-june-2020/energy-statistics-summary-june-2020/govscot%3Adocument/Scotland%2BEnergy%2BStats%2BQ1%2B2020.pdf

These statistics show that in 2019 Scotland achieved, on average, 90.1% of electricity consumption from renewable sources – producing approximately 30.5TWh of electrical energy from renewables against a demand of almost 34.0TWh.  In 2018 the figure was 76.7% of demand from renewables.  In 2020, as a result of Covid and home working demand fell by 16% while renewable generation increased by 28% in Q1 2020, with 11.6TWh generated in this period due to increases in rainfall and wind speed.

[ix] WWF (2019) Scotland’s wind could power every home across Scotland and the North of England. [Online] https://www.wwf.org.uk/updates/scotlands-wind-could-power-every-home-across-scotland-and-north-england

This report, compiled from data from WeatherEnergy (http://www.weatherenergy.co.uk) illustrates that 

Over the period January 2019 to June 2019 Scotland’s wind turbines generated enough electricity to power 4,470,000 homes over that period, or almost twice the number of homes in Scotland.

[x] Thondhlana, G. and Murata, C. (2020) Non-material costs of wildlife conservation to local people and their implications for conservation interventions. Biological Conservation. Vol.246, June 2020, 108578.

[xi] A public good exists when  good or service is non-excludable and has no rival in consumption.  One provided, no one can be stopped from consuming it and its consumption by one person does not reduce the amount available to another person.

[xii] Dinda, S. (2004) Environmental Kuznets Curve Hypothesis: A Survey, Ecological Economics. Vol.49, pp.431-455. [Online] https://mimoza.marmara.edu.tr/~mtekce/Dinda_2004.pdf

[xiii] IPCC (2018) Special Report: Global Warming of 1.5 ºC[Online] https://www.ipcc.ch/sr15/

[xiv] Stern, N. (2008) The Economics of Climate Change. The American Economic Review. Vol.98.(2)pp.1-37. [Online] https://personal.lse.ac.uk/sternn/108NHS.pdf

[xv] During a CCC webinar on the 27 January 2021 discussing financing for Net Zero Baroness Brown of Cambridge, Vice Chair of the CCC stated that their latest estimate suggested the cost had fallen to around 0.5% of GDP.

[xvi] Taleb, N.N. (2008) The Black Swan. Penguin Books Ltd. London.

[xvii] Ariely, D. (2009) The End of Rational Economics.  Harvard Business Review. July-August 2009. [Online] https://hbr.org/2009/07/the-end-of-rational-economics

[xviii] The term, ‘free rider’ applies to those accessing a service they do not have to pay for.

[xix] Comment made during CCC webinar on the 9 December 2020 during which the panel members discussed the implications of Net Zero, saying that agriculture and people had a part to play in achieving Net Zero.  Meat production would need to fall as would meat consumption.  Less meat, but better quality meat was discussed.

[xx] Elliot, L. (2019) Electric cars: calls for tax on road usage to cover lost fuel revenues. The Guardian, Friday 4 October 2019. [Online] https://www.theguardian.com/environment/2019/oct/04/electric-cars-call-for-tax-on-road-usage-to-cover-lost-fuel-revenue

[xxi] Strathclyde University (undated) Electric Vehicle Paradigm Shift: EV electricity charging prices. [Online]  http://www.esru.strath.ac.uk/EandE/Web_sites/17-18/paradigmev/ev-electricity-charging-price.html

[xxii] Territorial and consumption based emissions are defined in the August blog on Net Zero.

[xxiv] SRUC (2014) Rural Scotland in Focus. SRUC Rural Policy Centre. [Online] https://www.sruc.ac.uk/info/120428/rural_scotland_in_focus/1265/2014_rural_scotland_in_focus_report

[xxv] Hill, C. and Clelland, D. (2019) Deprivation, policy and rurality: The limitations and applications of area-based deprivation indices in Scotland. Sage Journals. [Online] https://journals.sagepub.com/doi/10.1177/0269094219827893

 

[xxvi] Scottish Government (2016) Delivering affordable warmth in rural Scotland: action plan [Online] https://www.gov.scot/publications/action-plan-deliver-affordable-warmth-rural-scotland-proposed-scottish-rural/ In this report highlights that over half Scotland’s rural households are living in fuel poverty and this rises to 63% for those in remote rural areas, with 23% classed as extreme fuel poverty (over 20% of disposable income spent on total domestic energy usage). 

[xxvii] In this case, the lack of information and knowledge about the benefits of making energy efficiency improvements to transport choices for commercial or personal consumption may hold back decarbonisation decisions when there is a will to do so.

[xxviii] A market failure emanating from a dynamic failure known as multiple equilibria where there is a lack of communication between different actors in the market or an inability to coordinate actions across time that can lead to an outcome that leaves everyone worse off.  An example here is the concern for the lack of charging points in rural areas while firms will only instal more when they feel the demand exists.  If these actors were able to coordinate and communicate the supply and demand the market would produce a better outcome.

[xxix] Liquidity constraints occur where people are willing to make an investment that is cost saving but do not have access to capital to pay for it, and nor do they have the means to borrow money to fund the investment.

[xxx] This form of market failure, inertia or bounded rationality, occurs where people are satisfied with sub-optimal.  Incentives and information is available but do not translate into action because of bias towards the status quo.

[xxxi] Scottish Government (2018) Scottish house condition survey-2017. [Online] https://www.gov.scot/publications/scottish-house-condition-survey-2017-key-findings/pages/4/

This survey shows that 75% of  dwellings in Scotland were built before 1982 and hence lack minimum standards for energy efficiency and airtightness.

[xxxii] Scottish Lime Centre (2020) FAQ: Why shouldn’t I use cement. [Online] https://www.scotlime.org/en/faqs/

[xxxiii] Scottish Government (2018) Housing Statistics: Stock by Tenure. [Online] https://www.gov.scot/publications/housing-statistics-stock-by-tenure/

Shows 34% of dwellings in Dumfries & Galloway are rented, either privately or from housing associations while for Scotland as a whole the rental figure is 37.1% - including those rented from local authorities.

[xxxiv] This form of market failure arises due to the uncertainty about future risks.

[xxxv]  An oligopolistic market consists of a small number of firms, usually two or more, in which none can keep the others from having a significant influence.  Thus a few firms can dominate the market. 

[xxxvi] When one party bears the cost of purchasing a good while another party benefits.

Tuesday, 11 August 2020

Exploring the UK's Journey to Net Zero: is it all what it seems?

 Background to Net Zero

Dr Alan Jones

 

Introduction

Net zero has now been around for just over 12-months and yet in this short time this new Government target – its latest response to climate change – is being articulated within an increasing number of arenas and by an ever growing list of actors in the fields of energy, finance, environment, housing, transport, generation, distribution, and so on.

Campaign groups along with with Government signalling has raised awareness of this subject and net zero is now a term used freely and sometimes with gay abandon as the answer to why some action is required, indeed essential, that might otherwise not have been needed.  

On the energy side, for example, net zero is helping focus National Grid Energy System Operator’s forward thinking, as it is Ofgem’s.  This in turn influences the UK Transmission and Distribution companies plans over the next 30 years and beyond.  And renewable energy companies are close on their heels – with plans, for example, to build more and taller onshore wind turbines on almost every vantage point - especially in parts of Scotland.  

While business and commerce looks on net zero as an opportunity there is a danger that society looks on net zero with bewilderment, and by the time they do understand it may be too late to voice their thoughts and opinions.  This note attempts to make sense of this easy to pronounce, but rather complex topic. 

Responding to Climate Change

In June 2019, and in the last weeks of Theresa May’s premiership, the UK became the first major economy in the world to pass into law legislation by which to end its contribution to global warming: bringing greenhouse gas (GHG) emissions to net zero by 2050.[i]  Net zero, in this sense, refers to achieving a balance between the amount of GHG emissions produced and the amount removed from the atmosphere, with the balancing mechanism dependent on reducing existing emissions and the remainder being offset predominantly through carbon removal by natural sinks, such as forests.  When the amount of carbon emissions produced is cancelled out by the amount removed the UK will become a net zero emitter – something Dumfries & Galloway came close to achieving in 2013.[ii]

Prior to net zero the UK target had been to achieve an 80% reduction in GHG’s from 1990 levels by 2050 and here steady progress has been made over the years, especially by the energy sector, to the point where by 2018 UK GHG emissions stood at 57% of their 1990 levels.  Set against this progress, however, emissions from transport, heating and agriculture has remained largely unchanged to the point where the Committee on Climate Change (CCC), the UK’s independent climate advisory body, in its 2019 progress report, said the UK Government’s policy actions fell well short of those required for net zero: not being on track to meet the fourth (2023-27) and fifth (2028-32) carbon budgets set under the previous Climate Change Act 2008.[iii]  

It is important to view climate change mitigation and steps taken to reduce territorial GHG emissions in the round as this helps to put into context policy decisions and subsequent actions by the UK and devolved governments.  The most recent figures for GHG emissions – 2018, but published in 2020 – show UK total GHG territorial emissions at 451 MtCO2e with 366 MtCOof this figure arising from COalone.[iv]  By contrast, 2018 global GHG emissions stood at 51.8 GtCO2e - an increase of 2% on the previous year and larger than the annual growth over the previous six years of around 1.3%; driven mostly by higher COemissions from China, India and other developing nations.[v]  Worryingly, the rate of increase in global emissions for 2019 is projected to be the highest on record.[vi]

Putting UK emissions into context, therefore, the UK makes up less than 0.9% of GHG global emissions and this percentage is liable to reduce even further as major emitters continue to increase their consumption of fossil fuels.  Moreover, if the UK were to reduce GHG emissions to zero – which is clearly not possible as it would mean going back pre the 18th century industrial revolution period and beyond – global emissions would still continue to rise each year by 1% or more, ceteris paribus.[vii]  

This contextualisation, given that anthropogenic climate change resulting from the consumption of fossil fuels and other activities that release a range of  gases into the atmosphere (such as methane, nitrous oxide and fluorinated gases) begs the question, “why is the UK so keen to lead the world in reducing emissions when its present contribution is insignificant in relation to that of some other nations – where even if it is successful it will not reduce global GHG emissions; to the contrary there is every reason to believe emissions will continue to increase for some years to come?”  At first sight, and apart from perhaps an ethical/environmental viewpoint coupled with an element of  historical consciousness,[viii] it simply does not make sense.  

The Committee on Climate Change (CCC) add to this conundrum by claiming that while net zero is technically feasible it will be highly challenging: requiring sustained policy interventions across several sectors, many of which will be complex, time consuming and costly; citing a Department for Business, Energy and Industrial Strategy estimate of £1 trillion by 2050. [ix]  Using this line of reasoning the case for Scotland striving to achieve net zero by 2045 makes even less sense given that on a per capita basis Scotland’s territorial emissions account for a seemingly insignificant  0.07% of global GHG emissions[x] - while China at 26%, the world’s largest emitter,[xi] at the UN Framework Convention on Climate Change (UNFCCC) in Paris (COP21) in 2015 gave an indicative commitment based around achieving a CO2 peak by 2030 and making best efforts to peak early.[xii] [xiii]

George Osborne, perceptively perhaps, put matters into context when, as Chancellor, he picked up on the futility and danger of the UK racing ahead with emissions reduction at the 2011 Conservative Party Conference, saying: “… We’re not going to save the planet by putting our country out of business, so let’s at the very least resolve that we’re going to cut our carbon emissions no slower but also no faster than our fellow countries in Europe...”[xiv]  If more caution were needed, recent events - in the form of the coronavirus pandemic - may possibly disincentivise some nations at COP26 in 2021 from taking further action, at least in the short-term,  because globally emissions are expected to decline by 8% in 2020, or by almost 2.6GtCO2,  due of the effects of Covid-19.[xv]  Other commentators put the decline as high as 10%[xvi] and if this proves correct then almost at a stroke, and without the need for any proactive climate mitigation measures, annual global emissions will be set- back to levels last seen some 10 years ago. 

International negotiations on climate change result in outcomes from a highly political process arising from a clash between competing numerical aims, structural visions, and root conceptions of political imperative – all combined with personal and political dynamics.[xvii]  

Against the challenging background of Brexit, and especially Covid-19, will the international community come together as one and commit to embracing the UK lead in net zero during COP26 in 2021? 

Why Net Zero?

Having questioned the need for action on reducing the UK’s emissions at some length it is helpful, in order to provide a balanced view, to appreciate the antecedents for the ‘call to arms’ in setting a target of net zero.  

COP21, or the Paris Agreement of 2015, is regarded as the culmination of years of effort by the international community in bringing about a universal agreement on climate change – held annually, from Copenhagen in 2009 (COP 15) through to Lima in 2014(COP20).[xviii]  What COP21 achieved was the first legally binding global climate change agreement - the mitigation element of which is to limit global warming well below 20C and to pursue efforts to limit it to 1.50C above pre-industrial levels.[xix]  Details of what each of the close to 190 Parties to the Paris Agreement signed up to – called Nationally Determined Contributions - are maintained by the UNFCCC in what is termed, the NDC Register.[xx]

At the time of COP21 there was only limited knowledge about the implications of a level of 1.50C of warming for climate related risks and what this would mean in terms of the scale of mitigation ambition and feasibility.  Consequently, the Intergovernmental Panel on Climate Change (IPCC)[xxi] was invited to assess the impacts of global warming above pre-industrial levels and the related emissions pathways that would achieve this enhance global ambition.

In their report, the IPCC conclude that it is possible to limit mean global warming to 1.50C, but it will require unprecedented transitions in all aspects of society.[xxii]  What’s more, it could reach this level as early as 2030 if human induced emissions increase at the current rate.[xxiii] Furthermore, they also state, perhaps to sound a note of caution, that current national mitigation ambitions up until 2030, i.e. those set out in the NDC Register, are broadly consistent with cost-effective pathways that will result in a warming of about 30C by 2100. 

On a positive note, however, they do find the impacts from limiting global warming to 1.50C above pre-industrial levels relative to 20C lessens the severity and thereby the risks, as well as the adaption challenges associated with a range of environmental and societal factor, such as: droughts, temperature extremes, extreme weather events, precipitation and flooding, sea level rise, species loss and ecosystems, risks to health, water supply, food security, and so on.  

In examining the pathways by which to achieve this limit of 1.50C with no or limited overshoot several features emerge in the IPCC report to support the assertion of the need for unprecedented transitions in all aspects of society.  The challenge arises because, in order to curtail the stock of GHG’s in the atmosphere (the total carbon budget) associated with a 1.50C COrise, emissions need to be reduced to net zero globally around 2050 in conjunction with a COemissions peaking over a period between 2020-2030, depending on which pathway is chosen.  Carbon dioxide emissions then need to fall at a rate of around 2Gte COeach year from the deployment of a range of technologies – some yet to be developed, together with societal motivation and buy-in, economic convergence and international cooperation, along with contributions from agriculture, forestry and other land use.  Stern, in his landmark report, the Economics of Climate Change,[xxiv] estimated the cost of a less challenging target (consistent with a rise of around 20C) at around 1% of annual global GDP by 2050.  

At the current level of annual increase in global emissions is it feasible to contemplate a world where total emissions begin to reduce within the next decade?  

To achieve this goal international business, commerce and society will have to undergo unprecedented change, and yet recovery from Covid-19 suggests mankind prefers a ‘business as usual’ scenario.

Net Zero in the UK

The CCC report presented to the UK Government in 2019,[xxv] based on the IPCC Special Report of 2018,  recommended Government adopt a new emissions target: net zero greenhouse gases by 2050.  In support of this recommendation the CCC argued that current climate policy, an 80% reduction from 1990 levels, is insufficient to meet the Paris Agreement and therefore a more challenging target of net zero is required.   Furthermore, this target can be achieved for the same cost as the previous target, namely 1-2% of GDP in 2050 due to advances in technology and economies of scale.  

The CCC also state in their report that if replicated across the world and coupled  with ambitious near-term reductions in emissions such measures will deliver a greater than 50% chance of limiting any temperature increase to 1.50C.  However, they argue strongly that the UK has an obligation to be the first country to adopt this new target because it has a better capability than most to do so and, because many developing countries generate emissions in order to manufacture goods that are consumed by developed countries, such as the UK.  They invoke the ‘sins of the father’ argument,[xxvi] inferring the UK has an obligation to go beyond what is required for the world overall based on the UK’s large cumulative historical emissions of CO2: despite only making up 1% of global population some 2-3% of human-induced global warming to date has resulted from GHG emissions arising in the UK.

They acknowledge that these characteristics are often cited as reasons for developed countries to adopt tighter targets as their equitable contribution, as enshrined by the UNFCCC[xxvii].  The antithesis[xxviii] of this argument, however, questions the ethics of burdening present and future generations of these developed countries with paying the price for events that occurred post the Industrial Revolution (after 1750) and up until the late 20th century, over which they had no input or control.[xxix]  

Beyond this, the UNFCCC principle, of ‘polluter pays,’[xxx] is itself questionable in today’s age.  For instance, when the UNFCCC was set up in 1994 it may well have been the case that industrialised countries were the source of most passed and current GHG emissions, but today that no longer holds true.  Current GHG emissions are now dominated by several Non-Annex 1 countries;[xxxi] better described perhaps as ‘still-developing economies.’  For instance, China, and India - with 6.3% of global COemissions,[xxxii] fall into this category, and Russia (responsible for 4.9% of global COemissions) as an Annex 1 country, but with an economy in transition (EIT),[xxxiii] together account for over 1/3 of current[xxxiv] global COemissions.

It is useful, in order to develop this argument further and provide perspective, to extend this  discussion.  To facilitate this, Table 1 compares the factors[xxxv] that are considered ‘drivers’ of CO2 emissions – the ‘Kaya Identity.’  Table 1 illustrates, in the simplest means, how the proportional variation in the four COdriving  factors influence the proportional change in carbon dioxide emissions over the period 2000-2017, for China,[xxxvi] India, Russian Federation and the World, compared to that of the UK.

CO2 Driving Factors

Percentage Change 2000-2017 (%)

China

India

Russian Federation

World

UK

Population (P)

9.8

27.2

-1.4

22.9

12.1

Gross Domestic Product per Capita (G/P)

303.2

157.7

79.1

49.5

20.3

Energy Intensity of Economy (E/G)

-39.1

-39.0

-23.0

-24.2

-41.5

Carbon Intensity of Energy Mix (C/E)

10.1

22.1

-11.8

1.4

-12.6

Variation in CO2 Emissions (C) 

196.2

144.2

4.2

41.3

-31.1

Table 1 CO2 Driving Factors

The four driving factors are represented by changes in population (P), GDP/capita (G/P),[xxxvii] energy intensity of the economy (E/G), and the carbon intensity of the energy mix (C/E).  The energy intensity term, E/G, is an indication of how the level of fossil-fuel energy needed to generate one unit of Gross Domestic Product, or GDP, has changed over the period 2000-2017.  Improvements in E/G (shown as negative values) can arise from a range of policies to reduce territorial emissions.  For example: by closing, offshoring or outsourcing heavy, energy intensive industry[xxxviii] and transitioning to a service economy.  It also includes modernisation to install more energy efficient plant and processes, improving energy efficiency of existing plant, and/or moving into higher value added products – to name but a few examples 

Carbon intensity, C/E, on the other hand, provides a measure of how far a country has gone down the route of replacing fossil-fuel energy with low or no-carbon alternatives – thereby reducing the level of CO2 emissions for the same energy requirement.  This transition may include a range of technologies such as: nuclear power for electricity generation, hydrogen to replace natural gas, solar, hydro, wind turbines and of course, electric vehicles.

The results[xxxix] in Table 1 show, from a global, or World, perspective, that increases in population (P = 22.9%) and GDP/capita (G/P = 49.5%) have been driving upward trends in COemissions (C = 41.3%), more than offsetting the reduction in energy intensity (E/G = -24.2%) while the carbon intensity of the energy mix at C/E = 1.4% remains almost unchanged, due to the continued dominance of fossil-fuel, especially coal, in the energy mix as well as the slow uptake of low-carbon technologies.[xl]

The same can be said for the two developing countries, China and India, where the exceptionally large increase in economic development, G/P, together with significant increase in the use of fossil fuels, C/E, leads to large percentage increases in carbon emissions, C.  The Russian Federation meanwhile benefits from a fall in population (P = -1.4%) as well as energy and carbon intensities but experiences a larger increase in living standards (G/P = 79.1%) thus leading to a smaller increase in carbon emissions (C = 4.2%).

What Table 1 illustrate is that these three economies – there are others too in a similar position - who together account for over 1/3 of current global COemissions, especially China and India, have between them increased their CO2 emissions by an average of around 10% each year for the past 17 years.  And, while the UNFCCC recognise the need for some Non-Annex I countries to continue on their emissions trajectory for some time, unfortunately the Earth system, or sinks, that absorb COemissions – such as the atmosphere, oceans, forests and flora and fauna, pay no heed as to where these emissions arise.  Whether this is ethically right or wrong is not debated here but what is evident is that this is an example of a type of market failure, where developed nations are expected to pay the cost of mitigation measures for emissions released by developing nations.[xli]  

In this case, Table 1 shows that the UK, despite being responsible for less than 0.9% of global GHG emissions, has invested and taken positive action to reduce both energy and carbon intensity to the point where COemissions has fallen 31.1% over this period.  The UK performance is also far ahead of other comparator economies in Europe, as shown in Table 2, where, interestingly, it can be seen that the ‘economic powerhouse’ of Europe, Germany, is lagging in decarbonising its energy mix.[xlii]

CO2 Driving Factors

 

Percentage Change 2000-2017 (%)

 

Germany

France

EU-28

UK

Population (P)

1.5

10.1

5.2

12.1

 

Gross Domestic Product per Capita (G/P)

22.5

11.9

23.0

20.3

 

Energy Intensity of Economy (E/G)

-25.6

-20.3

-26.1

-41.5

 

Carbon Intensity of Energy Mix (C/E)

-4.3

-14.5

-11.3

-12.6

 

Variation in CO2 Emissions

-11.5

-16.1

-15.2

-31.1

 

Table 2  CO2 Driving Factors in Europe 

Of course, the UK’s superior performance on the world stage of emissions reductions mentioned so far in this document takes no account of consumption emissions, and as this  subject is important to the overall discussion, it is considered next.

The UK’s territorial emissions reduction is world leading.  

But, although good progress is now being made in reducing the carbon intensity of the energy mix the lion’s share of the reduction to date has come from reducing the energy intensity of the economy.  The question this raises is, to what extent has this been achieved from outsourcing and offshoring – in other words, is this reduction a result of ‘smoke and mirrors?’  

UK Consumption Emissions

Under the terms of the UNFCCC each of the signatories agree to report their territorial-based emissions inventories each year and these form the basis for reporting on progress towards domestic and international emissions reduction targets against the Paris Agreement.  Territorial emissions are, therefore, those mentioned so far in this report and in the case of the UK they are published by the Department for Business, Energy and Industrial Strategy (BEIS).  

Consumption emissions, on the other hand, do not need to be reported, which at first sight appears odd because these emissions are considered as the measure of a country’s ‘Carbon Footprint.’[xliii]  Unlike territorial emissions, however, consumption emissions contain inherent uncertainties[xliv] and this likely explains why the international climate community has not adopted this as an official reporting metric at this stage.  The Department for Environment, Food and Rural Affairs (Defra) meanwhile, report these figures[xlv]based on modelling by the University of Leeds Sustainability Research Institute.[xlvi]  

In essence, consumption emissions, or the carbon footprint, refers to emissions that are associated with the consumption spending of UK residents (or that of any other country) on goods and services, wherever in the world these emissions arise along the supply chain, and those which are directly generated by UK households through private motoring and burning fuel to heat homes.  In essence, therefore, consumption emissions better reflect the lifestyle choices of a country’s citizens[xlvii] - especially those in the developed world.  To make this concept a little easier to understand Table 3 is included to illustrates the relationship between terms, ‘consumption emissions,’ or ‘carbon footprint,’ and ‘territorial emissions.’  In essence, the numerical difference arises because of globalisation: through international trade in goods and services. 

Consumption Emissions, or Carbon Footprint

Imported – Exported (Net) Emissions Consumed by UK Residents

Territorial Emissions[xlviii]

UK emissions produced from goods and services consumed by UK residents

UK household heating emissions

Transport emissions from UK domestic households

Table 3  Relationship between Consumption and Territorial Emissions

The relationship in Table 3 suggests that consumption emissions exceed that of territorial emissions because of a net import of emissions, and in general that is true for the UK and other developed economies in the West, where the economy has moved from a manufacturing base towards the service sector.  Meanwhile, some economies in the East, who provide manufactured goods and services to the West, have become net emissions exporters - and in the world of accounting their consumption emissions will be lower than their territorial emissions.  

The level of net imported emissions in relation to territorial emissions can be used as a measure of a country’s international trade of carbon emissions, arising through indirect emissions from outsourcing or offshoring to countries with lower manufacturing costs.   Table 4 compares the UK’s international trade of COemissions in 2016 to comparable economies[xlix] in Europe (the West) and in Table 5 to those of China, India and Russia (the East).[l]  

Germany

France

EU-28

UK

10.73

30.76

19.19

39.94

 Table 4  Percentage of net imported COemissions in relation to territorial COemissions by comparable European country in 2016

Table 4 shows the UK has a higher percentage ratio of net imported COemission to territorial emissions than the average of the EU-28 Member States,[li] and has also become the biggest net importer of COemission per capita in the G7 group of wealthy nations.[lii]  By comparison with Germany, the UK has around four times the level of net import of COemissions to territorial emissions.  Although not shown here, the Netherlands has a ratio of 

-8.01%, meaning it is a net exporter of emissions, while Belgium is at the other end of the scale at almost 77%.  This suggests the Netherlands has retained more of its manufacturing base than the UK while Belgium has almost wholly transferred into the service sector.

China

India

Russia

UK

-13.9

-8.16

-17.23

39.94

Table 5  Percentage of net imported COemissions in relation to territorial COemissions by developing economies and by an Economy in Transition (EIT), Russia, in 2016

The contrast between Tables 4 and 5 highlights the East-West divide, although it has to be emphasised that not all economies in the East are net exporters while, as shown by the Netherlands, not all economies in the West are net importers.  Nevertheless, it is a fact that China is the biggest net exporter of COemissions, and this increased from 364MtCO2 in 1992 to 1480MtCO2 by 2015.[liii]  On the other hand, the global trade in exported carbon emissions from both India and Russia has remained reasonably constant - more so in the case of India, which has not yet gained the same level of global dominance as China.  Meanwhile, Russia’s tally of net exported emissions likely arises, in the main, from energy needed to process and supply oil and gas, which is traded to other countries, including the West.  

From this discussion several points of significance emerge in relation to the UK, but with inference to other developed economies too. 

1 Use of Territorial Emissions as a Reporting Metric Overstates UK Performance           

Consumption emissions provide a measure of the total carbon footprint (if the main GHG’s are included) or, if a more robust metric is required, the COcarbon footprint of a particular economy.   Territorial emissions, on the other hand, ignore the impact of internationally traded goods and services.  To developed economies therefore, and those that have moved, by government-led structural change, or by energy intensive industry attempts at cost cutting by moving to low-cost economies, territorial emissions present a more attractive proposition for government by which to measure and be judged by peers on their journey towards achieving a low-carbon economy.

In the case of the UK, for instance, the ratio of net import of COemissions to territorial emissions has not always stood at 39.94% (as shown in the Tables 4 and 5).  In the late 1970’s to early 1980’s, for instance, the ratio was close to zero – meaning imports of COembedded in imported goods closely matched those exported, but by 1990 the ratio increased to over 9% and then doubled to over 20% by 1997 reaching a peak of 85% in 2007, before the global economic crisis.[liv]

What this means in practice is, and as Table 6 illustrates, if UK COemissions reduction over the period 1997-2017 is measured using territorial emissions (as is the case under UNFCCC rules) there is almost a 3x emissions reduction gain over that achieved using the more holistic measure of consumption emissions. 

UK COemissions reduction over the period 1997-2017

Measured by Territorial Emissions

Measured by Consumption Emissions

24.1%

9.05%

Table 6  Shows the difference in UK COemissions reduction using different metrics

By ignoring the impact of international trade the use of territorial emissions gives advantage to importing nations, such as the UK, while penalising those that export emissions! 

2 Increase Emissions from Manufacturing in Developing Economies

While the UK and other developed countries have reduced their territorial emissions over recent decades part of this reduction has been at the expense of rising emissions imports from developing countries.  In the case of the UK, the greatest source of net imported emissions comes from China, which peaked at 103MtCOin 2007 and fell to just over 80MtCO2 in 2015.[lv]   While this might be beneficial for the UK reporting of territorial emissions it is unhelpful for the earth system, or sinks, because as shown in Table 1 - comparing CO2 Driving Factors between the UK and China – had the traded goods been manufactured in the UK rather than imported the level of global carbon emissions would be lower.  This is simply down to the fact that products made in China, as well as some other developing nations, use less advanced manufacturing processes and rely primarily on coal for energy. 

The UK, in outsourcing much of its energy intensive manufacturing to developing economies, has inadvertently increased the level of global carbon emissions!

3 UK Economy Reaching a Level of Sustainability

If the effects of net imports of carbon emissions are ignored, the UK, through technological development to reduce carbon intensity C/E, and energy intensity E/G, (moving to renewable energy and improving energy efficiency respectively), has partially decoupled economic growth from pollution - COemissions.  An estimate of the level of decoupling, represented by the unit decrease in COemissions C, per unit increase in GDP/capita G, and expressed by the term C/G, can be approximated by adding the terms C/E and E/G from Figure 1.[lvi]  Thus, for the UK over the period 2000-2017 it can be estimated that the proportional rate of COemissions per unit of GDP/capita fell by over 54%, or over 3% per year on average.

To set the UK’s level of decoupling performance, which might be described as ‘weak sustainability,’[lvii] into context; globally over the period 1960-2014 the partial rate of COemissions per unit of GDP/capita increased by an average of almost 4% per year,[lviii] which supports the assertion that COemissions per capita from the increased use of fossil fuels and the increasing wealth of nations, expressed as GDP/capita, are strongly and positively correlated.[lix]

Against this metric, and based on territorial emissions, the UK and the rest of the World are heading in opposite directions!

4 UK Can Only Achieve Net Zero When Every Economy Also Achieves Net Zero 

Table 1 illustrates that the UK has more than offset the environmental impact from COemissions C, arising from increases in population P, and affluence G/P, through structural change and technological adaption – by mitigating actions to reduce the energy intensity of goods and services consumed by UK residents E/G, and reducing the carbon intensity C/E, of the energy mix through moving to renewable energy sources.  In doing so the UK has demonstrated to the world what can be achieved and the example has lent support to the Environmental Kuznets Curve (EKC) hypothesis: while pollution might increase with growth once society becomes more affluent and pollution reaches unacceptable levels additional resource may be employed, structural changes introduced, and/or technology developed to reduce the level of pollution.[lx]

However, in the UK’s case, the EKC hypothesis fails on the grounds that while globalisation has facilitated the move to less carbon-intensive sectors the UK continues to contribute to indirect emissions by outsourcing the manufacture of consumable items to developing economies on cost grounds, but these economies are least fitted, at least from an emissions perspective, to undertake such activity.  This leads to only one conclusion in today’s world of global trade:  for the EKC hypothesis to hold true, and for the UK’s consumption emissions to reach net zero by 2050, the rest of the World must concurrently reduce their territorial emissions to net zero.[lxi]

‘All for one and one for all.’

The UK will not achieve net zero by 2050 unless every nation also achieves net zero in a similar timeframe!  

Motivation for Net Zero

On the 12 June 2019 the UK Government laid the draft Climate Change Act 2008 (2050 Target Amendment) Order 2019 to amend the Climate Change Act 2008 by introducing a target of at least 100% reduction in greenhouse gas emissions (compared to 1990) levels by 2050.  This has become known as ‘net zero’ because some emissions can remain if they are offset by removal from the atmosphere and/or by trading in carbon emissions.  

The Order came into force on the 27 June 2019.  Additionally, in Scotland, the Climate Change (Emissions Reduction Targets) (Scotland) Act 2019 amends the Climate Change (Scotland) Act 2009 to set new targets to reduce Scotland’s emissions of all GHG’s to net zero by 2045 at the latest, with interim targets of at least 56% by 2020, 75% by 2030 and 90% by 2040.[lxii] The earlier date for Scotland arising because of Scotland’s greater relative capacity to remove emissions than the UK as a whole through it’s larger land area per person and the significant COstorage potential – mainly through sequestration.[lxiii]

Although there was broad cross-party support for net zero legislation the question still remains: “what was the motivation for net zero – and at that time?”  Afterall, as has been discussed so far, the UK, as a major economy, has led the world in territorial emissions reduction during a time when emissions from the rest of the world has been, and still is, increasing.  Moreover, the UK with less than 1% of global emissions, has already demonstrated that it is possible to decouple economic growth from emissions: reducing emissions by 42% while growing the economy by 72% over the period 1990 and 2017.[lxiv]  So why net zero?

The Paris Agreement of 2015 does not commit to a 1.50C temperature rise.  Instead, the key aim is to hold global average temperature to well below 20C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.50C.  The concept of net zero global greenhouse gas emissions therefore arises from the aspiration of a 1.50C limit, and while widely acknowledged by the Agreement it was seen as an aim for the second half of this century.[lxv]  So why now?

As the term, ‘net zero’ has become a recent buzz-word within the UK, sparking activity from a wide range of actors – from government, climate activists, Ofgem, energy transmission and distribution companies through to those that provide renewable energy and electric transportation, and far beyond, these questions deserve scrutiny, from both subjective and objective sources, in so far as such information exists.  While these two questions are so closely bound together they will considered individually below, commencing with ‘so why net zero?’ 

For a developed economy which is on target to miss its previous commitment to an 80% reduction in emissions under the Paris Agreement of 2015; from a 7% overshoot against the  4th carbon budget (2023-2027) and 13% over the fifth (2028-2032),[lxvi] it seems counterintuitive that any government should seek to pass into law a more demanding target.  A target that requires around a 50% higher annual emissions reduction - a level of performance way beyond anything achieved since 1990.[lxvii]  

If the UK can’t meet an 80% target why change the target to 100% becomes an obvious question to the interested observer!  To help put this incongruity into perspective it is worth quantifying that the Government failed to deliver 24 out of 25 critical policies proposed by the CCC in 2018[lxviii] and failed again in 17 of the 21 key policy areas put forward a year later to meet its previous commitment.   Seven of these areas went backwards.[lxix]  How can government, therefore, believe it can succeed with a far tougher target when its policies (or lack of them) fail to address those needed to achieve an easier target?

Perhaps government saw net zero as a political expediency to help divert attention from  policy failures or inaction!  What is known however, is that Government, and opposition parties alike, supported net zero based on recommendations by the CCC (in their 2019 report); from evidence in the form of continued rise in global emissions, increased awareness of climate risks and the wide-ranging marginal advantages of limiting global average temperature rise to 1.50C (included in the IPCC 2018 report) as well as the falling cost of low-carbon technology.  

With such evidence: that net zero can be achieved within the same cost envelope as the previous expectation for an 80% reduction, together with monetised benefits that might even offset any resource costs, along with improvements to the quality of life, industrial opportunities and reduced risks from climate change, what government would fail to respond positively – especially at a time when calls for action were increasingly coming from across society,[lxx] and MP’s facing a mass lobby by their constituents?[lxxi]

Whatever the motivation, the UK Government clearly views net zero as an economic opportunity, with Energy and Clean Growth Minister, Chris Skidmore, on signing the legislation to commit the UK to this legally binding target,[lxxii] saying: 

“… We’re pioneering the way for other countries to follow in our footsteps driving prosperity by seizing the opportunities of becoming a greener economy.” 

And opportunities abound, because for the UK, projections suggest that ‘green collar jobs’ could grow to two million and exports from the low carbon economy could reach £170 billion a year by 2030[lxxiii] - or almost 1/10th of the UK’s GDP, which is a significant uptick on the latest ONS figures of 396,000 and £79.59 billion respectively.[lxxiv] 

Balanced against these opportunities, Lord Deben, chair of the CCC, reminded Government of their obligation during a debate on the Order in the House of Lords on the 26 June 2019, saying:  

“… As we said in our last annual report, the Government, although on course to meet the third carbon budget, are not on course to meet the fourth or fifth carbon budgets.  Unless they do so, they cannot meet the net zero target we are today putting into law.  The whole idea of having budgets was that nobody would put off until tomorrow that which they should do today …”   (Deben, 2019, column 1092)[lxxv] 

He went further:

“… as we pass this historic, remarkable and wonderful statutory instrument, the government must understand that three simple words go with it.  ‘Now do it.’  It is no good simply saying  it, taking credit for it or saying, ‘We’re all in it together.’  In the end you have to do it – not tomorrow but today.”   (Deben, 2019, column 1094)[lxxvi] 

During the Climate Change Act 2008 (2050 Target Amendment) Order debate several Peers voiced opposition.  For example, in commenting on the failure of Government to abide with the fourth and fifth carbon budgets Lord Grantchester (Grantchester, 2019, column 1088) called the Order “… a hollow commitment ...”[lxxvii]  Meanwhile, Viscount Ridley,[lxxviii] after highlighting that the total cost of implementing net zero could be as high as £1.8 trillion, said: 

“… What will be achieved by all this spending?  We will not prevent floods, storms or droughts: they will always happen.  We will still have to deal with flooding, even if we get emissions to zero.  Nor is the purpose of these plans to bring down global emissions.  We have no hope of that – we are 1% of global emissions and others are glad to export to us from their low energy cost economies.  So we would mainly be exporting our emissions and living the good, green life on China’s fossil fuels.  The only remaining purpose of this measure – and we have heard it again and again here today – is to set an example to the world, to be the shining city of virtue on a hill.  Who are we kidding? … Japan has just announced another 20 gigawatts of coal-fired power stations … America, Australia, Brazil, China, India – none of them will pay the slightest attention to what we do here today.” (Ridley, 2019, column 1100) 

Lord Donoughue[lxxix] raised a number of concerns: ranging from the financial liability falling on consumers and taxpayers – given the absence of a Treasury costing,[lxxx]  the impact on UK competitiveness in energy intensive sectors and the absence of a serious assessment of the practicality of the proposal.  He went further:

“… My final, and even more worrying, point is about the cavalier way in which this costly adventure has been launched.  It is being proposed on a single-nation basis[lxxxi] – not that that is its ideal, but it is there.  The UK is apparently to be prepared to do this with no guarantees of the global environmental benefits, thus offering virtue-signalling moral leadership to the whole world.  That is dangerous … If we alone decarbonise tomorrow, that is the amount by which global carbon emissions will diminish, yet in the next few years China and India alone – the great carbon emitters – will increase their carbon emissions by more than double that share.  Our contribution will be swamped and (global)[lxxxii] carbon emissions will still rise, but at what economic cost to the working people of this country?  Pursuing zero carbon in Britain alone while the big emitters continue to pollute the atmosphere on a massive scale is a futile gesture of moral imperialism …” (Donoughue, 2019, column 1112) 

Baroness Worthington, speaking in support of a net zero target, reminded the Chamber of the marchers outside and others lobbying inside the building – tens of thousands who have come to express their concern about the climate crisis.  In backing net zero she said: 

“… We need to do this despite who is in the White House, despite China having 1,000 gigawatts of coal-fired power stations and despite Russia sitting on the largest fossil fuel reserves of any nation.  To sit back and wait and expect some other country or institution to take this action would be a recipe for disaster.  We cannot solve the problem ourselves, but we must lead by example ...” (Worthington, 2019, column 1096)[lxxxiii]

In bringing this qualitative evidence on ‘why net zero,’ from proponents and opponents alike to a close it is worth reflecting on the view of Lord Deben, who reminded the House that while the Paris Agreement of 2015 is not perfect: claiming that many countries will not do what they promised to do, but even if they do what they promised it will still not be enough to limit global warming – they will have to do more,  he said that having been asked by Government for the means by which to meet our Paris Agreement,[lxxxiv] “if you ask the question and you get the answer , you cannot ignore it.  The problem with knowing is that it brings responsibility …[lxxxv]  

In conclusion therefore, the motivation for ‘why net zero?’ is probably best left to Theresa May,[lxxxvi] who said on announcing this new target: 

As the first country to legislate for long-term climate targets, we can be truly proud of our record in tackling climate change. We have made huge progress in growing our economy and the jobs market while slashing emissions.  Now is the time to go further and faster to safeguard the environment for our children. This country led the world in innovation during the Industrial Revolution, and now we must lead the world to a cleaner, greener form of growth.  Standing by is not an option. Reaching net zero by 2050 is an ambitious target, but it is crucial that we achieve it to ensure we protect our planet for future generations.”  

Fortunately, the Government has included a review mechanism for net zero by agreeing a commitment that the UK will conduct an assessment within five years to confirm that other countries are taking similarly ambitious action, multiplying the effect of the UK’s lead and ensuring that our industries do not face unfair competition.[lxxxvii]  This measure addresses a long-held Treasury concern for the potential competitive price the UK might pay for climate leadership – noting that UK emissions make up only a small fraction of the global problem.[lxxxviii]  A concern eloquently expressed by George Osborne while he was Chancellor of the Exchequer, “… We’re not going to save the planet by putting our country out of business …” (Osborne, 2012, cited in Fortson, 2012, p.5).[lxxxix]

Reassuringly too, since passing this legislation the UK Government has announced a HM Treasury Net Zero Review, which is due for publication in autumn 2020.[xc]  This review will examine how the transition to net zero will be funded and where the costs will fall.  In particular it will analyse the range of choices for how households, businesses and the taxpayer can contribute towards the different elements of the transition, identify mechanisms to create an equitable balance of contributions, maximise opportunities for economic growth and evaluate the trade-offs between cost, competitiveness, effects on consumers and impacts on the taxpayer.  

The output from this review is likely to have far reaching impact:  regulating the pace of transition as well as the level of public buy-in – where matters of rising household costs and an increasing tax burden are of great concern during what is a difficult time for many .

Turning now to the question of ‘why net zero now?’  It is likely the IPCC Special Report published in 2018, with the emphasis on achieving a 1.50C limit and the action needed to achieve this,  and the upcoming UK hosted COP26 meeting that was planned for November 2020 in Glasgow were the stimuli for Claire Perry, MP, Minister of State for Energy and Clean Growth, writing to the CCC asking for updated advice on a date by which the UK should achieve a net zero GHG emissions target including whether now is the right time for the UK to set such a target?  

The rest is history – as they say!  The May 2019 CCC publication, Report on Net Zero: the UK’s contribution to stopping global warming - providing recommendations to Government.  As Lord Deben commented,[xci] “It is the story of Genesis: once you know, you cannot avoid responsibility.” Some critics however, perhaps with good cause, accuse  Government of undue haste.  A single month between publication and the Prime Minister’s announcement made via a press release, not to Parliament - with no impact assessment by HM Treasury,[xcii] a substantial change in policy without full and proper scrutiny and with little detail of how the emissions target will be met.[xciii]

Lord Donoughue[xciv] puts part of the reason for haste down to a departing Prime Minister with a desire for a legacy – laying a statutory instrument to change the legally binding target set out in the 2008 Climate Change Act.  The Institute for Government (IfG)[xcv] credits Extinction Rebellion in simultaneously articulating and raising interest in the climate emergency – ratcheting the issue up the agenda for what was an easy political consensus.  According to the IfG, Rutter (2019), also believes the Prime Minister may have been trying to trap a potentially more climate sceptic successor but her under-the-radar approach may mean they feel minimal commitment.  After all, a 2050 target is easy to ignore, especially in the face of   more pressing issues - including Brexit, and now Covid-19.

There are many potentially competing as well as conflicting reasons for the UK adopting net zero – not least of which was the easy political response to an increasingly vociferous element of society calling for action on climate change.  However, the UK’s net zero target will not save the world from climate change – it will make no difference at all, but it may serve as a beacon to show the world how it can save itself. 

There are opportunities for the UK from ‘first mover advantage,’ and associated costs too, but the Treasury Report will determine where the balance lies and who will pay – and this will set the pace of change.  Fortunately, the Treasury has secured an ‘ouster’ clause and this will provide a useful backstop should other nations fail to follow the UK’s lead.

Discussion

Leaving aside the immediate threat from the Covid-19 pandemic the one thing that is becoming clear to a greater and greater number of people and establishments as time goes by is that climate change is the biggest material threat to mankind, as well as to all other species that inhabit planet Earth.   And this threat will become more apparent over the next few decades as the global average temperature increases above pre-industrial levels: from 10C at present to 1.50C or 20C by 2050 through to 30C or possibly higher by the end of this century.

Unfortunately, mankind is obsessed by economic growth - and has been for a long time – improving the living standards of its citizens; and economic growth, at a global level certainly, is positively correlated with energy consumption which being mainly obtained from unsustainable fossil fuels, meaning that more growth equates to more emissions – especially CO2and this in turn means more temperature rise.  So, this obsession with wealth, on the one hand, and the penalty of rising average global temperature on the other, go hand in hand unless the cycle can be broken.

The UK, and to a degree a number of other developed nations, has begun this process of de-coupling to good effect.  However, much, or certainly a good part at least, of the progress here has been achieved through structural change brought about by globalisation.  Total de-coupling will only occur, however, when all countries become net zero and here the UK has become the first major economy to pass into law a net zero territorial emissions target – setting the direction for others to follow and hopefully gaining commercial advantage by selling technological know-how and low-carbon equipment to other aspiring nations.

The problem this presents for other economies, and especially those classed as developing economies, is that they face  a bigger de-coupling challenge than the UK, whose industrial base tends to be less energy intensive and/or more modern and thereby more efficient.  These developing economies also have a longer road to travel in terms of removing carbon from the energy mix.  Taken together, it would be unreasonable to expect developing economies to make the transition to net zero at the same pace as the UK or for transitional costs to be of the same magnitude.  

The challenge therefore, remains one of globally peaking COemissions by 2030 and thereafter to achieve a significant and consistent fall in emissions each year until 2050 when it is expected that net COemissions will be close to zero.  The IPCC’s modelling suggests that if this can be achieved, although there are several permutations of emissions pathways to get there, then a 1.50C limit can be achieved.  The issue is: given the size of the global challenge and the different starting points of the various economies – especially the big emitters – can this be achieved in the time available.  And the clock does not start now.  It starts sometime after the COP26 meeting scheduled for November 2021, and then only if unanimous agreement can be reached.

The UK’s net zero target may possibly prove to be the ‘hollow commitment’ foretold by Lord Grantchester, but the alternative of doing nothing beyond what has already been committed (the 80% target) may prove to be the worst option, according to the science.  A least-regret decision would therefore seem to be the ethically correct decision in this instance in so far as it best protects, as far as one can, the interests of future generations.

The UK’s journey to net zero will not be a free-ride.  Active participation will be required from all quarters: Government, business, industry as well as the tax payer.  Society also needs to begin to appreciate that behavioural change will be required, without which the desired endpoint will not be reached.

Conclusions

While net zero is the least regret route this does not guarantee the UK’s progress towards achieving net zero.  The changes needed are described as unprecedented in overall scale and yet current policies are insufficient for even meeting the previous targets.  Furthermore, low hanging fruit – in the form of the energy sector – has done much to decarbonise and attention must now turn to the more difficult challenges arising from  agriculture, transport and heating. 

laissez faire approach by Government towards the UK’s net zero target is liable to result in poor outcomes.  Signalling by Government without clear policy interventions and regulation may have unintended consequences.   This is being seen already by the explosion in plans for onshore wind in Scotland where the goal of Net Zero is likely to influence the National Planning Framework 4 in favour of development to the detriment of preserving the natural landscape.

 The international community may not embrace or engage with net zero as hoped, at least in the timescale needed.  Given the cost and resource requirements over the next 30 years to facilitate the transition to net zero, as well as the competing pressures and demands from other shorter-term priorities, it is perceivable that the hoped for buy-in, at November 2021’s COP26 meeting will fail to materialise.

Recovery (if we have yet recovered) from Covid-19 has indicated that society in general is not yet ready to embrace or play their part in net zero.  Covid-19 might have provided an opportunity to change how society views consumerism, reducing the need for travelling by car or to jet overseas for a cheap holiday in the sun.[xcvi]  Is does appear, in the main, that people – consumers,[xcvii] prefer ‘business as usual’ rather than change.  On the other hand, working from home presents a ‘ray of hope,’[xcviii] but possibly not for long with mounting pressure from Government to get people back to work.[xcix]

 

 



[i] HM Gov.UK (2019) UK becomes first major economy to pass net zero emissions law.  27 June 2019. [Online] https://www.gov.uk/government/news/UK-becomes-first-major-economy-to-pass-net-zero-emissions-law

[iii] Institute for Government (2020)  UK net zero target. Published 20 April 2020. [Online) https://www.instituteforgovernment.org.uk/explainers/net-zero-target   

[iv] HM Gov.UK, 2018 UK Greenhouse Gas Emissions: final figures – statistical summary 26 March 2020. [Online]

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/863325/2018-final-emissions-statistics-summary.pdf

[v] Oliver, J.G.J. and Peters, J.A.H.W. (2020) Trends in global CO2 and total greenhouse gas emissions – 2019 Report. PBL Netherlands Environmental Assessment Agency [Online] https://www.pbl.nl/sites/default/files/downloads/pbl-2020-trends-in-global-co2-and-total-greenhouse-gas-emissions-2019-report_4068.pdf   Note: in this report China (26%), US (13%), India (7%) together with the Russian Federation (5%) account for over 50% of global GHG emissions with China, India and the Rest of the World (developing world) showing an increasing trend.

[vi] Mulvaney, K. (2019) Climate Change Report Card. National Geographic. [Online] https://www.nationalgeographic.com/environment/2019/09/climate-change-report-card-co2-emissions /

[vii] The 2% increase in global GHG emission in 2018 was equivalent to a rise of approximately 1 GtCO2e, which is more than double that of UK emissions over the same period.

[viii] Britain leading the industrial revolution and the incessant demand for coal.

[ix] Institute for Government (2020)  UK net zero target. Published 20 April 2020. [Online) https://www.instituteforgovernment.org.uk/explainers/net-zero-target

[x] Based on an expected Scottish population of 5.5 million by 1 July 2020 against a UK estimated population of 67.886 million.

[xi] World Data (2018) Greenhouse Gases emissions by country, based on 2014 data, shows China at 12.04 GtCO2e and 10.29 GtCO2[Online] https://www.worlddata.info/greenhouse-gas-by-country.php

[xii] These commitments are classed as Indicative Nationally Determined Contributions (INDC’s) that need to be confirmed by their respective governments.  The full data, including INDC’s from each of the 126 countries that signed up at COP21 in Paris can be found at Carbon Brief (2017) [Online] https://carbonbrief.org/paris-2015-track-country-climate-pledges

[xiii] China’s later nationally determined interim commitment states – a) to achieve the peaking of carbon dioxide emissions around 2030 and making best efforts to peak early; b) lower carbon dioxide emissions per unit of GDP by 60% to 65% from the 2005 level; c) increase the share of non-fossil fuels in primary energy consumption to around 20%; and d) increase the forest stock volume by around 4.5 billion cubic meters on the 2005 level. 

[xiv] George Osbourne (2011) George Osborne vows UK carbon emissions cuts will not lead Europe. 3 October 2011. The Guardian. [Online] https://www.theguardian.com/environment/2011/oct/03/osborne-uk-carbon-emissions-europe

[xv] International energy Authority (2020) Climate Change: The energy sector is central to efforts to combat climate change [Online] https://www.iea.org/topics/climate-change

[xvi] Sasse, T. (2020) The government needs to get itself in shape for net zero.  Institute for Government, 26 June 2010. [Online] https://www.instituteforgovernment.org.uk/blog/government-needs-get-itself-shape-net-zero

[xvii] Grubb, M. (2003) The Economics of Climate Change. World Economics. Vol.4(3), pp.143-189.

[xix] Europa (2020) Paris Agreement [On line] http://www.ec.europa.eu/clima/policies/international/negotiations/paris_en  This document also describes other factors relating to mitigation that were also agreed – such as global emissions peaking as soon as possible, taking account that developing countries will take longer to peak, and undertaking to reduce rapidly thereafter in accordance with the best available science.

[xx] UN NDC Registry Interim (2020) [On line] https://www4.unfccc.int/sites/NDCStaging/pages/All.aspx

[xxi] Initially set up in 1988, the IPCC is the UN body for assessing the science related to climate change whose aim is to provide governments at all levels with the scientific information that can be used to develop climate policies. [Online] https://www.ipcc.ch/about

[xxii] IPCC, 2018: Global Warming of 1.5°C. An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty [Masson-Delmotte, V., P. Zhai, H.-O. Pörtner, D. Roberts, J. Skea, P.R. Shukla, A. Pirani, W. Moufouma-Okia, C. Péan, R. Pidcock, S. Connors, J.B.R. Matthews, Y. Chen, X. Zhou, M.I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, and T. Waterfield (eds.)]. In Press

[xxiii] European Environmental Agency (2020). Atmospheric Greenhouse Gas Concentration.  The EEA found the stock of GHG’s in the atmosphere increased by 37ppm CO2e over the period 2007 – 2017, reaching 454ppm.  [Online] www.eea.europa.eu

[xxiv] Stern (2006) The Economics of Climate Change: The Stern Review. [Online] http://www.lse.ac.uk/granthaminstitute/publication/the-economics-of-climate-change-the-stern-review

[xxv] CCC (2019) Net-Zero – The UK’s contribution to stopping global warming. [Online] https://www.theccc.org.uk/publication/net-zero-the-uks-contribution-to-stopping-global-warming

[xxvi] See Exodus 20:5 “…visiting the iniquity of the fathers on the children to the third and fourth generations …”

[xxvii] The UNFCCC was set up in 1994 with the aim of preventing dangerous human interference with the climate system. The 197 countries that have now ratified the Convention are called Parties to the Convention and the principle is that as industrialised countries are the source of most passed and current GHG emissions, these industrialised countries are expected to do the most to cut emissions on home ground.  See: UNFCCC (2020) What is the UN Framework Convention on Climate Change? [Online] https://www.unfccc.int/process-and-meetings/the-convention/what-is-the-united-nations-framework-convention-on-climate-change

[xxviii] The discussion here makes use of Hegel’s Dialectics, or dialectical reasoning as a means of exploring the truth of opinions.

[xxix] There is another biblical example.  See Deuteronomy 24:16 “…nor shall sons be put to death for their fathers; everyone shall be put to death for their own sins.  The son will not bear the punishment for the father’s iniquity…”

[xxx] While the polluter pays principle refers to the common practice that those who produce pollution should bear the cost of managing it to prevent damage to human health or the environment, in the case of GHG emissions – where the pollution cost is not imposed on emitters, but rather externalised to society, represents what economists describe as a ‘market failure.’  For instance, the human impact on air pollution is claimed by the World Health organisation to account for 12% of global deaths in 2012.  For further explanation see: LSE (2018) What is the polluter pays principle? [Online] http://www.lse.ac.uk/granthaminstitute/explainers/what-is-the-polluter-pays-principle/

[xxxi] The UN Framework Convention on Climate Change (UNFCCC) describes Non-Annex 1 parties as mostly developing countries, either recognised as vulnerable  to the adverse impacts of climate change or  those heavily dependent on income from fossil fuel production and commerce – and thus feel vulnerable to potential economic impacts form climate change response measures.  For further information on this subject see: [Online] https://unfccc.int/parties-observers

[xxxii] International Energy Authority (2019) CO2 Highlights. Results for 2017. [Online] https://webstore.iea.org/download/direct/2521?fileName=CO2_Emissions_from_Fuel_Consumption_2019

[xxxiii] See: https://unfccc.int/parties-observers for a definition of an Economy in transition.

[xxxiv] In 2017, which is the latest year for which validated accounts for fossil fuel use is available.  See: https://webstore.iea.org/download/direct/2521?fileName=CO2_Emissions_from_Fuel_Consumption_2019

[xxxv] This refers to the four factors that are generally discussed when considering the driving factors for carbon emissions.  Overall, they are referred to as the Kaya Identity (named after a Japanese engineer and in turn built upon the IPAT identity used in environmental change theory).  The identity expresses, over a given time period CO2 emissions as the product of population (P), per capita economic output (G/P), energy intensity of the economy (E/G) and the carbon intensity of the energy mix (C/E).  This parsimonious decomposition model contains non-linear interactions between terms as well as multiplicative interconnectedness, but when used to assess the rate of change or the proportional growth rate of each factor over the same time period then the component growth rates are additive to an approximation level.  Thus, the Kaya Identity becomes Δ (C) = Δ (P) + Δ (G/P) + Δ (E/G) + Δ (C/E) where Δ represents the proportional growth rate.  

[xxxvi] Including Hong Kong.

[xxxvii] GDP/capita is commonly used as a measure of economic development.  However, it is also a measure of the standard of living or, as described by the UN, as a measure of the well-being of a particular population.  It can be used to compare one country against another when GDP is expressed in purchasing power parity units (PPP) but it can also be used, as it is in this paper, to represent the change in GDP/capita over a period of time so as to illustrate the extent to which well-being has varied.  For more information see: https://www.un.org/esa/natlinfo/indicators/methodology_sheets/econ_development/gdp_percapita.pdf

Stern (2006) claims, and this has been confirmed, that GDP/capita and CO2 emissions are strongly correlated – although some developed economies as well as developing economies are actively engaged in decoupling the association, Dresner (2008).  See Dresner, S. (2008) The principles of sustainability. 2nd ed. London: Earthscan. and Stern, N. (2006) The Economics of Climate Change. The Stern Review. [Online] http://www.lse.ac.uk/granthaminstitute/publication/the-economics-of-climate-change-the-stern-review  

[xxxviii] Following the fall of the Iron Curtain in 1989 when the ratio of world trade to world GDP was around 14% globalisation really took off following China becoming a member of the World Trade Organisation in 2001.  World trade is now over 50% of world GDP and ‘offshoring’ plays part of this.  This is where a product or service, usually in a developed country is transferred to a developing country – so as to take advantage of their low-cost economy, to be able to sell the goods or service back to the developed economy at a price advantage.  Examples arise from clothing to electronics, to IT and beyond.  See: Vaughan, P. (2019) A Brief History of Globalisation.  World Economic Forum Annual Meeting. [Online] https://www.weforum.org/agenda/2019/01/how-globalisation--4-0-fits-into-the-history-of-globalisation/

[xxxix] Available from the International Energy Authority, or IEA (2020) Data and Statistics.  [Online] https://www.iea.org/data-and-statistics?country=UK&fuel=CO2%20emissions&indicator=CO2emissions%20drivers but note that for individual counties the comparison period for the CO2 driving factors is 2000-2017.

[xl] IEA (2020) CO2 Emissions from Fuel Combustion Highlights (2019 Edition) 

[xli] An integral part of the Paris Agreement by which mitigation measures reflect equity with an expectation that developed countries should continue to take the lead.

[xlii] The Netherlands is in a similar position, where its fall in carbon intensity C/E = -3.0% results in a comparable emissions reduction of only -3.7% over this same period.

[xliii] The total carbon footprint includes the three main GHG’s, carbon dioxide (CO2) methane (CH4) and nitrous oxide (N2O).

[xlv] ibid.

[xlvii] Ritchie, H. (2019) How do COemissions compare when we adjust for trade? [Online] https://ourworldindata.org/consumption-based-co2

[xlviii] Territorial emissions do not take account of emissions by UK residents and industry abroad or emissions in the UK attributable to overseas residents or industry.  This might more easily be described as net emissions arising in international territory. It does not take account, either, of international aviation or shipping, which is allocated based on the operator of the vessel.  When account is taken of these additional factors the metric is termed ‘Production Emissions.’ [Online] http://www.emissions.leeds.ac.uk

[xlix] Comparable in terms of population and GDP per capita in PPS.  See Eurostat (2020).  Here, at 1 January 2020 the population of Germany was 83 million, France 67million and the UK 67 million while GDP/capita in PPS was 121, 106 and 105 respectively.  [Online] https://ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1&language=en&pcode=tps00001 and https://ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1&language=en&pcode=tps00114 respectively.

[l] Ritchie, H (2019) How do COemissions compare when we adjust for trade? [Online] https://ourworldindata.org/consumption-based-co2  Note: 2016 is the latest year figures are available for this metric 

[li] There are only 27 Member States as of 31 January 2020 when the UK left the EU under The European Union (Withdrawal) Act 2018 as amended by a UK Statutory Instrument on 11 April 2019, but as these figures refer to 2016 data then the use of the EU-28 is correct.

[lii] Partington, R. (2019) Britain now G7’s biggest net importer of CO2 emissions per capita, says ONS.  The Guardian 21 October 2019.  [Online] https://www.theguardian.com/uk-news/2019/oct/21/britain-is-g7s-biggest-importer-of-co2-emissions-per-capita-says-ons

[liv] Based on data obtained from Defra report, UK’s Carbon Footprint 1997-2017. See footnote xliii for online reference.

[lv] ONS (2019) ibid.

[lvi] This decoupling computation makes use of the Kaya identity factors and by the use of dimensional homogeneity the expression for decoupling (C/G)=(C/E) x (E/G) in the absence of other factors the proportional decoupling rate approximates to Δ (C/G) = Δ (C/E) + Δ(E/G)

[lvii] Dresner, S. (2008) The principles of sustainability. 2nd ed. London: Earthscan.

[lviii] ONS (2019) ibid. See Figure 13 showing correlation between real GDP per head and CO2 emissions globally from 1960-2014.

[lix] Stern, N. (2006) The Economics of Climate Change: The Stern Review. [Online] http://www.lse.ac.uk/granthaminstitute/publication/the-economics-of-climate-change-the-stern-review  

[lx] ONS (2019) provides the example of the burning of coal in major UK cities in the 1950’s resulting in smog blocking out the sun, blackening buildings and damaging health.  In other words, there is an economic cost.  However, after a certain level of GDP/capita or affluence is reached economic developments leads on to environmental awareness, then enforcement and ultimately a political appetite for regulation.  In this case, the Clean Air Acts of 1956 and 1968.  For more on the EKC hypothesis see: Islam, S.S.N., Munasinghe, M. and Clarke, M. (2003) Making long-term economic growth more sustainable: evaluating the costs and benefits. Ecological Economics. Vol.47(2-3), pp.149-166. Or Stern, D.I., Common, M.S. and Barbier, E.B. (1996) Economic Growth and Environmental Degradation: The Environmental Kuznets Curve and Sustainable Development. World Development. Vol.24(7), pp.1151-1160.

[lxi] The CCC make this point on p.23 of their Executive Summary report – CCC (2019) Net Zero – The UK’s contribution to stopping global warming.  See footnote xxxiii for online reference.

[lxii] Priestley, S. (2019) Net Zero in the UK.  House of Commons Briefing Paper, Number CBP8590, 16 December 2019 [Online] https://commonslibrary.parliament.uk/research-briefings/cbp-8590/

[lxiii] CCC (2019) ibid.

[lxiv] HM Gov (2019) HM Treasury’s review into funding the transition to a net zero greenhouse gas economy: terms of reference. [Online] https://www.gov.uk/government/publications/net-zero-review-terms-of-reference/hm-treasurys-review-into-funding-the-transition-to-a-net-zero-greenhouse-gas-economy-terms-of-reference

[lxv] Priestley, S. (2019) ibid. See page 4.

[lxvi] Priestley, S. (2019) ibid. See page 13 for details.

[lxvii] Wilkinson, S. (2019) The road to net zero.  30 September 2019. The Law Society Gazette. [Online] https://www.lawgazette.co.uk/legal-updates/the-road-to-net-zero/5101588.article

[lxviii] Wilkinson, S. (2019) ibid.

[lxix] Sasse, T. (2020) The government needs to get itself in shape for net zero. 26 June 2020. The Institute for Government. [Online] https://www.instituteforgovernment.org.uk/blog/government-needs-get-itself-shape-net-zero

[lxx] Lord Henley (2019) Climate Change Act 2008 (2050 Target Amendment) Order 2019. House of Lords debate, 26 June 2019. Hansard, column 1025. [Online] https://hansard.parliament.uk/Lords/2019-06-26/debates/804DA...5743B2B4D/ClimateChangeAct2008(2050TargetAmendment)Order2019

[lxxi] Loughran, J. (2019) UK commits to 2050 zero carbon target as new legislation passes into law. Engineering & Technology, 27 June 2019. [Online] https://eandt.theiet.org/content/articles/2019/06/uk-commits-to-2050-zero-carbon-target-as-new-legislation-passes-into-law

[lxxii] See endnote i for reference to quote from Chris Skidmore

[lxxiii] See endnote i for the estimated value of employment and export opportunities.

[lxxiv] ONS (2020) Estimates of direct and indirect low carbon and renewable energy economic activity.  [Online] https://www.ons.gov.uk/economy/environmentalaccounts/datasets/lowcarbonandrenewableenergyeconomyindirectestimatesdatasetNote that ONS figures are given for 2017, which is the latest year available.  Also note the these figures are for the total of direct and indirect turnover and employment, where turnover may not be directly equivalent to GVA.  Nor do the turnover figures break out export values from internal consumption.

[lxxv] Lord Deben (2019) Climate Change Act 2008 (2050 Target Amendment) Order 2019. House of Lords debate, 26 June 2019. Hansard, column 1092.  [Online] See endnote lxix.

[lxxvi] Lord Deben (2019) Climate Change Act 2008 (2050 Target Amendment) Order 2019. House of Lords debate, 26 June 2019. Hansard, column 1094. [Online] See endnote lxix.

[lxxvii] Lord Grantchester (2019) Climate Change Act 2008 (2050 Target Amendment) Order 2019. House of Lords debate, 26 June 2019.  Hansard, column 1088. [Online] See endnote lxix.

[lxxviii] Viscount Ridley (2019) Climate Change Act 2008 (2050 Target Amendment) Order 2019. House of Lords debate, 26 June 2019. Hansard, column 1100. [Online] See endnote lxix.

[lxxix] Lord Donoughue (2019) Climate Change Act 2008 (2050 Target Amendment) Order 2019. House of Lords debate, 26 June 2019. Hansard, column 1112. [Online] See endnote lxix.

[lxxx] HM Treasury announced on 2 November 2019 the terms of reference for a review into funding the transition to a net zero greenhouse gas economy.  The review will be available in autumn 2020.  [Online] https://www.gov.uk/government/publications/net-zero-review-terms-of-reference/hm-treasurys-review-into-funding-the-transition-to-a-net-zero-greenhouse-gas-economy-terms-of-reference

[lxxxi] Lord Donoughue is strictly correct, but he should have pointed out, as the CCC do in their 2019 report, that Sweden and Norway have passed similar legislation (with different dates and or cover for offsetting and aviation and shipping.  He could also have mentioned France, New Zealand as well as the EU, where proposals are being considered.

[lxxxii] My addition within brackets, as it is felt to be more in keeping with the point Lord Donoughue is trying to make.  

[lxxxiii] Baroness Worthington (2019) Climate Change Act 2008 (2050 Target Amendment) Order 2019. House of Lords debate, 26 June 2019.  Hansard, column 1096. [Online] See endnote lxix.

[lxxxiv] It is worth noting that the Government, in the form of Claire Perry, did not write to the CCC asking for the means whereby we could meet our Paris obligations as quoted by Lord Deben in the House of Lords debate on the 26 June 2019 (column 1090) but instead she asked the CCC for updated advice on a date by which the UK should achieve net zero GHG target, including whether now is the right time for the UK to set such a target.  See Priestley, S. (2019) Net Zero in the UK. House of Commons Briefing Paper CBP8590 16 December 2019, Clause 1.2.

[lxxxv] Lord Deben (2019) Climate Change Act 2008 (2050 Target Amendment) Order 2019. House of Lords debate, 26 June 2019. Hansard, column 1091.  [Online] See endnote lxix.

[lxxxvi] HM Government (2019)  PM Theresa May: we will end UK contribution to climate change by 2050.  12 June 2019. [Online] https://www.gov.uk/government/news/prime-minister-we-will-end-uk-contribution-to-climate-change-by-2050

[lxxxviii] Rutter, J. (2019) Net zero target should not be slipped through without proper debate.  Institute for Government. 12 June 2019. [Online] https://instituteforgovernment.org.uk/blog/net-zero-target-should-not-be-slipped-through-without-proper-debate

[lxxxix] Fortson, D. (2012) Blown Away. The Sunday Times, Business Section. 4 March. p.5

[xc] HM Government (2019) HM Treasury’s review into funding the transition to a net zero greenhouse gas economy: terms of reference. 2 November 2019. [Online] https://www.gov.uk/government/publications/net-zero-review-terms-of-reference/hm-treasurys-review-into-funding-the-transition-to-a-net-zero-greenhouse-gas-economy-terms-of-reference

[xci] Lord Deben (2019) Climate Change Act 2008 (2050 Target Amendment) Order 2019. House of Lords debate, 26 June 2019. Hansard, column 1091.  [Online] See endnote lxix.

[xcii] Lord Lilley (2019) Climate Change Act 2008 (2050 Target Amendment) Order 2019. House of Lords debate, 26 June 2019. Hansard, column 1108.  [Online] See endnote lxix.

[xciii] Lord Grantchester (2019) Climate Change Act 2008 (2050 Target Amendment) Order 2019. House of Lords debate, 26 June 2019.  Hansard, column 1087.  [Online] See endnote lxix.

[xciv] Lord Donoughue (2019) Climate Change Act 2008 (2050 Target Amendment) Order 2019. House of Lords debate, 26 June 2019. Hansard, column 1100.  [Online] See endnote lxix.

[xcv] ibid. See endnote  lxxxvii

[xcvi] BBC News (2020) EasyJet increases flights to cope with holidaymaker demand. 4 August 2020. [Online] https://www.bbc.co.uk/news/business-53648077  Report describes how the airline has had to schedule more flights to cope with demand as people flock to escape the lockdown – carrying over 2 million passengers in July, with load factors of 84%.

[xcvii] Chan, S.P. (2020) Bank of England Boss Bailey backs end of furlough scheme. BBC News, 6 August 2020. [Online] https://www.bbc.co.uk/news/business-53675467 Andrew Bailey reported that a more rapid pick-up in consumer spending had helped the economy rebound faster than assumed, where the latest Monetary Policy Report showed spending on clothing and household goods were back to pre-Covid levels – leading to the expectation that the UK economy is forecast to recover to its pre-Covid size by the end of 2021.

[xcviii] Hughes, C. (2020) With the City of London a ghost town, the pressure on employers to nudge workers back into the office this autumn is going to increase. Bloomberg, 7 August 2020. [Online] https://apple.news/AinWxek7YQebmEZycOIVuQ  A survey by Morgan Stanley shows that only 34% of UK office workers are working in their normal location, although that is up to around 50% for those working in London.

[xcix] Dathan, M. (2020) Fury as only a handful of civil servants turn up for work at the Department of Education this week. The Sun, 6 August 2020. [Online] https://apple.nes/AtqKZaKtQTmOUoGs-58gRkA Tory leader Iain Duncan Smith responding to a report that only 20 out of 2,000 Department of Education civil servants are currently working in the office he is reported as saying, “As the House of Commons has shown, that it is feasible with no adverse effects and all this nonsense has got to be stopped.  Civil servants must return to their office and the Government should encourage the big companies to do exactly the same – otherwise we’ll see a tsunami of job cuts by January.

Cost of Net Zero and Who Pays? HM Treasury Review: a possible market failure for some.

  1 Summary   In the previous blog paper, dated August 2020, which presented the background to Net Zero, mention was made of the hurried nat...