Overview

Climate change is rarely out of the news these days as a political, economic and scientific consensus about the global effects of anthropogenic greenhouse gas (GHG) emissions becomes reality. Sir Nicholas Stern’s recent review of the economics of climate change confirmed that taking action now to stabilise GHG emissions at a reasonable level would cost around 1 per cent of annual gross domestic product (GDP) to 2050, whereas doing nothing now and dealing with the consequences later could cost between 5 and 20 per cent of annual GDP and lead to worldwide recession and social upheaval1.

The UK government has put tackling climate change at the top of its agenda and is seeking to lead the way at an international level to secure agreement on action to reduce GHG emissions when the current international legal framework for tackling climate change, known as the Kyoto Protocol, comes to an end in 2012.With that in mind, it has recently published its proposed climate change bill for public consultation.

The Provisions of the Bill

Initially announced in last November’s Queen’s Speech, the draft bill covers five key areas.

Statutory targets for the reduction of UK carbon dioxide (CO2) emissions of between 26 per cent and 32 per cent by 2020 and 60 per cent by 2050, compared with 1990 levels. The bill also includes powers for the government to amend the targets and to set further interim targets by secondary legislation. Carbon credits (CO2 reductions achieved outside the UK) and carbon debits (reductions achieved within the UK) can be used to meet the statutory targets.

Statutory five yearly carbon budgets to be prepared by the government setting limits on UK CO2 emissions during the budget period with a view to meeting the statutory targets. These would begin in 2008 and post 2022 would be made up to 15 years in advance. However, there are provisions enabling the government to carry CO2 emissions reductions forward and back.

The establishment of a new independent committee on climate change to advise the government on setting the carbon budgets, including on the reduction efforts needed by different sectors of the economy to achieve the limits, and advise parliament on progress towards meeting them and the 2050 target.

  • The provision of enabling powers to allow the government to introduce new emissions trading schemes to cover all GHGs and sectors within the economy by secondary legislation, subject to consultation with affected persons. The government is already consulting on its proposed Energy Performance Commitment (EPC) proposal for an auction based, mandatory ‘cap and trade’ scheme targeting emissions outside the EU Emissions Trading Scheme and climate change agreements. Organisations would be covered by the EPC if their total annual electricity consumption through mandatory half-hour meters exceeded 3,000 MWh/year.
  • Monitoring and reporting arrangements requiring the government to report annually to parliament on UK CO2 emissions and to produce five yearly reports on the risk and effects for the UK as a result of climate change and the government’s proposals and policies for adapting to it; the committee on climate change must also report to parliament annually from 2009 on progress towards meeting the carbon budget and the 2050 target and five yearly on performance over the last budget period.

Aims of the Bill

The aim of the bill is twofold: i) to provide the necessary clarity and confidence to influence UK businesses and individuals to plan and invest in low carbon technologies and energy efficiency measures in the move towards a low carbon economy and ii) to send a signal to the international community to follow suit in the context of the ongoing international climate change discussions on the framework treaty to succeed the Kyoto Protocol.

Climate Change Strategic Framework

The bill is accompanied by the Climate Change Strategic Framework, which explains how the objectives of the bill will be achieved and how UK policy will be influential in shaping a wider international strategy to deal with the consequences of climate change. The way forward as the government sees it, and as initially expressed by Stern, is by carbon pricing through emissions trading, taxation or regulation, or a combination of these, coupled with measures to bring forward the development of new low carbon technologies and to mobilise behavioural change to encourage businesses and individuals to invest in energy efficiency and these new technologies.

The framework indicates that all parts of UK society will need to contribute to the emissions reductions required but that it is not for government to prescribe the precise solutions itself, only to create the policy framework to drive the necessary change.

Consequences of not meeting statutory budgets or targets

Aside from the potential public outcry and the loss of credibility internationally that may result, the punishment if the government fails to meet the statutory budgets or one of the emissions reduction targets is a judicial review before the administrative courts, resulting in a declaration to that effect.

Costs of meeting the statutory targets and other provisions of the Bill

The partial regulatory impact assessment accompanying the bill indicates that as it is only a framework for carbon management it is not possible to quantify exact costs, but it estimates that these are likely to be in the range indicated by Stern ie around 1 per cent of GDP by 2050; additional short term costs between now and 2020 could be higher and shorter long term costs could be unevenly distributed among affected areas of the economy.

Timeframe for passing the Bill

The consultation closes on 12 June 2007; the government has indicated that it intends to introduce the bill into parliament in the autumn with the target date for Royal Assent being spring 2008.

Comment

Although the proposed 60 per cent reduction target for 2050 may be laudable, it comes from the Royal Commission on Environmental Pollution’s 22nd report, Energy – The Changing Climate, published in 2000. A House of Commons Environmental Audit Committee report published in March indicates that this target is now out of step with the findings of the Stern Review, which would require the adoption of an 80 per cent reduction target by 2050 to prevent the worst effects of climate change.

Despite this, it is clear that some quite radical policy initiatives will be required in the short to medium term to deliver on the two targets provided under the bill. Although the UK is on target to meet its Kyoto Protocol commitment to reduce GHG emissions by 12.5 per cent by 2012 over 1990 levels, the UK government has itself admitted that it is not likely to meet its various election promises to reduce emissions by 20 per cent by 2010; the 2020 reduction limit does not go a great deal further beyond this. The new policy initiatives that are clearly on the cards involve a move to a low carbon economy incorporating carbon capture and storage from fossil fuel burning power stations, the use of nuclear technology in power generation and increased use of renewable energy sources, coupled with increased energy efficiency and new vehicle technologies. Given the absence of any current international consensus on a framework for dealing with climate change post-2012, there is something of a risk that the UK could disadvantage its economy by leading from the front. Although the government does acknowledge this, it considers any risk to be outweighed by the opportunity offered to UK industry to become leaders in low carbon technologies and services.