Christmas came early for energy wonks in 2020 as the final month of the year witnessed a raft of government policy announcements.
Kicking off on 18 November, prime minister Boris Johnson launched his 10-point plan for a green recovery. This was followed a week later by the publication of the National Infrastructure Strategy, which fleshed out the plan and heralded a major shake-up of utilities regulation.
The box of energy policy delights culminated in the publication of the Energy White Paper, which finally emerged this week after a two-year gestation.
Amid the flurry of government announcements, another key document stood out – the recently rebadged Climate Change Committee’s (CCC’s) Sixth Carbon Budget.
While not government policy, this document matters given the key role that the CCC plays in advising parliament on how the UK should go about meeting its carbon reduction. One example of the CCC’s influence is its recommendation to ban gas boilers from being installed in new homes, which in barely two months last year went from an idea mooted in one of the advisory body’s reports to government policy.
Framing the CCC’s latest 400-plus page report is the headline recommendation that UK emissions should be cut to 78 per cent of 1990 levels by 2035. To put this in context, until summer 2019 the UK was targeting an 80 per cent cut in emissions by 2050.
Setting the steeper goal of “net zero” emissions by the midpoint of this century meant that the CCC had to work out how greater reductions could be achieved faster.
One of the key points flowing from the CCC’s latest report is that challenges, which could have been put off for longer or not even faced at all, have become more pressing.
This greater urgency is reflected in the CCC’s conclusion that time will be called on natural gas in key areas by the middle of the next decade.
New gas boilers should be banned from homes by 2033, a recommendation that the government hasn’t entirely embraced in its white paper, which proposes instead that all domestic heating should be low carbon by the slightly later date of 2035.
In addition, no gas-fired power stations should be generating electricity by 2035 unless they are fitted with carbon capture technology, says the climate change watchdog.
And carbon capture and storage (CCS) will be a requirement for new gas power stations when seeking planning permission and not just those 300MW or bigger, which is the current cut-off point.
Offshore wind expansion
Like the government that it advises, the CCC emphasises the central role that offshore wind will play in the future generation mix, describing it as the “backbone” of the UK’s future energy system.
The statutory adviser calculates that up to 140GW of offshore wind will be required by 2050 to help decarbonise the electricity system.
More than half the emissions savings planned over the next 15 years are due to be delivered by adopting low-carbon alternatives, like electric vehicles and heat pumps, as fossil fuel hungry options are phased out.
Rapid electrification is the prerequisite to driving down emissions from yet-to-decarbonise sectors like transport and home heating, says Josh Buckland, former energy adviser to Greg Clark when he was energy secretary.
He says it is “really good” to see the increased level of the CCC’s ambition
The CCC’s recommendation on gas-fired power stations is at the punchy end, though, some experts argue.
Modelling carried out by consultancy Aurora for a recent Policy Exchange report assumed that gas reciprocating engines would still be on the grid in 2050, even if they were generating rarely.
Buckland, who is now a director at public affairs company Flint Global, says: “The question is whether we are absolutely sure that we can run in a reliable way a larger energy system by 2035 without using peaking gas even for few hours a year.
“The view in government was that we would need always need an element of gas back-up on the system and would need to turn quite lot on in the winter when it’s really cold.
“It is not unreasonable, but the only question is whether it’s feasible by 2035,” he says, adding that the phase out means reliance on a significant amount of electricity storage.
One of the CCC’s key conclusions, though, is that the dramatic cut in emissions that it envisages is affordable.
A year and a half ago, it calculated that achieving net zero by 2050 would cost more 1 to 2 per cent of GDP per annum over the next 30 years. This estimate has now been stabilised at 1 per cent.
The main factor driving this reduction is the plunging cost over the past year of low carbon technologies, notably offshore wind, as revealed in recent contract for difference (CfD) auctions.
“At worst, we have a very small cost overall to unlock the very big benefits of tackling climate change,” Stark says.
Some of this extra cost can be recouped at the societal level by the cheaper day-to-day costs of using electricity rather than fuel to run cars and home heating, according to the CCC.
Stark says: “It would amount to the loss of three months of growth over the next 100 months. It’s totally worth it: the costs are lower than previously thought they would be and in reality close to zero if we can capture economic benefits of that transition.”
However the pressure is on to deliver.
The CCC says that in order to reach net zero it makes sense, given that the harder to decarbonise areas like transport and heavy industry are tougher, around 60 per cent of decarbonisation must happen by 2035.
The concentration of this heavy lifting will mean the UK faces a net-zero financing gap of around £50 billion per annum by the end of this decade.
Who will pay?
Lawrence Slade, chief executive of the Global Infrastructure Investor Association, says that the government envisages the private sector providing the bulk of the required investment. “People were expecting huge numbers without realising the emphasis that the government is putting on attracting private finance,” he says.
Even if this is the case, the consumer or the taxpayer will ultimately have to support this investment, says Matthew Lockwood, senior lecturer in energy policy at Sussex University. “Whether it’s large scale infrastructure investment or putting in heat pumps, someone will have to pay for it,” he says.
One option is for consumers paying through their bills, the preferred option over the past decade through support mechanisms like the CfD, which has proved so successful in helping to push down the costs of offshore wind.
However reliance on bill subsidies is ultimately “very regressive”, says Lockwood, while that support through taxation also places too great a burden on the current generation.
“Both bills and taxes risk a political backlash, the obvious example is the gilet jaunes,” he says, referring to the French protest movement that was sparked by anger about increased fuel levies.
A more palatable option for the government could be to pay for the investment through government borrowing, he says: “The political risks from debt is much lower.”
The caveat to this is that government borrowing has exploded to record peacetime levels to finance lockdowns and furloughs during the pandemic, although Lockwood argues that the additional investment required for net zero is negligible in the context of the vast sums borrowed to prop up the economy.
In addition, historically low levels of interest rates mean that it makes sense to borrow currently. Stark, too, points to this as a justification for borrowing now to finance
And if there ever is a good reason to borrow, tackling climate change must be one of them, given that the action is being taken for the sake of future generations, says Lockwood.
Consumer buy-in
Unless households are helped to make the transition to a lower carbon future, there is the risk of a political backlash, he argues.
It will be difficult enough to convince ordinary households to switch to heat options, like heat pumps, without demanding that they fork out more than they would have to for a new boiler, he says: “It’s going to be difficult to impose this on households, if they have to pay an additional £10,000; it’s not going to happen and the government knows that.”
The CCC says that one million heat pumps must be installed a year by 2030 in order to get the UK on track to meet its 78 per cent target.
This goal is “not, not feasible”, says Buckland. However, it is not achievable in the current policy and regulatory climate. “At the moment, the government doesn’t have a policy framework that will deliver it,” he says.
He claims that one of the problems is the unequal policy costs for electricity and gas, a point taken up by Laura Bishop, chair of the Ground Source Heat Pump Association. “While gas is cheap, it’s going to take a long time to offset the cost of running a gas boiler. Until the gas price is more in line with the electricity price, it’s going to be very, very difficult,” she says. “If the government wants to go for electrification of heat, it is going to have to address the different prices.”
Stark observes that implementing its recommendations is going to require “strong leadership” from government “especially over next two parliaments”. Tackling this thorny issue could show whether the PM’s green recovery ambitions are more than hot air.