How is the UK tackling climate change?

The Climate Change Act

Britain's Climate Change Act contains the world's first legally binding national commitment to cut greenhouse gas emissions. It was passed by an overwhelming majority (463 to 3) in 2008.

The headline target was originally an overall cut in emissions of at least 80% by 2050, relative to 1990. However, in 2019 this was amended with a target of achieving net zero emissions (100%) by 2050.

The UK Act requires governments to set legally binding ‘carbon budgets’. Each budget provides a five-year cap on total greenhouse emissions; in order to meet the UK’s emission reduction commitments caps should not be exceeded.

The Climate Change Committee (CCC), which was established by the Act, proposes the carbon budgets to government. They are set more than a decade ahead, to prepare the required policies and investment. Together, the budgets map out the most economically beneficial route to the 2050 target. The Committee reports annually to Parliament on the government's progress.

The government has already legislated five carbon budgets, running from 2008 to 2032. The CCC recommended the level of sixth carbon budget in 2020, which was the first to be analysed after the passing of the net zero legislative target, but this has not yet been formally legislated by Government.

The first carbon budget (2008-12) and the second (2013-17) have been met and the UK is on track to outperform the third (2018-22). However, it is not on track to meet the fourth (2023-27) or the fifth (2028-32).

In order for the fourth, fifth and sixth budgets to be met, the CCC recommend taking steps to become more energy efficient and making the switch to low-carbon fuels for heating and transport. This means moving away from using coal and gas-fired power to electricity generated from renewables, nuclear power and roll out of technologies such as carbon capture. The Committee advises that both will be necessary to meet UK carbon targets, along with action to tackle buildings, agriculture and waste.

UK Climate Action

Action on climate change can be divided between measures to cut carbon emissions and promote cleaner alternatives in energy supply; to support energy efficiency; drive corporate reporting of carbon emissions; and support climate action overseas.

For companies in energy-intensive sectors such as power generation, steel, chemicals and ceramics, a major policy measure for reducing emissions is the European Union Emission Trading Scheme (EU ETS). After Brexit, the UK entered its own, UK-only ETS, which is widely similar to the EU one. And will apply to the same industries, where it is mandatory. They receive permits to emit greenhouse gases and can trade them at the market rate, therefore assigning a price to carbon emissions and encouraging them to lower emissions to save money.

UK companies outside these energy-intensive sectors, and domestic consumers, are covered by a wide range of national policies. (The Governments of Scotland and Wales, and the Northern Ireland Assembly, have additional targets and policies, which are covered in a separate ECIU Briefing).

Energy policy measures that apply over all or most of the UK include:

Carbon pricing

Carbon pricing penalises emissions from burning fossil fuels.

In addition to the UK ETS, the UK government introduced the Carbon Price Support (CPS) to top up the European carbon price - it requires UK power generators to pay a minimum carbon price, known as the Carbon Price Floor (CPF). The government has capped the Carbon Price Floor at £18 per tonne until 2021.

Meanwhile, in the transport sector, the UK charges car drivers a Fuel Duty tax on the road fuel they burn and is has brought forward an end to the sale of new petrol and diesel cars and vans to 2030. Separately, in a regulation against fossil fuels, the government has brought forward the end of coal use for power generation to 2024.

Low-carbon energy support

Increasing renewable energy production is one fundamental way that will allow the UK to meet its binding net zero target by 2050.

To drive uptake of renewables, the government has focused most support on the electricity sector, where the most cost-effective technologies are available. Progress has already been achieved - in 2020, 42% of electricity was generated from renewables compared to 41% from fossil fuels. However, if the UK is to reach its goal of net zero, low carbon sources will need to account for 100% of electricity generation or fossil fuels must be used in conjunction with carbon capture and storage technology.

In large-scale power generation, Britain replaced the market-based Renewable Obligation with a Contracts for Difference (CfD) scheme, which guarantees a fixed price per unit of low-carbon power generation.

Under the CfD, projects compete against each other for support, in auctions. ‘Established technologies’, defined as onshore wind and solar power, compete in one auction. ‘Less established technologies’, including onshore and offshore wind and tidal, compete in a second.

The next CfD auction is due this year (2021), and will include a separate allocation for onshore wind, supporting the technology for the first time since 2015.

Meanwhile, small-scale, household renewable power and heat are supported by the Smart Export Guarantee (SEG) which was introduced in January 2020. The SEG tariff provides those households with small-scale low carbon generators, for example solar panels or wind turbines, with payments for the electricity they export to the National Grid.

Britain is considering supporting new nuclear projects through the Regulated Asset Base (RAB) model. This system will see developers receive revenue before plants start generating, reducing capital costs but shifting risks of delayed construction onto billpayers.

Energy efficiency

In the domestic sector, Britain’s Energy Company Obligation (ECO) scheme requires large energy firms to boost the efficiency of homes, especially in disadvantaged areas and for vulnerable people. Costs are passed to all consumers via energy bills. Previously, only suppliers that had more than 250,000 domestic customers were obligated to take part in ECO. However, from April 2021 suppliers with more than 150,000 domestic customers will be obligated to take part too.

Britain is driving a rollout of smart meters across all UK households, which help individuals reduce their consumption of energy by increasing the customer’s awareness of how much they are using, and how much it costs. However, the original deadline for all homes to have a smart meter by 2020 has been pushed back multiple times, now to 2025, after slow progress before and during and the coronavirus pandemic.

In the business sector, polluters pay a Climate Change Levy (CCL) per unit of energy consumption. Energy-intensive users can opt out of CCLs, if they agree a Climate Change Agreement to boost their efficiency.

International climate action

Britain has played an active part in UN negotiations and contributes climate finance to vulnerable nations. In Paris in 2015, Britain joined a group of 20 countries which pledged to double spending on cleantech R&D. And it has increased international climate finance by 50%, to £11.6 billion between 2021/22 to 2025/26. It is also hosting the international climate summit, COP26, in 2021 (see separate ECIU briefing here).