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The competitive impact of emissions reductions

The UK is unique in having an independent statutory committee (called, unsurprisingly, the Committee on Climate Change) which sets 5-year ‘carbon budgets’ to guide the government of the day towards the goals enshrined in the Climate Change Act of 2008. The government is not absolutely obliged to agree to each budget, but in fact has accepted the first four, taking us to 2027.

The CCC’s own recent assessment (in June this year) was that the second budget (covering the period until 2017) would be met, but that the country was not on target to meet the third and fourth ones. These, of course, get increasingly tough, with a goal of cutting emissions by 50% from their 1990 baseline by 2015. Accepting this objective could be seen either as an act of faith or the normal political response to difficult issues: kicking them into the long grass. In either case, the Climate Change Act seems to be fulfilling its purpose of preventing backsliding, at least superficially.

However, there are distinct signs of a weakening of resolve in some quarters, perhaps most importantly from the Treasury. With significant media coverage which might stiffen backbones, the Committee has this week issued a review: Fourth Carbon Budget review Part 1 – Assessment of climate risk and the international response. The second part – with final recommendations – will come out before Christmas. Under the terms of the Climate Change Act, the government can review the fourth carbon budget next year and make changes if the circumstances under which it was set have altered. It is the CCC’s role to review and report on this in the current exercise and it would be a brave government which went against their recommendation.

However, that doesn’t mean that their analysis and conclusions should not be subject to proper criticism. It is normal human behaviour to be selective with the evidence used to support a claim, and the Committee is certainly not immune to this. Significantly, all the members of the Committee implicitly accept the IPCC’s analysis and the need to cut emissions. In the same way that the IPCC’s role is to assess evidence for the anthropogenic nature of global warming rather than take a broader, more objective view of factors affecting climate, so the CCC is there to plan the route towards a cut of 80% in emissions by 2050 rather than ask whether this is the best thing to do.

On the subject of the likely extent of climate change, the report says “In particular, there is a significant risk of warming of 4°C or more by the end of the century, which would result in very high economic, social and environmental costs and consequences. The best way to limit these risks is to cut global emissions very significantly, such that these peak around 2020 and halve by 2050. . .” In fact, the likelihood of such a steep rise in temperature seems remote, given that the trend since the turn of the century now falls at the very lower end of the envelope of projected possibilities. The CCC seems to be guilty of overstatement.

The report also says “The latest evidence generally gives more confidence in the reality of climate change, in its cause and in projections for the future. For example, the IPCCs Fifth Assessment concludes that warming of the climate system since the mid-20th Century is unequivocal, and it is extremely likely that human activity is the dominant cause. . .the IPCC provides the same likely range for climate sensitivity as in its first three assessments in 1990, 1995 and 2001, with a slight revision from the fourth assessment in 2007...In a scenario where global greenhouse gas emissions continue to increase, it is likely that global temperature will increase by 4°C or more above pre-industrial levels by the end of the century.” This accepts the IPCC judgement without question and again overstates the case that a 4°C rise is possible.

One of the key criticisms of emissions reduction policy is that the EU – and the UK in particular – is taking action unilaterally which slows its economic growth while emissions elsewhere continue to grow. The Committee’s view is that “The UK is not acting alone. Rather, many countries have made progress towards delivering the commitments made under the Copenhagen Accord, often beyond what was envisaged when the fourth carbon budget was set.” While being factually correct, this is misleading; whatever action is being taken here and elsewhere, emissions continue to grow, albeit at a slower rate in 2012 than previously (2012 sees slowdown in the increase of CO2 emissions). And since much of the increase comes from newly commissioned coal-fired stations in China, bringing their emissions down over the decades these generating plants will operate would be out of the question, unless the West pays for the change.

On the subject of China, the report says “Amongst the major emitters, China (29% of global CO2 emissions) has made significant progress on low-carbon investment. It has made commitments to reduce carbon intensity by 40-45% from 2005 to 2020, and introduced policies to deliver this as part of the 12th five-year plan. With ongoing action, China’s emissions could peak in the early 2020s.” This seems optimistic, since the Communist Party relies on a sustained high level of growth to maintain its monopoly on power. Nothing will be allowed to jeopardise this. The country may be installing lots of solar panels, but they form a very small proportion of the total power generating capacity and, like everywhere else, cannot be used without conventional backup.

A final point is their rather disingenuous statement on what is happening across the Atlantic: “The United States (16% of global CO2 emissions) has a good chance of delivering its Copenhagen Accord commitment to reduce 2020 emissions by 17% on 2005 levels. Going beyond this, there is a major challenge to develop and implement approaches to drive further cuts required through the 2020s.” The dominant reason for this fall in emissions is the US exploitation of shale gas, which has replaced much of the coal used and even made nuclear energy uneconomic in some instances. Unlike the EU, which is burdening its economy with additional costs, America has reduced both emissions and energy costs. When shale gas runs out, the pragmatic Americans will turn to whatever other source  of energy is most economic.

The CCC’s remit was to report on any change in circumstances which might affect the accepted carbon budgets. They have concluded that there have been no changes, but they have failed to address the more basic question of whether these budgets were optimal in the first place. Next month, in the second part of the report, the Committee will cover the costs and benefits of meeting the carbon budgets and make its final recommendations. Since they will use artificially low discount rates in their calculations, the result is hardly likely to be a surprise. 

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