Rethinking Decarbonisation Incentives for Net Zero policy
Energy Systems Catapult aimed to encourage broader strategic debate about how the UK could improve carbon policy to stimulate innovation and clean growth through the Rethinking Decarbonisation Incentives (RDI) project.
The UK has clear, legally binding targets to reduce carbon emissions to Net Zero by 2050, but the current policies in place to encourage emissions reduction are complex and often changing. Current policies comprise of different taxes, subsidies, contracts and regulations, which has resulted in the reward for cutting carbon emissions to vary across different sectors of the economy and is generally much lower than it needs to be. This makes it very difficult to promote long-term investment and innovation.
The Government has published a Clean Growth Strategy, but unlike other jurisdictions (e.g. California and Canada) there is relatively little strategic debate or commitment regarding:
The of economic drivers for decarbonisation,
Creating an enduring framework for carbon reduction across the whole economy.
The RDI project began by summarising the current pattern of ‘effective carbon prices’ (i.e. the strength of incentive to cut carbon emissions) across different sectors of the UK economy.
Summarised the ‘effective carbon prices’ in different UK sectors. The analysis carried out with the support of Oxford Energy Associates, showed that the UK currently experiences wide variations in effective carbon prices between emitting activities and sectors.
This was followed by an exploration of the leading decarbonisation policies from jurisdictions around the world.
From these learnings, five carbon policy reform options were developed offering possible ways for reducing the complexity of the current policy landscape, while aligning or setting new incentives for decarbonisation across all sectors.
Explores whether setting standards on carbon intensity could place an obligation on energy companies to reduce the carbon content of the energy they supplied. Obligated parties could meet the standard either by reducing the emissions intensity of their activities, or by buying credits from parties who are supplying energy with a carbon intensity below the standard.
Finally, RDI delivered a final report that made the following set of recommendations:
Take opportunities to improve the current framework of policies by adjusting existing mechanisms to align incentives to reduce emissions across the economy.
Consolidate and streamline existing measurement, monitoring, and verification of all emissions and related incentives.
Take immediate steps to progress a carbon policy driver for residential heat, including detailed design of an enduring framework of carbon standards.
Develop a pathway towards a coherent set of interlocking sectoral instruments covering all emitting activities throughout the economy, with a linked market for greenhouse gas removals.
Integrate carbon reduction into the measurement of economic productivity, potentially through the Industrial Strategy Council.
Future Carbon Policy for Clean Growth – a final report with recommendations to policy-makers on how the UK can achieve a balanced economy-wide carbon policy framework to boost innovation and deliver clean growth, consistent with a net zero target in 2050.
The Rethinking Decarbonisation Incentives project has helped us to better understand the nature and scale of challenges to improve carbon policies.
This report cited RDI a number of times, including: our summary of the current pattern of economic signals in the UK for reducing emissions in different sectors; insight on policies and regulations that can be aligned to a carbon price level, without pricing carbon directly; evidence of UK policies with objectives that are broader than climate change mitigation yet still indirectly reflect a carbon price; and insight into how to price carbon to reach net-zero emissions in the UK.
Impact update: October 2019
Ofgem’s annual State of the Energy Market 2019 report, includes an assessment of competition in retail and wholesale energy markets, affordability and vulnerability, progress in decarbonisation, the security of our energy supplies, and how energy networks are performing.
To meet its ambitious environmental target, the UK will need a more uniform carbon price across industries.
This full page spread in the Financial Times broaden the reach of the Rethinking Decarbonisation Incentives project and in particular the work surrounding ‘Effective carbon prices and emissions in the UK’.
Impact update: June 2020
The Climate Change Committee’s (CCC) cited the RDI on Reducing UK emissions Progress Report to Parliament, stating: “many sectors of the UK economy not currently facing the full costs of emitting greenhouse gases., with a wide variation in effective carbon prices across emitting activities and sectors, but these prices are generally much lower than required.
“Setting or raising carbon prices for these sectors could help incentivise the actions and investments required, as well as raising revenue.”
Read the Report
Rethinking Decarbonisation Incentives Future Carbon Policy for Clean Growth
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