Net Zero Carbon Policy is an Energy Systems Catapult thought leadership project, focusing on how the UK can develop an innovation-friendly, economy-wide framework for Net Zero.
We are building on the insights from our Rethinking Decarbonisation Incentives project, to develop credible policy options for an efficient and socially beneficial transition.
Only thirty years remain before the UK must legally reach Net Zero carbon emissions. All major emitting sectors – transport, heating, manufacturing, power generation, and farming – will need to change radically to get as close as possible to zero emissions by 2050.
However, the UK’s current carbon policy framework, as it stands in 2021, is not fit for purpose to deliver such ambitions.
A Sector Led Approach to an Economy-Wide Carbon Policy
We have proposed that a sector led approach, which recognises the importance of sector specific barriers to change, provides the best opportunity to develop an economy-wide carbon policy framework pursuant with Net Zero.
By avoiding reliance on an overarching carbon pricing mechanism, policy can be designed at a sectoral level to address sector specific challenges, for example mitigating competitiveness impacts in industrial decarbonisation or enabling energy suppliers to create attractive consumer propositions for home energy services and heat decarbonisation.
Similarly, transitional and distributional impacts often have sector specific characteristics that require sector specific policy responses (e.g. targeted fuel poverty interventions).
- Accelerating to Net Zero: A Sector Led Approach to Economy-Wide Carbon Policy Framework – Explore and make the argument for taking a sector led approach that can accelerate progress during the 2020s from the incomplete and unbalanced pattern of current carbon policies towards a more coherent economy-wide carbon policy framework in the 2030s.
- Developing Carbon Credit Markets – Explore how linking sectoral policies through trading can play a key role in opening a pathway to an economy-wide carbon policy framework.
- Industrial Decarbonisation: Net Zero Carbon Policies to Mitigate Carbon Leakage and Competitiveness Impacts – Focus on the UK context of international competitiveness impacts that arise directly from carbon policies and evaluate their ability to enable deep decarbonisation of industry in line with Net Zero pathways, while simultaneously mitigating carbon leakage and competitiveness impacts.
- The Case for an Economy-Wide Carbon Regulator – Make the case for a new regulator to oversee accurate and coherent monitoring, reporting, and verification (MRV) of greenhouse gas emissions reduction and removal across the economy.
The implementation of robust and enduring policies and regulation will be essential to building the necessary confidence with innovators to invest in low carbon products and services.
We argue that there is significant merit in taking a sector led approach to build an economy-wide carbon policy framework to accelerate the transition to Net Zero. With 8 key recommendations.
But carbon pricing – either through a tax or a trading scheme – is not enough on its own to deliver that revolution. Getting the incentives rights is about a delicate balance between innovation support, regulation, and carbon pricing.
Moves to simply apply a blanket carbon tax across the economy are unlikely to unlock the innovations we need to meet our ambitious targets and risk backfiring if not handled with care.
UK Emissions Trading System: Blog series
The UK wants to be a global leader in the fight against climate change, and it can take a massive step forward this year by increasing the ambition of the new UK Emissions Trading System.
Achieving zero carbon electricity by 2035 will be key to decarbonising many other sectors. The UK ETS combined with electricity decarbonisation policy mandates could be vital.
The UK ETS currently omits natural gas (and other fuels used for heating). If the scope of the UK ETS were expanded to cover buildings, specifically heating, we potentially introduce 27 million – mostly unwilling and uninterested – participants.
If UK industry is to lead the green industrial revolution towards Net Zero, Government will not only have to incentivise deep decarbonisation of industry, but also ensure that UK industrial competitiveness is not unduly impacted.
The UK left the world’s largest carbon market – the European Union Emissions Trading System (EU ETS) – at the end of 2020. But with the UK holding its first auction of allowances recently, should we starting to think about linking the smaller UK market to its larger and older European cousin?
There is no point in creating policies like an Emissions Trading System or Carbon Performance Standards if the measurements they rely on bear little relation to empirical reality.
Land use was always going to play an important role for emissions reduction, but Net Zero has upped the ante for the sectors directly impacted – agriculture and forestry. But how do we incentivise nature-based greenhouse gas removals and does the UK ETS have a role to play?
Who is Involved?
Throughout developing our thought leadership work we have received feedback from a range of expert advisors, including from the Department for Business, Energy and Industrial Strategy; Department for Environment, Food & Rural Affairs; HM Treasury; Climate Change Committee; Scottish Forestry; Confederation of British Industry; Vivid Economics; Grantham Institute on Climate Change and the Environment, London School of Economics; E3G; Green Alliance; Conservative Environment Network; Children’s Investment Fund Foundations; Drax; SSE; High Value Manufacturing Catapult.
We will be continuing to develop our thought leadership work over the coming years, including:
- Further exploring the role of UK carbon pricing, including improvements to the UK ETS.
- Deeper dives into the role of an economy-wide carbon regulator.
- Leading on the international stage in the run up to COP26
- Linking sectoral carbon policy packages for power, buildings, and industry.
- Exploring the role of carbon policy for industrial decarbonisation, including clusters, and the role of CCS, hydrogen, and greenhouse gas removals.
In addition, we hope to leverage our expertise to support UK industry and advise other jurisdictions (e.g. Malaysia) in achieving their Net Zero ambitions.