One small step for Net Zero, but still no giant leap

Comment by Dr. Danial Sturge

Carbon Policy Practice Manager - Markets, Policy and Regulation

The final gavel fell late on Saturday 13th November, calling to a close the 26th Conference of the Parties. Let’s first congratulate the President of COP26, Alok Sharma, and his team of negotiators for the successful adoption of the Glasgow Climate Pact. It was never a given that 1.5C would be kept alive, even if it is still on life support. Getting any agreement from nearly 200 nations with widely different vested interests during a global pandemic should certainly be applauded, especially one that includes new language on fossil fuels and coal. Of course, it is still nowhere near enough, but it is a step in the right direction when it could have so easily been a step backwards.

This follows a frenetic few weeks for the UK Government, publishing a deluge of strategies, frameworks, and consultations, in particular the Net Zero Strategy and the Heat and Buildings Strategy.

In September, we published “The Net Zero Strategy and COP26: An Opportunity for UK Leadership in Net Zero Policymaking” in which we asked Government to commit to seven key recommendations. So, how do the COP outcomes and the hundreds of pages of Government output stack up against our recommended commitments?

At the top of our list was:

ESC Recommendation: Commit to establishing a Carbon Monitoring, Reporting, and Verification and Accounting Regulator, responsible for robust empirical and scientific methods for measuring or accurately estimating emissions, and ensuring emissions reduction actually occurs in line with Carbon Budgets and the Paris Agreement.

Much to our delight, this was partially achieved in the Government’s Net Zero Strategy. Policymakers committed to “Explore options for regulatory oversight to provide robust monitoring, reporting and verification (MRV) of GGRs”. While not quite economy-wide, this is a crucial step in ensuring Net Zero is achieved in reality and not just according to a spreadsheet, especially given the importance of negative emissions.

On a global scale, under the now agreed Article 6 of the Paris Agreement Rulebook, stringent accounting, baselines, and additionality requirements for the new carbon market mechanism have been laid out. While other aspects of Article 6 are far from perfect, this particular component, which in essence eliminates double counting, was far from a certainty a few weeks ago and is a significant diplomatic achievement.

In a similar vein, promising text was agreed with regards to:

ESC Recommendation: Commit to creating a linked Greenhouse Gas Removals Marketplace, initially by establishing a publicly-funded and centrally-accredited system.

In the Net Zero Strategy, Government stated: “Working in partnership with the devolved administrations, we will aim to launch a call for evidence in the coming months exploring the role of the UK ETS as a potential long-term market for GGRs, as part of our upcoming consultation on the UK ETS.”

Staying on the theme of the UK ETS for just one more moment, we also asked Government to:

ESC Recommendation: Commit to expanding the scope of the UK Emissions Trading System to cover heating and road transport emissions, as part of comprehensive policy packages for reaching Net Zero in both sectors.

While no specific actions were set out, the Net Zero Strategy reaffirmed Government’s commitment to “exploring expanding the UK ETS to the two thirds of uncovered emissions” and “will provide a further update in due course”. Such a step is crucial to create an aligned set of incentives, so that innovators can compete on a level playing field.

Jumping to electricity, our ask was for the creation of a clear policy driver for system-wide decarbonisation:

ESC Recommendation: Commit to adopting a Net Zero emissions by 2035 policy driver for the electricity sector, this could be in the form of an outcome-based decarbonisation policy mandate such as a decarbonisation obligation that compliments the UK ETS.

The Government announced in early-October a commitment to decarbonise the electricity system by 2035. But with no details on how it will be achieved, that’s just half marks in relation to our recommendation on an electricity decarbonisation policy mandate.

Moving onto heat and buildings, our ask centred around creating clear demand drivers for the whole sector:

ESC Recommendation: Commit to fully adopting long-term carbon performance standards in the buildings sector by 2035, creating a clear driver for innovative building energy solutions.

During the flurry of publications ahead of COP, Government published their long awaited (and highly anticipated) Heat and Buildings Strategy. This started to take on some difficult political terrain, with some promising signs (if the measures can survive consultation):

  • There is clear recognition of the need to begin shifting the policy costs burden away from electricity bills.
  • Crucially, there is also clear recognition of the potential to use obligations to create demand for innovative solutions along the supply chain. The market-based mechanism for low carbon heat is an important first step – even if the ambition, placement, and design of the underlying obligation could be improved. These obligations could be transformative for innovators, if done right, but they also risk bad consumer experience if not aligned with a clear focus on good consumer outcomes.
  • There is also significant direct help for the fuel poor, through the Social Housing Decarbonisation Fund and Home Upgrade Grants.

And, despite warm words, much more needs to be done to unlock local-level action.

While the Net Zero Strategy did not reveal anymore of Government’s plans for applying carbon policy at the border, HM Treasury’s Net Zero Review revealed that significant work is underway at the heart of Whitehall, but we await any decisions:

ESC Recommendation: Commit to developing an enduring set of incentives for deep industrial decarbonisation with appropriate mechanisms to mitigate competitiveness impacts, centred on the UK ETS while considering interactions with international trading partners’ carbon policy plans (e.g. Carbon Border Adjustment Mechanism designs).

For our final recommendation, unfortunately, it was incredibly light on land-use:

ESC Recommendation: Commit to linking new agricultural reward schemes to the adoption of climate-friendly farming practices and land-use changes, and to developing a long-term incentive framework for Net Zero land use.

In summary, if we were to grade Government’s report card it would be a B; there has been significant progress, but there is much, much more to be done. While there are plenty of hard yards still to go, we now have a clearer mandate for fighting climate change and a foundation for achieving Net Zero – not just in the UK and its Government, but globally too.

We at Energy Systems Catapult will continue to develop our thought leadership – across the themes of carbon policy, electricity market reform, buildings decarbonisation, industrial decarbonisation, and hydrogen. This supports Government to create the frameworks that will unleash Net Zero innovation and help tackle the most difficult questions on the road to Net Zero. The emphasis now needs to shift from what we need to do, to how we are going to do it – the hard work starts here.

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