The Case for an Economy-Wide Carbon Regulator

Published: 29 April 2021

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.

In this report, The Case for an Economy-Wide Carbon Regulator, we 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. A so-called ‘Carbon MRV and Accounting Regulator’ could play a pivotal role in ensuring:

  • Robust empirical and scientific methods for measuring or accurately estimating emissions.
  • Reported emissions reduction actually occurs in line with Carbon Budgets and the Paris Agreement.
  • Reductions in, and removals of, emissions are accounted for and rewarded appropriately through Government implemented policy.

The MRV of emissions – both positive and negative – can be straightforward when directly measured from a flume or when proxied through energy use, but challenges arise for sectors such as agriculture and land use where such measurements are not possible. Consumption-based emissions (i.e. those that result from the embodied emissions of imported goods and services) yield additional complexity due to the supply chain life cycle analysis required.

Currently, investor confidence is dampened – in part – by uncertain shifts in policy and incoherent MRV practices domestically and internationally. Implementing robust, economy-wide MRV can improve this, remove barriers to innovation, and ensure that incentives drive technologies and processes that genuinely reduce emissions. A suitably empowered regulator can ensure that emissions are measured and reported coherently across all major emitting sectors. This in turn can provide a robust basis for policy design, standard-setting and reporting, and incentive mechanisms to drive investment and operational decisions aligned with Carbon Budgets and Net Zero.

Crucially, any devolved or policy specific administrative responsibilities should sit alongside this addition of economy-wide oversight. Such a body could enforce civil financial penalties to emitters, as well as be independent and able to hold Government to account if necessary.

The body accountable for economy-wide oversight would also be responsible for developing the measurement and accounting framework (and where applicable, methodologies) required to ensure MRV is carried out accurately (as far as possible) and consistently across all sectors.

In addition, responsibilities should extend beyond the UK’s territorial emissions to include consumption-based emissions. There are difficult technical areas and conventions for carbon accounting still to be defined and agreed internationally. A UK carbon regulator would play a key role in unlocking the global debate around robustness of emissions reduction claims, as well as enabling and agreeing Article 6 of the Paris Agreement.

Recommendations for Policymakers

In our ‘Accelerating to Net Zero’ report, we highlighted the potential for a sector-led approach to carbon policy design to be developed as a pathway to a more coherent economy-wide policy framework to achieve Net Zero. The report also highlighted the important role that developing linkages between sectoral carbon policies can play in achieving an efficient and balanced transition to Net Zero.

Underpinning all of this is the requirement to ensure that the monitoring and reporting of emissions are robust, transparent, and accurate as far as possible, along with consistent verification across all major emitting sectors. We make the case for introducing an economy-wide carbon regulator – either by extending the powers of an existing regulator or setting up a new body – and ask that policymakers consider the following recommended actions.

  1. Explore the economic upsides and downsides of introducing an economy-wide carbon regulator. Such a study could seek to help guide Government in developing a governance structure that not only enables Net Zero in the UK, but also continues to place the UK as a leader on the international stage.
  2. Convene expert advisory groups across all major emitting sectors to carry out initial studies on the MRV requirements for their respective sectors pursuant to achieving Net Zero.
  3. Seek to expand the roles and responsibilities of the Climate Change Committee or set up a similar advisory body, to encompass developing the necessary measurement and accounting methodologies for emissions reduction and removal.
  4. Work with the Climate Change Committee to understand what is required to account for consumption-based emissions and include appropriate reduction targets as part of the Carbon Budget process.