A decarb target is good for the economy, good for the environment and good for gas

There are no good arguments against the adoption of a decarbonisation target

19 Feb 2013, 14:11

I've been thinking about this for some time and I've finally come to a conclusion. There are no credible arguments against the early adoption of a decarbonisation target for the UK's power sector. None, not one, nada.

If the UK is serious about decarbonisation, green growth and compliance with the legally binding Climate Change Act, then there is no argument that can be constructed that makes the proposed decarbonisation target for 2030 a bad idea.

To reject the bipartisan amendment put forward by Tim Yeo and Barry Gardiner is to accept firstly that we are on the brink of an unprecedented era of cheap and stable gas supplies, and secondly that either a) a remarkable technological breakthrough that makes carbon capture and storage (CCS) technology affordable and effective is imminent, or b) manmade climate change is not happening.

The initial assumption that cheap and stable gas supplies are just around the corner flies in the face of pretty much all the available evidence. As Ofgem's Alistair Buchanan made plain today, the next five to eight years will be characterised by an increasing reliance on gas imports that are likely to prove costly as global demand for gas soars.

There is an argument, apparently swallowed whole by the chancellor, that by the early 2020s the US shale gas boom will be being repeated in Europe, China, Russia and Australia, giving us a near inexhaustible supply of relatively cost-effective gas. But even if you ignored the counter-arguments that challenge this prediction – concerns over the impact on water supplies, methane leaks and the emergence of even more cost-effective renewables could all undermine shale investments – you still have to assume either that climate change is not a serious issue, or that CCS will be widely available by the late 2020s to construct a credible argument against a decarbonisation target for 2030.

The climate sceptic argument is the preserve of cranks and amoral vested interests. The alternative faith in CCS represents a reckless gamble with the UK's future energy and climate security. Remember, you don't just have to assume CCS at scale on gas-fired power plants will prove technically effective by 2030, you also have to assume it will be cost effective – so affordable in fact that gas remains cheaper than alternative energy sources even when the installation of CCS technology is taken into account.

Of course, if effective CCS technologies do emerge over the next 17 years (and I sincerely hope they do) then energy companies will have no problem complying with the 2030 decarbonisation target. If the gas industry and the chancellor were really confident in this CCS silver bullet, and saw a significantly increased reliance on gas as compatible with the UK's carbon targets, they would simply accept the decarbonisation target, start building plenty of new gas-fired power plants and then fit CCS in 2030. The fact they won't concede to the introduction of such a target confirms they do not have real confidence in CCS technology and fear they would end up having to shut down working gas plants in 2030.

There are actually two slightly more sophisticated arguments against the adoption of a decarbonisation target.

The first, as put forward by Policy Exchange's Guy Newey, is that a separate decarbonisation target is unnecessary. We already have binding EU emission reduction targets and the UK's Climate Change Act, Newey argues, so why do we need to succumb to "energy targetism" and adopt yet another sector-specific target? Wouldn't we be better off focusing on sorting out the EU emissions trading scheme and using the market to deliver emission reductions at the least cost?

The CBI has adopted a similar line and it appears to be a pretty strong argument. If it were a perfect world we would need no target as the entire economy would be on a lowest-cost decarbonisation path driven by a functioning ETS and the magic of the market. But it is not a perfect world. The EU ETS is on the brink of collapse and, while the Climate Change Act should give green businesses certainty that decarbonisation will continue, certain members of the ruling party have recently taken to booing whenever it is mentioned in parliament. Add in the fact the chancellor has made no secret of his desire to water down medium-term carbon targets and you can see why investors and developers have seen their confidence in the long-term low-carbon transition undermined. Many of them are telling the government a decarbonisation target would help restore it and allow them to move forward with investments in new clean tech factories. It is perverse a chancellor tasked with delivering economic recovery would deny them.

Moreover, if getting a decarbonisation target for the power sector agreed at a UK level is tough, getting an agreement on much-needed reforms to the ETS is near impossible. With a fully functioning EU ETS delivering a carbon price capable of driving sufficient investment in low-carbon technologies years away, a UK decarbonisation target seems an effective and necessary safeguard against the construction of an excessive number of gas power stations that would make future compliance with the Climate Change Act extremely difficult.

The second argument is that because the UK is part of the EU ETS any effort we make to cut emissions in the UK by decarbonising our power sector will simply result in more emissions elsewhere in Europe. Again, this sounds compelling, but on closer inspection does not really constitute an argument against a decarbonisation target. Crucially, the ETS emissions caps for post-2020 are yet to be set, meaning that if the UK were to adopt a decarbonisation target this goal would presumably be taken into account when the number of allowances that will be issued is calculated. Even if UK energy firms were handed too many carbon allowances allowing others to emit in their place, the UK's decarbonisation efforts would allow British-based companies to sell their excess credits generating more income. An imperfect scenario for the climate, but not a bad one for the British economy.

The arguments against a decarbonisation target really are this weak. They are built on either the reckless assumption that new CCS technology will make a large fleet of new gas-fired power stations compatible with carbon targets, or the reckless assumption that the under fire Climate Change Act and the flawed EU ETS will somehow stop the development of excessive numbers of gas-fired power plants.

But it is not the weakness of these arguments that is the real problem currently afflicting both the UK's energy sector and its green economy. It is what these weak arguments have enabled.

In his desperate desire to leave the door open for all the gas-fired power the industry could possibly want, George Osborne has not only embraced these reckless and flawed arguments he has insisted on a sad and ugly compromise that means the energy industry gets neither the certainty of a decarbonisation target nor the certainty of not having a decarbonisation target.

It has been said before and it will be said again, but in delaying a decision on a decarbonisation target until 2016 the government has thrown the energy industry into three years of limbo just at a time when, as Ofgem today attests, it urgently needs to be building new capacity. Thankfully, some new renewable energy and gas capacity will be built from 2014 once the Energy Bill's contract for difference and capacity mechanisms are finally sorted out. But the cost of capital for gas infrastructure is likely to be higher than it needs to be because of the looming 2016 decision on a decarbonisation target. Meanwhile, supply chain firms for both the renewables and the gas industry, including of course CCS, will be reluctant to move forward with any investment until the 2016 decision provides a signal as to whether it will be gas or lower-carbon energy sources that dominate the energy mix through the 2020s.

It is a mess. A mess that will only result in higher energy costs and greater energy insecurity for the UK. Any attempt to pretend otherwise is nothing but political spin.

In contrast, the passage of the Yeo-Gardiner amendment and the simple adoption of a decarbonisation target next year could have a transformative effect. It would provide greater certainty to renewables developers and clean tech manufacturers, it would provide a boost to the government's faltering nuclear programme, it would almost certainly lower the cost of capital for all energy projects, it would significantly increase the likelihood of the UK meeting its carbon targets and, yes, it would help accelerate the significant, but not excessive, investment in new gas infrastructure that is required to help ensure the UK's lights stay on.

With a clear-cut decarbonisation target in place for 2030, a stable incentive regime established through the contracts for difference and capacity mechanism, and ambitious new energy-efficiency programmes in the pipeline, the government would finally have delivered reforms that would keep the lights on while decarbonising our power network. It would also fire a starting pistol in the race to deliver low-carbon energy at the least cost. If renewables or nuclear want to dominate the energy mix in 2030 they had better find a way to reduce costs; if the gas industry wants to dominate then it needs to identify secure supplies and find a way to make CCS work.

The problem is that the Lib Dems and those Tories who are not so reckless as to have bought the gas industry's arguments already know all this. They know the energy industry will face crippling uncertainty until the 2015 general election is done and dusted; they know we have to decarbonise one way or another so a target does no harm and may do plenty of good; they know early action will enhance energy security and deliver green jobs. But it will still take an act of considerable political bravery to defy the sorry compromise agreed by their party leaders. Significant numbers are said to be sympathetic towards the decarbonisation target amendment, but they will not rebel unless plenty of their colleagues do likewise.

This is a genuine Westminster tragedy given that a government U-turn and the early adoption of a decarbonisation target would be good for pretty much everyone. It would be good for Labour, who could argue that they were among those pushing for a decarbonisation target. It would be good for the Lib Dems, who could demonstrate that they are delivering on their green agenda in government. And, yes, it would be good for the Tories, given that its electoral chances in 2015 rest to a huge extent on the materialisation of an economic recovery that would be aided significantly if the energy sector could get on with building new infrastructure as soon as possible. But most of all it would be good for the British economy, good for our energy security and good for the planet.

In fact, the only person it might be bad for is George Osborne, as any U-turn would again highlight how the man charged with delivering economic recovery and business investment is holding it up because of ideological reasons and his inability to spot a flawed argument when he sees one.

Unless, that is, the chancellor has a compelling argument as to why we don't need a decarbonisation target that I may have missed – because if he does, now would be a good time to share it.

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Previously known as the BusinessGreen Blog, James' Blog features musings, observations and occasional rants from BusinessGreen editor James Murray

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