Blowing the budget: Why the Third Carbon Budget's 'surplus' emissions are so important

James Murray
clock • 8 min read
Blowing the budget: Why the Third Carbon Budget's 'surplus' emissions are so important

The CCC's advice on what to do with the Third Carbon Budget's pandemic-boosted emissions savings is unequivocal - the government must resist the temptation to cynically weaken the UK's world-leading climate targets

The government could soon make the most important domestic climate policy decision of the past decade.

Yes, the carbon price floor and contract for difference regime have proven broadly effective, while green farming subsidy reforms could yet prove transformational. And yes, the cuts to energy efficiency funding, the de facto ban on new onshore wind farms, and the recent U-turns on multiple decarbonisation policies have sparked plenty of sound and fury. But it is a technical and somewhat arcane change to how emissions are recorded for the next Carbon Budget period that could yet determine the pace at which the UK decarbonises this decade, the country's ability to attract the green investment needed to revive its flat-lining economy, and whether or not we can feasibly meet our net zero goals.

An awful lot rests on what the government decides to do with the 'surplus' emissions from the Third Carbon Budget.

Which is why yesterday's unequivocal advice from Climate Change Committee (CCC) is so important. In a letter to Climate Minister Graham Stuart, the government's official climate advisors explain with characteristic clarity why the overachievement against the Third Carbon Budget that ran from 2018 to 2022 - all 391 million tonnes of it - should be retired from the official carbon accounts and not 'carried over' to allow it to count towards future Carbon Budget periods. 

It should be obvious why such an accountancy trick would be unwise. If you decided to lose weight by going on a diet that cut your calories by 10 per cent a day, and then found that for a couple of weeks you were particularly busy and actually managed to cut your calories by 20 per cent a day, you would surely recognise how foolish it would be to spend the next week bingeing on doughnuts to get your calories up to 110 per cent of your original intake for the next week. You would soon realise how much harder it was to get back on track by cutting your calories again.

As Carbon Brief's Simon Evans calculated, if the government rolls over all the surplus emissions from the Third Carbon Budget into the Fourth Carbon Budget period it could actually *increase* emissions by 15 per cent.

However, like a yo-yo diet, any reprieve from the need to cut emissions would prove short-lived, as the government would then have to deliver even steeper emissions cuts to get back on track to meet the Fifth and Sixth Carbon Budgets throughout the 2030s. As numerous economists have pointed out, such a stop-start approach to decarbonisation would undermine investor confidence, increase overall costs, and increase the risk of the long term net zero goal being missed. 

Of course, it is highly unlikely the government will suddenly look to increase emissions over the next few years - even if some Conservative MPs would like to see it do precisely that - but any attempt to relax future Carbon Budgets risks having much the same impact, requiring governments further down the line to deliver steeper emissions reductions in the coming decades to compensate for slower progress now. 

The argument against carrying forward 'surplus' emissions is compelling as a point of principle, but it becomes even more convincing if you look into the detail of why the Third Carbon Budget proved so easy to meet and what is required to meet the looming Fifth and Sixth Carbon Budgets. 

The UK has made world-leading progress in cutting emissions from its power sector, but much of the 'over-achievement' in recent years is the result of the slump in industrial activity caused by the coronavirus pandemic and the fact the economy has barely grown for five years. These are not good reasons for lower emissions. The 391 million tonnes of additional carbon savings are not a result of clean tech deployment surging ahead of expectations or consumers embracing greener habits en masse. Impressive decarbonisation progress has been made, but the deeper than expected emissions cuts are largely the result of the UK's economy being a basket case. 

Worse still, as has been exhaustively documented, the next 10 years of the net zero transition will be much more technically challenging than the last 10 years. There is an urgent need to start delivering sustained emissions reductions from heating, industry, transport, and agriculture, while continuing to accelerate the decarbonisation of the power system. Making it easier to meet the next wave of carbon targets through an accounting technicality risks removing legal and political impetus, which would otherwise have required more ambitious policies to accelerate decarbonisation across the economy.

The government knows all this - like I say, it is all pretty obvious - but the big worry is that it will find it extremely hard to resist the temptation to use at least some of the 'surplus' emissions to make it easier to meet future Carbon Budgets.

Last week, the government faced a High Court hearing over the legality of its decarbonisation plans and the publication of a major new report detailing how it is badly off track to meet its emissions targets for the 2030s. In response to its many critics, the government keeps insisting it is, in fact, on track to meet all its legal emissions targets. This confidence appears to defy credulity given the huge risk of under-delivery faced by multiple decarbonisation policies, but it can perhaps be explained by the fact Ministers know they could make the targets a lot easier to meet through a simple and entirely legal accounting trick. All they have to do is ignore the CCC, which is precisely what happened the last time the Committee urged Ministers not to carry forward surplus emissions.

Effectively weakening future emissions targets would also make it easier for the government to go into the next election promising to dilute more decarbonisation policies as part of its self-styled 'pragmatic' net zero strategy. And it would present a challenge to any in-coming Labour government, which would face intense pressure from its green wing to strengthen official emissions targets 0- a move that would in turn make it harder for a new government to meet its legal obligations. 

Ministers could justify the decision by asking: 'What difference does it make?' As long as each carbon target is met, the total emissions over the period would end up the same. 

But while this may be technically true, it ignores how decarbonisation works - or doesn't work - out in the real economy. The UK risks comfortably meeting all its Carbon Budgets right through to the 2030s and then finding that because it gamed the system it has laid none of the policy groundwork, developed none of the supply chains, and built none of the enabling low carbon infrastructure and skills base necessary to ensure decarbonisation can be sustained through to 2050. Meanwhile, it would have seen investment and technology leadership lost to those countries that are now pulling every available policy lever to accelerate their own clean energy transitions.  

For businesses, investors, and the integrity of the UK's climate strategy it is hugely important the government does not succumb to the temptation to tap into the 'surplus' emissions gifted by the pandemic and its own woeful economic performance. This is why CBI boss Rain Newton-Smith yesterday offered a ringing endorsement of the CCC's recommendation. "It's great the UK has met its Third Carbon Budget and we are the first major economy to half our emissions since 1990," she said. "But it's vital we maintain ambition and leadership in climate and green growth. That means locking in the progress we've made and backing the CCC recommendation."

The government should also consider that regardless of the vagaries of Carbon Budget accounting, the UK still has obligations under the Paris Agreement and the treaty signed at the COP28 Climate Summit in Dubai, which promised to accelerate the transition away from fossil fuels.

Rejecting the CCC's advice would crystallise all the current concerns about the UK's commitment to climate action and its position as a leader in the global net zero transition, while sending a terrible signal to allies and international investors, alike. It would chip away at confidence that long-awaited policies on carbon capture, hydrogen, nuclear development, grid connections, and planning reform really will prove ambitious enough. It might look politically clever, but it would reveal a deep unseriousness in the face of the biggest long term challenge and the greatest long term economic opportunity facing the UK. It would also jeopardise the genuine progress the government has made over the past decade, and undermine one of the only economic success stories Ministers can point to at a time when net zero sectors are massively outperforming a wider economy that is in recession.

The CCC's advice is as unequivocal as the economic logic underpinning it. Ministers should make the right decision and let past emissions savings stay in the past.    

A version of this article first appeared as part of BusinessGreen's Overnight Briefing email, which is available to all BusinessGreen Intelligence members.


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