Policy for a net zero UK

Transcription

1 Science+ Meeting Policy for a net zero UK Professor Cameron Hepburn INET at Oxford Martin School New College and Smith School, University of Oxford Grantham Research Institute, LSE Royal Society, London. 6 December

2 Agenda 1. Pathways to net zero 2. Policy for net zero 3. Performance thus far 4. Addressing the policy gap 5. Negative emissions policies 6. Conclusions 2

3 CO 2 Concentration Science suggests that stabilising temperatures at any level implies net zero emissions Idealised emissions profiles falling abruptly to zero at different times Even in idealised emissions scenarios in which emissions of CO 2 are completely stopped tomorrow, temperatures will remain flat and not fall for hundreds of years (years) Source: Knutti & Rogelj (2015) 3

4 And the Paris Agreement agrees to (try to) achieve net zero emissions by holding the increase in the global average temperature to well below 2 o C above pre- industrial levels and pursuing efforts to limit the temperature increase to 1.5 o C, to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century 4

5 One interpretation of this is that the target is net zero globally by 2050 (with 5 GtCO 2 CDR) Source: Rockström et al (2017, Science) 5

6 Another interpretation is net zero by 2070, with around 10 GtCO 2 p.a. CDR Source: Anderson and Peters (2016, Science) 6

7 A domestic net zero commitment has been promised by UK politicians Source: BBC News; Guardian 7

8 The implications for the UK appear to be net zero by somewhere between 2045 and 2070 Cumulative CO 2 captured by the UK in these scenarios is around 10 GtCO 2 over the 75 years from (> 100mt CO 2 p.a. cf Drax at 20mt CO 2 emissions) Source: Pye et al (2017, Nature Energy) 8

9 Agenda 1. Pathways to net zero 2. Policy for net zero 3. Performance thus far 4. Addressing the policy gap 5. Negative emissions policies 6. Conclusions 9

10 Meeting targets that are over years into the future requires thinking ahead Long-term thinking is needed across five policy areas: 1. Technology: larger portfolio of early stage technological bets 2. Infrastructure: investment fit for a net zero world 3. Economic: incentives in various guises (especially carbon pricing) 4. Financial: regulation to manage risks of stranded assets 5. Carbon removal: Prognosis is not brilliant; we will also need CDR 10

11 1. Technology: Hitting long-term net zero targets is likely to be much cheaper with 2x brainpower Mission Innovation (M:I) 20 large countries to double clean energy R&D Source: breakthroughenergycoalition.com 11

12 1. Technology: calculations based on knowledge spillovers and analogies suggest > 5x is ideal Public R&D spend on renewable energy (excluding hydropower) Current Investment Mission Innovation Target Optimal Investment United States Europe U.S. Dollars (billions) Source: Pless et al (in preparation) Inducing and Accelerating Clean Energy Innovation with Mission Innovation 12

13 1. Technology: for reasonable risk aversion, a more diversified portfolio is ideal at this early stage Source: Way et al (in submission) Wright meets Markowitz 13

14 2. Infrastructure: avoid building assets that may need to be written off early (e.g. gas and coal) Emissions 1.0 Decision point Cumulative emissions from remaining coal of 10 units (10 years x 1/year) Cumulative emissions from new gas of 20 units (40 years x 0.5/year) Coal New gas Years Source: Based on Pfeiffer et al (2016) 14

15 3. Economic: a credible long-term carbon price signal can work wonders but we don t have it yet Price /tco Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 EU ETS RGGI (Auctions) Kyoto (CERs) California 15

16 4. Financial: investors need to have clarity over business strategies to make their own decisions Oxford developed principles for disclosure to guide on investors about the risks of fossil investment Three suggested questions are: 1. Science: When (year or temperature) does the company plan to hit net zero emissions? 2. Strategy: What does it s business plan look like in an NZE world? 3. Milestones and Metrics: How will the company measure progress? Source: Oxford Martin School 16

17 4. Financial: greater disclosure of climate risk is now being recommended by the TCFD Task Force on Climate-related Financial Disclosures (TCFD) Chaired by Michael Bloomberg and commissioned by the Financial Stability Board (FSB), Chaired by Mark Carney TCFD Phase I report (March 2016) included forward-looking disclosures TCFD, Unilever CFO and Oxford cohosted a meeting in July 2016 TCFD Phase 2 report (December 2016) went into much greater detail French Article 173 of Energy Transition law for June 2017 Sources: fsb-tcfd.org Investors must report on ESG / climate BS > 500m beyond carbon footprints Includes physical and transition risks 17

18 4. Financial: Failure to manage climate risk might leave fiduciary investors facing lawsuits Here s the logic: 1. Fiduciary investors have duty to control for material risk 2. A material risk is one that might trigger 5% or more loss in value 3. In present value terms, a 5 o C warming path would deliver expected losses of US $7trn on AUM of US $140trn 4. Therefore clients and beneficiaries might have a legal case against investment managers who take no action as emissions erode value 5. The odds of a successful case increase as time passes Sources: Covington et al (2016, Nature) 18

19 5. Carbon removal: With carbon prices low & not credible, other policies may be necessary on CDR One idea is the requirement for mandatory sequestration of a fraction of extracted carbon Source: Millar et al (in preparation) 19

20 Agenda 1. Pathways to net zero 2. Policy for net zero 3. Performance thus far 4. Addressing the policy gap 5. Negative emissions policies 6. Conclusions 20

21 GHG emissions [MtCO2eq./yr] There is action but we are not on track to meet even Paris pledges, which would take us above 3 o C 8000 U.S. BaU (non climate policy)* 7000 U.S. Current policy* US BR2 'under current measures' 6000 NDC 5000 EU -26 to -28% relative to 2005 EU BaU (non climate policy)* 4000 Current policy* EU BR2 'with existing measures' % relative to 1990 NDC 2000 Japan Japan BaU (non climate policy)* Current policy (nuclear power share of 15% by 2030)* % relative to 2013 Current policy (nuclear power share of 20% by 2030)* NDC Source: Victor et al (2017, Nature) 21

22 The UK legislated the legally-binding fifth carbon budget after the 2016 EU referendum The UK has been reducing its emissions, meeting targets so far But we were not on track to meet 4 th and 5 th CBs, even before Brexit Source: CCC analysis based on DECC (2015); Carbon Brief 22

23 We remain a very long way from net zero, albeit with some good progress in a couple of areas Source: CCC (2017) Meeting Carbon Budgets: Closing the Policy Gap Fig 2. based on BEIS (2017) 23

24 The big win has been the carbon price floor, which has all but removed coal from the electricity grid Source: Aurora (2017) 24

25 But Brexit makes it harder: EU policies contributed ~50% of the emissions reductions intended by 2032 Source: CCC analysis based on DECC (2015); Carbon Brief 25

26 Agenda 1. Pathways to net zero 2. Policy for net zero 3. UK performance thus far 4. Addressing the policy gap 5. Negative emissions policies 6. Conclusions 26

27 Brexit offers some limited opportunities to change UK climate policy 1. Ignore 2020 renewables target? The 2020 renewables target (15% of energy) is ambitious and costly, and the UK is not on track 2. Replace EU ETS? The UK helped establish the EU ETS. Iceland, Liechtenstein and Norway now participate, and Swiss agreed a link in 2016 after 5 years of negotiations. UK already has a carbon floor price that works as a fairly complicated carbon tax. Could a serious carbon tax be politically popular in the UK? Could it facilitate a border adjustment? 27

28 Post-Brexit Britain could convert the CPF to a US Republican style > $40/t carbon tax Source: Climate Leadership Council (2017) 28

29 Jan-11 Jul-11 Jan-12 Jul Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 $/MWh GW /MWh GW /MWH GW Reform of electricity markets is needed to fully integrate renewables at lowest cost As greater renewables are connected, wholesale prices have fallen Other services will need to be priced Procurement of capacity on a market competitive basis ERCOT (Texas) Germany Irish Market Wind and Solar Capacity Volume-weighted average price Source: Farrell et al (in preparation) Is this the end of conventional wholesale electricity markets? 29

30 Key policies on buildings are tighter standards now (to avoid regret), and moving soon on infrastructure Source: CCC (2017) Meeting carbon budgets: closing the policy gap 30

31 Agenda 1. Pathways to net zero 2. Policy for net zero 3. UK performance thus far 4. Addressing the policy gap 5. Negative emissions policies 6. Conclusions 31

32 Globally, and in the UK, there may be large potential in various CCUS and land-based CDR approaches Source: Hepburn et al (in preparation) Use it or lose it 32

33 We have been reviewing the literature on different CCU / CO 2 removal approaches for RS / NAS Source: Hepburn et al (in preparation) Use it or lose it 33

34 Agenda 1. Pathways to net zero 2. Policy for net zero 3. UK performance thus far 4. Addressing the policy gap 5. Negative emissions policies 6. Conclusions 34

35 Conclusions 1. The UK should be net zero between to hit Paris 2. This now requires forward thinking across 5 policy areas: 1. Technology: larger portfolio of early stage technological bets 2. Infrastructure: investment fit for a net zero world 3. Economics: incentives in various guises (especially carbon pricing) 4. Finance: regulation to manage risks of stranded assets 5. Carbon removal: Support for CDR / CCUS and potential legal intervention 3. We are not on track. 4. Key priorities to get back on track include accelerating electricity decarbonisation, planning ahead for buildings and transport to avoid later regret, getting moving now on land and CDR 35

36 Thank you 36