UK news update - Q1 2009
Survival is the name of the game for businesses in 2009.
January 2009 UK News UpdateIn recent months we have seen several big names fall and there are others expected to go the same way shortly. Much of this financial crisis has been predicated on the use of limited financial capital to leverage 'sophisticated' debt derivatives as a novel means of profit generation. There are parallels between the challenges of this global credit crunch and the now inevitable global climate change we face. (i) Limited capital, be it financial or natural capital, is being leveraged to achieve unsustainable economic growth. (ii) No-one fully understands the scale of the recession or of the climatic change we face as a society, although it is generally accepted that the situation is dire on both counts and will be worse if we do not act in the short term. (iii) Those of us who do make it through the credit crunch will be expected to leave a more sustainable low carbon legacy. The rules of the global economy will change over the next five years and many expect President Barack Obama to take the lead in establishing a new global deal. This deal will need to encompass economic recovery, combating terrorism and climate change.The direction of travel is clear: significant cuts in GHG emissions are required during the coming years; and organisations that provide low carbon solutions and individuals who adopt them should be rewarded financially. It is expected that a significant part of the UK’s required 80% carbon reduction, but not all of it, can be achieved at or below £40/tCO2, the forecast price for carbon in the EU ETS in 2020. This is significant because very few organisations and individuals incorporate the cost of carbon in their financial planning, let alone a cost set at this level.
Policy and regulation
UK and EU Policy
The fundamental shift in US policy is important for the UK because progress on international climate change agreements post-2012 has been hindered by the Bush Administration, which in turn has influenced the boldness of UK and European policy formation. Despite the reluctance of the Bush Administration to constructively contribute to international climate policy there has been considerable progress in national and regional policy. This is combined with an increasing consensus on what action is required, namely:- reduce our reliance on oil
- efficient carbon pricing and market operation
- decarbonising the electricity grid using advanced coal, carbon
- capture and storage (CCS)
- nuclear and renewable energy
- energy efficiency in buildings & industry
- reduced emissions from transport, including biofuels
- enabling sustainable, low carbon lifestyle choices
- energy research, development and demonstration.
Energy Act 2008
The new Energy Act supports the uptake of renewable energy and energy efficiency measures in a number of ways.The Act extends the Renewables Obligation, and introduces:- banding to provide more flexibility in the level to which different technologies are supported
- it introduces a microgeneration (<5MW) feed-in tariff as a fiscal incentive for small-scale generation
- it clarifies issues regarding the licensing of Smart Meters
- it introduces a renewable heat incentive.
Climate Change Act 2008
The new Climate Change Act establishes the climate and emissions reduction policy framework for the foreseeable future, including:- a legally binding 80% GHG emissions reduction target for 2050 compared to 1990 levels, and at least 26% by 2020, including international aviation and shipping domestic carbon budgeting designed to deliver reductions in 5-year periods starting in 2008
- a requirement for Annual Statements on GHG emissions from company activities
- a new Committee on Climate Change
- the ability to introduce new trading schemes to encourage mitigation actions, including the Carbon Reduction Commitment (CRC)
- climate change adaptation provisions
- the introduction of financial incentives for the reduction of domestic waste and increase of recycling
Planning Act 2008
The Planning Act should substantially impact the business conditions of both renewable energy developers and those organisations with potential development sites. The Act creates a new integrated planning system designed to reduce our reliance on fossil fuels and accelerate the creation of a new generation of renewable energy infrastructure and includes:- the unification of eight existing regimes for nationally significant infrastructure into a single consent regime
- the development of eleven National Policy Statements detailing national infrastructure priorities on issues such as energy, aviation, road and rail transport, water and waste
- the establishment of a new Infrastructure Planning Commission (IPC) to take independent decisions as to whether to allow individual projects to go ahead, operating within the framework set by ministers
- statutory timetables for inquiries and decisions with the expectation that the timetable from application to decision will fall to under a year in the majority of cases
- the introduction of a Community Infrastructure Levy (CIL) to ensure that costs incurred in providing infrastructure to support the development of an area can be funded (wholly or partly) by owners or developers of land.
Sustainable Communities Act 2007
Together with the new 2008 Acts mentioned above this legislation provides a strong basis for local action on climate change in those areas which have adopted the Act, see www.localworks.org for a list. The first quarter of 2009 is important for putting forward proposals, through citizen panels, which deliver sustainable communities in four categories:- Local economies, e.g. promoting local shops, local businesses,local public services and local jobs.
- Environment, e.g. promoting local renewable energy and protecting green spaces.
- Social inclusion, e.g. protecting local public services and alleviating fuel poverty and food poverty.
- Democratic involvement
Actions and opportunities
Building a Low Carbon Economy
The first Committee on Climate Change (CCC) report2 arrived in December at a difficult time in terms of the economy. In the twelve months ahead UK GDP is predicted to fall by between 1.1%3 and 2.5% 4. UK interest rates, inflation and Sterling are expected to continue to fall as well. Yet the CCC has recommended that the UK must adopt an 80% carbon reduction target based on the present scientific and economic knowledge, as our share of a 50% global reduction target. This is a challenging target and is expected to cost in the region of less than 1% of UK GDP5 by 2020 and 1%-2% of UK GDP by 2050, although this is still cheaper than the cost of inaction. This level of cuts is in line with the latest Intergovernmental Panel on Climate Change (IPCC) Assessment Report 4 published in 2007 and is required to stabilise atmospheric concentrations of GHG and avoid a temperature increase above 2°C which is likely to result in catastrophic climate change.Two budgets are set by the CCC; ‘Intended’ and ‘Interim’. The Intended budget is predicated on reaching global agreement on carbon reduction commitments and the Interim budget is what we are targeted to achieve in the meantime. The Intended budget sets a 42% reduction on 1990 levels by 2020 (31% relative to 2005), equivalent to a cumulative reduction of 175 MtCO2e. This can be achieved through combined action in three main areas:- energy efficiency improvement in buildings and industry
- fuel efficiency improvement in road vehicles
- a significant shift towards renewable and nuclear power generation and renewable heat
