A decarbonisation target: now, or possibly never…?

A decarbonisation target: now, or possibly never…?

CategoryArticles Author Stephen Tromans KC Date

The Energy Bill completed the sixteenth and last sitting of the Public Bill Committee in the House of Commons on 7 February and will move to Report stage on a date yet to be announced, before entering the Lords. As amended in Committee, clause 1 would impose a duty on the Secretary of State to ensure, in respect of each year in relation to which a decarbonisation target range is set, that the carbon intensity of electricity generation in England and Wales is no greater than the maximum permitted range of the decarbonisation target.  There would be a power, but no duty, to set such a range.  Clause 2 prescribes a range of matters to be taken into account in setting such a target range, including scientific knowledge about climate change, technology on generation and storage of electricity and on demand and use of electricity; but perhaps most pertinently, economic circumstances, impact on the economy, competitiveness, fiscal circumstance and impact on the public finances, and social circumstances.  Hence it is entirely foreseeable that successive governments may put off setting any such targets for fear of damage to the economy, or cynically leave it until after the next election (and the one after that?)

Secretary of State Ed Davey in his first remark to the Committee[1] said there was a need for a decarbonisation target for the whole sector, provided it was far enough away (2030) and was not set immediately (2016 or thereafter in conjunction with the fifth carbon budget under the Climate Change Act).  But immediately the response of Committee members was that such a target would be an important factor for investors in low carbon technologies in the UK.

The issue has now come to the fore as a cross-party amendment has been proposed by Tim Yeo MP and Barry Gardner MP, both on the Energy and Climate Change Select Committee, which would require a target to be set by 1 April 2014.  Another aspect of the proposed amendment is that the government in setting the target would be required to take the advice of the Climate Change Committee, which is known to advocate a target of 50 grams per kW hour (the target proposed in an unsuccessful amendment by Alan Whitehead MP).

Most companies, it would seem, want the clarity of a target, and want it soon, whether they are focused on renewables or fossil fuels.  So does the Climate Change Committee, as argued in the letter from its Chairman, Lord Deben, published last month.   Indeed, so does a very broad coalition of companies and groups which have signed a joint statement urging MPs to seize the opportunity “… to put the UK firmly on track to becoming a world leading low-carbon economy, boost unemployment and show genuine leadership in the fight against dangerous climate change”.  These include many companies in the renewables field, the usual environmental groups one would expect, but also a coalition of churches: Church of England, Methodist, United Reform, Baptist and Quaker.  On 11 March, The Times reported that six “global power companies” (Alstom, Areva, Doosan, Gamesa, Mitsubishi and Vestas) had thrown their weight behind the amendment in an open letter.[2]  The Times’ second leader endorsed the proposal as a good one.

Whilst the UK remains reasonably highly ranked (6th out of 40) in terms of its attractiveness to investors in energy projects (the top five being in order: China, Germany, USA, India and France) the latest survey by Ernst & Young suggests that the proposed reforms in the Energy Bill have so far not matched up to potential investors’ expectations).   It seems hard to believe that a delay of a further 3 years in demonstrating  commitment through a decarbonisation target will not have some adverse impact on investment, though the government will no doubt argue that other initiatives in the Bill are equally important, if not more so.

A stand-off therefore looms in the Commons third reading.  The amendment seems likely to garner further cross-party support, but it is to be expected that George Osborne will strongly resist the assumption of a legal commitment which may have adverse economic and fiscal consequences and will seek to enforce the political Coalition agreement made in 2012 of no immediate target.  At present there seems a lot of assertion but little explicit discussion of hard evidence on the consequences of a decarbonisation target.  However, the impact assessment signed by Ed Davey on 14 January[3] would appear to suggest that electricity market reform as proposed in the Bill would yield greater benefits in terms of net present value against a scenario of a 50g target than against scenarios with higher targets, though subject to the usual complexities and caveats.  However, whether the Treasury will move from its current Augustinian stance, “Lord, help me to stop sinning, but not yet” must be open to grave doubt.

[2] http://www.businessgreen.com/bg/news/2253698/energy-giants-again-urge-chancellor-to-back-decarbonisation-target.
[3] http://www.parliament.uk/documents/impact-assessments/IA13-002.pdf.

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