Connecting the Future - Greenpeace UK

Connecting the future: the UK’s renewable energy strategy
Reducing energy intensity:
efficiency and demand
27
demand for the relatively more expensive ETS allowances which in turn
depresses the overall carbon price. Thus the short-term pursuit of economic
efficiency threatens to undermine the UK’s efforts to reduce energy intensity
and encourage longer-term investment in sustainable energy technologies.
Nevertheless, the UK government is lobbying the European Commission to
allow an even greater proportion of national targets to be met by overseas
emissions reductions.
The leaked 2007 BERR memo already mentioned, makes clear the tension
between the government’s climate change and economic aspirations: it argues
against the rapid expansion of renewables and the implementation of energy
efficiency measures to meet the EU targets on the grounds that this would
undermine the price of carbon within the ETS: ‘if the EU has a 20% GHG target
for 2020, the GHG emissions saving achieved through the renewables target
and energy efficiency measures risk making the EU ETS redundant, and prices
to collapse.’ (BERR 2007, p1). This argument neglects the fact that prices
for carbon credits are set by emissions limits, rather than the effectiveness
of energy efficiency and renewables: if new technologies are succeeding in
reducing CO2 emissions, the response should be to tighten the ETS’s limits to
ensure that prices remain sufficiently high to drive the further deployment of
those technologies. BERR’s statement, however, makes it difficult to avoid the
impression that promotion of the EU ETS is the priority for BERR, rather than
the rapid reduction of CO2 emissions.
The stability of carbon prices and therefore of long-term investment signals
may improve in subsequent phases of the ETS. The Commission has proposed
that individual national allocation plans should be replaced by a single set of
EU-wide rules for setting reduction targets and allocating or auctioning
allowances, with individual Member States conducting auctions but permitting
any company from any country to buy allowances. Although companies would
still have access to cheaper CDM credits, the level would initially be limited
to that used in the current ETS period (European Commission 2008a). These
measures should remove some of the problems caused by national
over-allocation of allowances, although the continued eligibility of action under
the CDM risks limiting action at the national level.
3.1.2 The Climate Change Levy and Climate Change Agreements
The 2001 Climate Change Levy (CCL) is a tax on the use of energy by business
derived from fossil fuels or nuclear power. The CCL was initially projected to
reduce the UK’s annual carbon emissions by at least 2MtC by 2010 against
business-as-usual forecasts. A later assessment of the scheme estimated
that that actual impact was more likely to be a 3.7MtC reduction by 2010,
although this was later revised down to 3.5MtC (Cambridge Econometrics and
Policy Studies Institute 2005, National Audit Office 2007). 8 Even at this lower
estimate, however, the projected impact of the CCL on carbon emissions is a
significant part of the UK’s overall climate strategy. The CCL was meant to be
revenue-neutral for business: when it was introduced it was accompanied by
a 0.3% cut in employers’ National Insurance contributions (NICs). In the event
8
The revision to the 3.5MtC
estimate came about because
the Cambridge Econometrics/PSI
report assumed that the rate
of the levy would increase in
line with inflation from 2005,
whereas in fact it remained
the same until 2007, thereby
reducing its power as a driver
for increased energy efficiency
(National Audit Office 2007).