The major political parties all make commitments in their general election manifestos on policies to reduce greenhouse gas emissions.
All the UK’s main political parties have now published their manifestos for the forthcoming general election on 12th December. These include their programmes on climate change.
The most remarkable feature of the manifestos is the similarities between them. All make specific commitments on climate change. All envisage reaching net zero emissions. All see an increased role for renewables, see the need to improve building insulation, and recognise the role of land use. All refer to the opportunities created by a green economy. Compared with only a few years ago this is substantial progress. Of course, commitments set out now may never be implemented in government, but the fact that parties need to make such commitments is a sign of the increased recognition of what needs to be done.
The table below summarises some of the main points from each manifesto.
2019 UK general election manifesto commitments on climate change
Net-zero target date
40GW of offshore wind by 2030
90% renewable electricity and 50% renewable heat by 2030, including roll out of heat pumps and hydrogen
80% of electricity from renewables by 2030
70% of electricity from wind by 2030.
£9.2 billion on improving energy efficiency
Upgrade insulation for almost all of 27 million homes, zero carbon standards for all new homes
Insulate all of Britain’s homes by 2030, new homes to be built to a low carbon standard, £6 billion p.a. on home insulation and low carbon heating
A million homes a year to near zero carbon, improved insulation for all who need it, roll out of heat pumps
Consult on earliest date for phasing out sale of petrol and diesel cars
Improve public transport. Aim to end sales of petrol and diesel cars by 2030.
Invest in public transport, and make sure all new cars are electric by 2030
Major shift to public transport. All new vehicles zero carbon by 2030
£800 million on CCS, support gas for hydrogen
Invest in new technology
Supporting CCS and new low-carbon processes for steel and cement
Start deployment of CCS
75,000 acres p.a. of additional trees
Ambitious programme of tree planting
Planting 60 million trees a year
700 million new trees by 2030.
International and supporting action
International partnership to tackle deforestation
Assess emissions in imports and suggest policies to tackle them.
Require companies to set targets compatible with the Paris Agreement
Economy wide carbon tax, with border tax on embedded carbon
Reaching net-zero emissions by 2050 will be very difficult, requiring huge transformations of the UK energy system alongside changes in land use. Reaching net zero earlier, and especially in 2030 or the 2030s as proposed by the Greens and Labour, seems impractical. Otherwise, there is much to welcome among what is proposed.
However, there are significant differences between the parties along with the similarities. The proposals from the Conservative party appear weaker than the others, and the manifesto does not contain a clear programme for the necessary scale of transition towards net zero emissions. The other parties’ programmes look similar in many respects. However, looking at the detail, the Liberal Democrats’ programme looks to provide the best set of policies, judged on a combination of comprehensive coverage, likely effectiveness, and realism.
The inclusion of extensive proposals from all parties for reducing emissions is an encouraging sign of how far the debate has come. However, the real test will come when the next government must decide on implementation.
Cheap, widely available electricity from solar PV in the coming decades looks increasingly likely. It could transform the world’s energy system, and prospects for reducing carbon dioxide emissions.
Only a decade ago solar was a niche source of energy, accounting for a tiny fraction of world electricity consumption. It was also very expensive.
Since then its status has been transformed. The installed base grew by a factor of about 17 between 2010 and 2018, with consecutive doublings of cumulative installed capacity every two years or so. By 2018 output was over 2% of world electricity demand, and continuing to grow rapidly.
Over the same period prices came down by a factor of four. Analysis by the International Renewable Energy Agency (Irena) shows average prices to have fallen from $240/MWh in 2010 to around $60/MWh in 2018 (see chart, which also shows that prices for wind power have also fallen, but by a much smaller proportion).
Chart 1: Global average prices resulting from auctions for solar and wind, 2010-18
The reasons for the differences between these costs and the higher costs shown by Irena appear to include:
Comparing global averages with world’s lowest cost. For example, the Portuguese contract is an outlier, with most contracts in Europe remaining above $50/MWh. Similarly, the Dubai project may benefit from cheap land, and perhaps low-cost capital.
The inclusion of incentives reducing some of the contract prices. For example, the California projects’ prices would likely be closer to $30/MWh without production tax credits available to the projects.
Continued fall in costs since 2018
So how far could solar PV costs go in the long term?
Projecting cost trends following such large changes is inherently uncertain. However there seems no clear reason why changes as large as those that have already taken place should not happen again. Costs fell by 75% between 2010 and 2019 in response to capacity increasing by a factor of 17, following a typical experience curve. There is scope for a similar increase in capacity – a factor of about 17 would take solar to around 40% total electricity production, plausible over the next few decades. This may lead to a similar reduction in costs of around 75%.
Indeed cost reductions may occur much more quickly than that. The transformation to date has happened very rapidly, and there may be as yet more unrealised gains as more fundamental R&D, which is longer lead time, comes through.
There may also be potential for currently higher cost locations where the industry is relatively undeveloped to catch up with the best. This may reduce average costs, even if the best projects do not reduce costs as rapidly.
Conversely, some efficiency gains, such as those in construction costs of large scale installations may be one-offs, and similar gains may not be possible in future. These limits have not been binding so far, but may be more so in future.
Taking these considerations together, a very rough and ready estimate would suggest widespread availability of unsubsidised solar power at prices at around $10/MWh or less within the next 2 or 3 decades or so, and possibly much more quickly than that.
This would make solar the among the cheapest form of large scale, high value energy the world has ever seen. By comparison, annual average crude oil prices dropped to $7/MWh (in $2019) only briefly at the end of the 1960s before the oil crises of the 1970s took effect and prices increased[iii]. Oil is currently around $25/MWh ($60/bbl), and is a less valuable and versatile form of energy than electricity. Coal may in some cases be cheaper per MWh but is expensive and inefficient to convert to electricity, so total fuel costs may exceed even some current solar costs. Coal is also, of course, highly polluting, with expensive CCS required to reduce its emissions.
What are the implications of this?
To bring low carbon energy prices to close to the levels prevailing for high carbon energy in the era of cheap oil would be potentially transformative for emissions reduction. Effects would be widespread and may include the following.
The generally expected route of decarbonising the power sector and electrifying end use becomes much easier with plenty of cheap low carbon electricity. This is supported by falls in the costs of batteries, which will help solar based systems cope with large daily variations in output. Land availability for solar is not a constraint globally, but maybe in certain places where population density is high and there are other uses for land.
It will also support electrification of transport, helped by electric cars being much more efficient than internal combustion engines anyway.
Hydrogen is increasingly likely to be produced by electrolysis, especially as large amounts of surplus solar may be available at times of peak production. And with cheap electricity, hydrogen use is likely to be focussed on applications where its specific qualities are needed, for example some industrial processes requiring high flame temperatures.
CCS is also likely to be focussed on a few special classes of emissions, especially those from industrial processes.
Some things seem likely to remain true even with cheap solar …
Wind power is likely to continue to play an important role for reasons of system security, diversity, and different locations of resource.
Improving energy efficiency, especially in buildings, will continue to be worthwhile, as it makes the transition to lower emissions easier in many respects.
The emissions reduction challenge remains daunting, not least because of the scale of the transformation required is formidable, and existing assets are long lived.
Long-haul aviation looks likely to continue to be a challenge, perhaps requiring synthetic fuels or biofuels.
Land use emissions from deforestation and agriculture remain a large problem.
So far modelling of the energy system seems to have largely ignored the possibility of very cheap solar being widely available. This is an area which needs much more consideration. Nothing gives greater hope for solving the climate change problem than the prospect of abundant cheap low carbon electricity.
Low carbon hydrogen and electricity via heat pumps may both play a large role in decarbonising building heating in the UK. Ways forward are needed that maintain optionality around solutions while more is learnt about the right mix.
Decarbonising building heating in the UK poses a range of challenges. First, the required transition is very large scale. There are around 27 million households in the UK, with many more commercial buildings, small and large. This implies around a million or more premises a year on average need to be converted to low carbon heat between now and 2050.
Along with scale, there is cost. Replacing the UK’s heating system is expensive both in total and by household, even if the existing natural gas network can be used for hydrogen. This challenge is made more difficult by the high seasonality of heating demand (Chart 1). Building natural gas supply chains, reformers to produce hydrogen from natural gas, CCS, low carbon electricity and heat pumps all involve major capital investment. Running this for only part of the year – the colder months – increases unit costs substantially. The chart below shows daily gas and electricity demand from non-daily metered (i.e. small) customers. Demand for energy from gas, the major source of building heating at present, is about two or three times electricity demand during winter, and is much more seasonal.
Furthermore, the transition to low carbon heat needs to be made largely with the UK’s existing building stock, which is mainly old and often badly insulated. Improved insulation is a priority in any programme, but there are practical and cost constraints on what can be done with existing buildings. (Buildings also need to be able to cope with the increased prevalence of heat waves as the climate warms, but that is a separate topic.)
Finally, building heating directly affects people’s day to day lives, so consumers’ acceptance is critical. On the whole the present system, based mainly on natural gas boilers, works quite well except for its emissions. Any new system should preferably work as well or better.
The leading candidates for low carbon heating in buildings are electricity, almost certainly using heat pumps to increase efficiency, and low carbon hydrogen. Biomass seems unlikely to be available either at the scale or cost that would be needed for it to be a major contributor to low carbon heating, though it may find a niche. District heating networks require low carbon heat and this must draw on the same ultimate set of sources of heat. Waste heat from nuclear, once discussed as a possibility, no longer seems likely to be either practical or cost effective.
Recently the Committee on Climate Change (CCC) analysed the costs of decarbonising heat in 2050 using different approaches. They looked at electricity, hydrogen, and combinations of the two. The analysis concluded that a 50% increase over current costs was likely (Chart 2). The remarkable thing about the analysis is that this cost was similar for all of the options considered. Any differences were well within the uncertainty of the estimates.
Chart 2: Costs of different modes for decarbonising building heating …
Source: Committee on Climate Change
With no large cost difference leading to one or the other option being preferred there is a need to test each option out to see which works better in practice. Mixed solutions may be appropriate in many cases. For example, hydrogen may be useful in providing top-up heat even if heat pumps are providing the baseload, or may be the only solution for some poorly insulated properties for which heat pumps don’t run at high enough temperatures.
The CCC’s analysis includes expected cost savings. The transition to low carbon heat will clearly be more acceptable if this cost can be reduced further. In particular there seem likely to be both technical advances and large economies of scale in heat pump manufacture and installation, and the costs of low carbon power may fall by more than assumed by the CCC. As the analysis stands, a 50% increase is clearly politically difficult, especially when there do not seem to be advantages for the customer, and potentially some drawbacks. However, this is less than a 2% p.a. compound increase in real terms over a 30 year period, which might be politically feasible if introduced gradually and spread across all consumers.
With such large changes in demand between summer and winter, seasonal storage is a major issue for reasons of both cost and practicality. This is an under-researched area, and needs further work. There are various possibilities – storage of hydrogen itself in salt caverns, storage of hydrogen as ammonia or storage of heat in ground sinks, but each has its problems and the scale involved is very large.
A final uncertainty is the form which hydrogen production will take. At the moment methane in reformers predominates and, with the addition of CCS, may continue to do so. However both the costs of low carbon electricity and of the electrolysis are decreasing rapidly. Over the long term this may become a more significant pathway for hydrogen production.
These uncertainties imply that building heating poses a particularly difficult set of choices for policy. It is not clear what route, or mix of routes, is the right one. The transition needs to be quite rapid relative to the lifetimes and scale of existing infrastructure, and it involves the need for consumer acceptance. There are also potentially strong network and lock in issues.
The best approach is likely to be to develop several types of solution in parallel, maintaining optionality while learning, and being prepared for some approaches to be dead ends. The implications of this include the need for roll out of low carbon heat sources in some districts now to get an idea of how they will work at scale.
Some of this is happening, much more is needed.
Adam Whitmore -29th October 2019.
Comparison of cost estimates with previous analysis by this blog.
Around four and a half years ago I looked at the costs of decarbonising domestic heating in the UK in winter using low carbon electricity. I concluded that switching to low carbon heat would add 75% or more to domestic heating bills, with some drawbacks for consumers (I also looked at higher cost case, but this case no longer seems likely due to the fall in the costs of low carbon electricity, especially offshore wind, since the analysis was done.) I suggested that this meant that the transition would be difficult and that reductions in capital costs were necessary.
This analysis is broadly consistent with the CCC analysis quoted here, which suggests a 50% increase on current costs. The estimates are roughly similar given the large uncertainties involved , the inevitable differences is assumptions, and different basis of the estimates. In particular the CCC analysis factors in reductions in costs of low carbon heating likely by 2050, whereas my previous analysis was based on current costs to make the point that cost reductions are necessary, Consequently it would be expected that the CCC analysis would show a smaller cost increase relative to current costs. Also, the CCC’s analysis may exclude some costs – estimates such as these have a tendency to go up when you look at them more closely. Equally it may understate the cost reductions possible over decades.
Europe is progressing with phasing out hard coal and lignite in power generation, but needs to move further faster, especially in Germany and Poland
Reducing coal use in power generation and replacing it with renewables (and in the short run with natural gas) remains one of the best ways of reducing emissions simply, cheaply and quickly at large scale. Indeed, it is essential to meet the targets of the Paris Agreement that the world’s limited remaining cumulative emissions budget is not squandered on burning coal and lignite in power generation.
Europe is now making progress in phasing out coal. The UK experience has already illustrated what can be done with incentives from carbon pricing to reduce coal generation. Emissions from coal have reduced by more than 80% in the last few years, even though coal plant remains on the system[i]. However, many countries, including the UK, are now going further and committing to end coal use in power generation completely in the next few years. The map below shows these commitments as they now stand. Most countries in western Europe now have commitments in place. (Spain is an exception. The government is expecting coal plant to be phased out by 2030, but currently does not mandate this.)
Map: Current coal phase-out commitments in Europe[ii]
Source: Adapted from material by Sandbag (see endnotes).
In some countries there is little or no coal generation anyway. In other countries plants are old and coming to the end of their life on commercial grounds, or are unable to comply with limits on other pollutants. In each case phase-out is expected to go smoothly.
However, the largest emitters are mainly in Germany and Poland and here progress is more limited. Germany has now committed to coal phase-out. But full phase-out might be as late as 2038. Taking another 20 years or so to phase out such a major source of emissions is simply too long. And Poland currently looks unlikely to make any commitment to complete phase out.
This means the Europe is still doing less than it could and should be doing to reduce emissions from coal and lignite. As a result, EU emissions are too high, and the EU loses moral authority when urging other nations, especially in Asia and the USA, to reduce their emissions further, including by cutting coal use.
Several things are needed to improve this situation, including the following.
Further strengthening the carbon price under the EUETS by reducing the cap. I looked at the problem of continuing surpluses of allowances in another recent post, and accelerated coal closure would make the surplus even greater. Although the rise in the EUA price in the last 18 months or so is welcome, further strengthening of the EUETS is necessary to reduce the risk of future price falls, and preferably to keep prices on a rising track so they more effectively signal the need for decarbonisation.
Continuing tightening of regulations on other pollutants, which can improve public health, while increasing polluters’ costs and therefore adding to commercial pressure to close plant.
Strengthening existing phase out commitments, including be specifying an earlier completion date in Germany.
Further enabling renewables, for example by continuing to improve grid integration, so that it is clear that continuing coal generation is unnecessary.
As I noted in my last post, making deep emissions cuts to avoid overshooting the world’s limited remaining carbon budget will require many difficulties to be overcome. There is no excuse for failing to make the relatively cheap and easy reductions now. Reducing hard coal and lignite use in power generation in Europe (and elsewhere) continues to require further attention.
By 2020 the UK will have very nearly halved its emissions over 30 years. Reducing emissions by the same amount over the next 30 years will get the UK very close to zero. However this will be very much more difficult.
A robust net zero target has been recommended for the UK …
A recent report by the UK’s Committee on Climate Change (CCC), the Government’s official advisory body, recommends that the UK adopts a legally binding target of net zero emissions of greenhouse gases by 2050[i], that is remaining emissions must be balanced by removal from the atmosphere. If the Government agrees, this will be implemented by amending the reduction mandated by the Climate Change Act, from an 80% reduction from 1990 to a 100% reduction.
The target has several features that make it particularly ambitious. It:
sets a target of net zero emissions covering all greenhouse gases;
includes international aviation and shipping;
allows no use of international offsets; and
is legally binding.
This is intended to end the UK’s contribution global warming. It has no precedents elsewhere, although in France a bill with comparable provisions is under consideration[ii].
Progress to date has been good …
The UK has made good progress so far in reducing emissions since 1990. Emissions in 2018 were around 45% below 1990 levels, having reduced at an average rate of about 12.5 million tonnes p.a. over the period. On current trends, over the thirty years from 1990 to 2020 emissions will be reduced to about 420 million tonnes p.a., 47% below their 1990 levels. Emissions will thus have nearly halved over the 30 years 1990 to 2020, half the period from 1990 to the target date of 2050.
Chart 1 shows how the UK’s progress compares with a linear track to the current target of an 80% reduction, to a 95% reduction and to a 100% reduction. (For simplicity I’m ignoring international aviation and shipping). The UK is currently on a linear track towards a 95% reduction by 2050.
Chart 1: Actual UK emissions compared with straight line progress towards different 2050 targets
Source: My analysis based on data from the Committee on Climate Change and UK Government. Data for 2018 is provisional[iii]
The largest contributor to the total reduction so far has been the power sector. Analysis by Carbon Brief[iv] showed that the fall in power sector emissions has been due to a combination deploying renewables, which made up about of third of generation in 2018, reducing coal use by switching to natural gas, and limiting electricity demand growth.
Industrial emissions have also fallen significantly. However some of this likely represents heavy industry now being concentrated elsewhere in the world, so likely does not represent a fall in global emissions. Emissions from waste have also fallen, due to better management.
Reducing emissions will be relatively easy in some sectors …
There are also reasons for optimism about continuing emissions reductions. Many technologies are now there at scale and at competitive prices, which they were not in previous decades. For example, falling renewables costs and better grid management, including cheaper storage, will help further decarbonisation of the power sector. Electrification of surface transport now appears not only feasible, but likely to be strongly driven (at least for cars and vans) by economic factors alone as the cost of batteries continues to fall.
But huge challenges remain …
Nevertheless important difficulties remain for complete decarbonisation.
CCS is identified by the report as an essential technology. However, as I have noted previously, it has made very little progress in recent years in the UK or elsewhere[v]. CCS is especially important for decarbonising industry. This includes a major role for low carbon hydrogen, which is assumed to be produced from natural gas using CCS – although another possibility is that it comes from electrolysis using very cheap renewables power, e.g. at times of surplus. CCS also looks to be necessary because of its use with bioenergy (BECCS), to give some negative emissions, though the lifecycle emissions from this will require careful attention
Decarbonising building heating, especially in the residential sector, continues to be a challenge. The report envisages a mix of heat pumps and hydrogen, perhaps in the form of hybrid designs, with heat pumps providing the baseload being topped-up up by burning of hydrogen in winter. I have previously written about the difficulties of widespread use of heat pumps[vi], and low carbon hydrogen from natural gas with CCS is also capital intensive to produce and therefore expensive to run for the winter only. The scale of any programme and consumer acceptance remain major challenges, and the difficulties encountered by the UK’s smart meter installation programme – by comparison a very simple change – are not an encouraging precedent.
Emissions from agriculture are difficult to eliminate completely, and no technologies are likely to be available by 2050 that enable aviation emissions to be completely eliminated. This will require some negative emissions to balance remaining emissions from these sectors.
Policy needs to be greatly strengthened …
Crucially several of the necessary transformations are very large scale, and need long lead times, and investment over decades. There is an urgent need to make progress on these, and policy needs to recognise this. This includes plans for significant absorption from reforestation, as trees need to be planted early enough that they can grow to be absorbing substantial amounts by 2050.
The UK’s progress on emissions reduction so far has been good, having made greater reductions than any other major economy[vii]. And technological advances in some areas are likely to enable substantial further progress. However much more is needed. In particular policy needs to look now at some of the difficult areas where substantial long-term investment will be needed
[ii] The CCC report notes that Norway, Sweden and Denmark have net zero targets, but they allow use of international offsets (up to 15% in the case of Sweden). France has published a target similar to the UK’s in a bill. The European Commission has proposed something similar for the EU as a whole, but this is a long way from being adopted. California has non-legally binding targets to achieve net zero by 2045. Two smaller jurisdictions (Costa Rica, Bhutan) have established net zero targets but these are expected to be achieved mainly by land use changes. New Zealand has a draft bill to establish a target, but eliminating all GHGs will be difficult because of the role of agriculture in the New Zealand economy.
The reforms introduced to the EUETS for Phase 4 improve its functioning, but without further reform a chronic surplus looks likely and the risk of low prices remains.
The changes to the EUETS that were agreed in late 2017 make significant improvements to its design. The temporary doubling of the intake rate for the MSR will reduce the surplus in the market more quickly. And the provision to cancel allowances from the MSR when it exceeds a defined size will avoid the number of allowances in the MSR growing indefinitely. The price of EUA’s has risen, although they remain below the levels needed to stimulate many efficient emissions reductions. These changes have led some to conclude that the problems with the EUETS have been resolved.
However, major risks remain. The cap for Phase 4 (which runs through the 2020s) was set on the basis of an overall reduction in emissions from 1990 levels of 40% by 2030[i]. In practice, emissions now look likely to reach around 50% below 1990 levels by 2030, and possibly to go lower than this if additional policies are put in place. This looks likely to result in emissions remaining well below the cap throughout Phase 4.
This is illustrated in Chart 1 below, which shows three scenarios included in a recent report by climate NGO Sandbag[ii] (to which I contributed). The correspond to overall reductions from 1990 levels of 50%-58% by 2030, rather than the 40% reduction on which the cap was set.
Many of the additional emissions reductions are from the sectors covered by the EUETS. In particular increased renewables and decreased coal and lignite burn in power generation are the largest contributors to reduced emissions. Consequently, in each scenario emissions remain well below the cap throughout the 2020s.
Even the European Commission’s own modelling suggests a 46% reduction in emissions from 1990 levels now looks likely. This, while a somewhat smaller decrease than shown in these scenarios, would nevertheless likely result in emissions below the cap throughout the 2020s.
Chart 1: Projected EUETS emissions under three scenarios compared with the cap
With emissions so persistently below the cap the surplus, after decreasing to 2020, begins to grow again, and continues growing to 2030 (see Chart 2). It does so despite the operation of the MSR.
Chart 2: Projected cumulative surplus under three scenarios
With such a large and persistent surplus there is a clear risk of prices weakening. This is especially the case later in the decade, where reductions in coal use in power generation seem likely to reduce the need for generators to buy emissions as a hedge to cover forward contracts, which may in turn further reduce demand for allowances.
The problem of the chronic surplus arises because the cap is both undemanding and rigid. There are at present no mechanisms for automatically resetting it, and no measures such as price containment which might limit how low prices could go.
The best way to deal with this problem is simply to reduce the cap in around the middle of Phase 4. This would be in line with the principles of the Paris Agreement, which envisages signatories to the Agreement adjusting their commitments over time to bring them more into line with the agreed temperature targets.
Chart 3 shows the effect of resetting the cap in 2026 to match actual emissions. Under the Base Case the surplus begins to reduce rapidly as a result of the cap being reset. Such an approach could readily be made consistent with other reforms, such as introducing a price floor in the EUETS.
Chart 3: Effect on the surplus of reducing the cap in 2026 (Base Case)
While the 2017 reforms to the EUETS were a major step forward they are unlikely to prove sufficient. Further measures will be needed to make sure the EUETS is robust as emissions continue to fall.
Adam Whitmore – 9th April 2019
[i] With a 43% reduction from 2005 levels in the sectors covered by the EUETS.
Straightforward, practical measures can make carbon taxes more acceptable to voters.
Carbon pricing often faces political obstacles due to public opposition …
Carbon pricing has spread widely in recent years, with around 40 systems now in place[i]. However, most emissions are not yet priced, and, even where they are, most prices remain too low.
Both expanding coverage and increasing price levels face political obstacles. Overcoming these is essential for carbon pricing to play the role that it should in reducing emissions. Fortunately, evidence is now emerging on what can be done to reduce opposition from voters – overcoming opposition from powerful lobbies such as industry warrants separate approaches.
A study by researchers at the LSE’s Grantham Research Institute, based on reviewing 39 existing empirical analyses, describes people’s objections to carbon pricing and other kinds of environmental taxes, and suggests specific actions to overcome them. (The study focusses on carbon taxes, and most evidence is from North West Europe and North America, so the conclusions may not extend fully to emissions trading systems or to other cultural contexts.)
The study identifies several reasons people oppose carbon taxes:
The personal and wider economic costs of a tax are seen as too high.
Carbon taxes are seen as regressive, having a disproportionately negative effect on low-income households.
Carbon taxes are not believed to be an effective way to reduce emissions.
Governments are seen as having a ‘hidden’ motive to increase fiscal revenue rather than curb emissions.
However the study noted that people’s aversion to carbon taxes decreases over time after they have been introduced, particularly if the effects of the tax are measured and communicated.
There are various design options for reducing public opposition …
The study then identifies a range of measures for addressing the objections
Phasing in carbon taxes over time, introducing the tax at a low rate but having commitment devices to subsequently increase the rate to more efficient levels.
Redistributing revenues to ameliorate the regressive effects of taxes.
Earmarking revenues for emission reduction projects, which is popular with voters and improves the perceived effectiveness of carbon taxes.
Ensuring revenue neutrality of carbon taxes.
In all cases, policymakers need to gather and communicate the objectives and design of the carbon price to improve trust and credibility, before and after the introduction of a carbon tax. This includes communicating emissions reductions achieved and co-benefits of reductions in other pollutants[ii].
Drawbacks to these options seem limited …
The study notes that these recommendations may diverge from “first best” tax designs recommended in the economics literature. However, while the study does not assess the implications of this, it is not clear to me that, even where they exist, these divergences are very significant. They seem to me likely to be easily outweighed by the increased acceptability (a “sub-optimal” carbon tax that can be implemented is usually better than an “optimal” one that can’t). And there are likely to be benefits often omitted in modelling of “first best” designs. This is especially the case as once a tax is in place it can be modified to over time as experience is gained and acceptance increases.
For example, phasing in a carbon tax is likely to produce economic benefits by reducing economic dislocation due to a price shock from sudden introduction at its full level, which may at least partly counterbalance the inefficiencies from prices being below optimal levels for an initial period. Similarly, redistribution of revenue to poorer households may provide an economic stimulus benefits as poorer households are more likely to spend the revenue than richer households. It may also increase social solidarity in ways which are conducive to economic welfare and growth.
Other emissions reductions, for example improving building insulation and deploying new technologies, may be funded at more nearly optimal levels where there are currently restrictions. However, caution is needed here, and there may often be a stronger case for dispersing funds to citizens.
Revenue neutrality can take different forms. One approach is to use revenues to reduce other taxes. This is the approach adopted for the introduction of the carbon tax in British Columbia. Economists tend to favour this type of approach because existing taxes are seen as distortionary. However this approach often lacks transparency and credibility even if accompanying tax cuts are publicised – for example if other taxes are reduced they may be increased again in future. This appears to be one reason why voters tend not to prefer this option.
And the current Canadian experiment with “tax and dividend” approaches appears promising …
A stronger guarantee is provided when revenue is explicitly returned to citizens. This approach is usually referred to as “tax and dividend” (or “fee and dividend”, or “cap and dividend” in the case of any emissions trading system). I’ve previously noted the advantages of this approach (see here). It has been implemented for the Swiss carbon tax in the form of rebates on health insurance costs. Four provinces in Canada are now working on implementing dividends in the form of direct financial payments to citizens. This will make most citizens better off as the result of the tax, because they will also benefit from revenue raised from businesses.
There is an argument made in the environmental economics literature that a lump-sum dispersal to citizens is economically suboptimal, because it is better to use funds to reduce other taxes and so reduce distortions. There is little if any empirical support for this argument as far as I am aware. But in any case taking a view that citizens have more of a natural claim on property rights to the atmosphere than governments makes the limitation of the argument clear. From this perspective, not providing citizens with any of the proceeds from pricing emissions is in effect a 100% tax on those proceeds imposed on everyone. This is indeed non-distortionary – it applies the same tax to everyone irrespective of circumstances – but a fixed per-capita tax is not regarded by governments or their citizens as a good idea anywhere, for sound reasons.
A larger objection to returning all revenue directly to citizens, or using it to reduce current taxes, is that emissions run down natural capital for the benefit of current generations at the expense of future generations. Intergenerational justice would, as I’ve previously argued (see here and here), be better served by some combination of preserving natural capital and investing revenue from carbon pricing in a “carbon wealth fund” analogous to a sovereign wealth fund. However this would be unlikely to increase the political acceptability of carbon pricing compared with immediate dispersal of revenues to citizens.
Overall, the study makes a range of recommendation that are well justified on a range of grounds, and seem likely to help establish carbon pricing more widely and effectively. It is to be hoped that governments everywhere take note of the findings.
Adam Whitmore – 5th March 2019
Thanks to Maria Carvalho for useful discussions about the background to the study covered by this post.
[i] See the World Bank’s State and Trends of Carbon Pricing report here. The definition of carbon pricing adopted in that report is quite broad, but even excluding some of the systems included in the report there remain over 40.
[ii] Please see World Bank’s Guide to Communicating Carbon Pricinghere for more information on developing an effective communications strategy.
A simple s-curve model of solar deployment shows continued strong growth.
In my previous post I looked at the IEA’s projections for solar PV. These always project no growth (or even a reduction) in the rate of installation, whereas in practice the rate of installation keeps growing rapidly. I commented in the post that the growth of solar deployment did not seem likely to stop any time soon. So how fast might solar PV continue to grow?
To estimate how fast solar PV deployment will grow, I’ve adopted a simple logistic function (s-curve) model for the deployment of solar. This type of function is widely used to model the growth of new technologies[i]. The results for two scenarios are shown in the chart below together with actual annual deployment to date. Both scenarios fit the historical data well, and are similar for the next few years, but then diverge significantly.
Scenarios for deployment of solar PV
Source for historical data: BP statistical review of world Energy to 2017, estimate for 2018 based on data in previous post.
The low case is based on an electricity system continuing to grow at current rates, with solar taking an increasing share, and deployment eventually reaching 300GW p.a. (see notes below for more on this). The base case assumes a larger role for the power sector in the energy mix, as decarbonisation drives the electrification of end use, and solar deployment eventually reaches 50% more than in the low case, at 450 GW p.a..
These projections show deployment in another 4 to 6 years reaching more than double its 2018 rate of just over 100GW. This compares with the 3 years it took to double from 50GW to its present size. By 2030 solar is generating 3600 to 4500TWh p.a., around 12-15% of electricity consumption[ii].
Of course this highly stylised analysis only gives an indication of scale, and even greater growth is possible. However I have not included a higher scenario, as these scenarios already represent continued very rapid growth. This will require continuing attention to how solar can best be integrated into wider energy systems, including through the greater use of battery storage.
Adam Whitmore – 6th February 2019
Notes: Developing indicative markers for eventual industry size
A low case is estimated by looking at the size of the power sector. This requires (in very approximate numbers) about 1000TWh of new and replacement generation each year over the next couple of decades. If a third of this were to be solar it would eventually grow to about 330TWh p.a. of this, or about 300GW p.a.. It seems unlikely that solar’s share of new capacity would in the long run be less than this given its cost competitiveness and scalability.
This scenario appears roughly in line with Shell’s Sky scenario. Both suggest that by 2035 Solar PV generation will be a factor of a little over 20 higher than in 2015.
However, this eventual rate of deployment may be an underestimate. Decarbonising the energy system will require widespread electrification of end use, and so much more of the world’s energy will come from low carbon electricity. For this analysis I’ve chosen a figure for eventual installation rate 50% greater than in the low case, reaching of 450GW p.a.. This represents one possibility within the range of scenarios for more ambitious decarbonisation, and higher estimates are possible.
[i] A logistic function is often used to model deployment of new technologies based on a range of examples, and I’ve previously used this type of model to look at electric vehicle growth – see here including examples of previous technology transitions. The analysis presented here updates my previous analysis of solar in both data and approach, given the additional data available since that was completed.
[ii] World electricity consumption was 21,000TWh in 2015, https://www.statista.com/statistics/280704/world-power-consumption/ growing at 2.6% p.a. over 2010 to 2015. Assuming this growth rate is maintained electricity consumption will reach around 31,000TWh by 2030. BP’s review of energy suggests a lower growth rate, with around 2000TWh less demand in 2030 than in the case used here, presumably reflecting greater efficiency.
The IEA is still grossly underestimating solar PV in its modelling
This post is a quick update of previous analysis.
Back in 2013 I pointed out how far from reality the IEA’s projections of renewables deployment were. They persistently showed the rates of installation of renewables staying roughly constant over the following 20 years at whatever level they had reached at the time of the projection being made. In reality, rates of installation were growing strongly, and have continued to do so (see chart). Rates of installation are now a factor of nearly four times greater than the IEA was projecting back in 2013 – they were projecting installation rates of about 28GW for 2018, where in fact around 100 GW were installed in 2017 and an estimated 110GW in 2018.
I have returned to the topic since 2013 (see links at the bottom of this post), as have many others, each time pointing out how divorced from reality the IEA’s projections are.
Unfortunately, the IEA is continuing with its approach, and continuing to grossly understate the prospects for renewables. Auke Hoestra has recently updated his analysis of the IEA’s solar PV projections to take account of the latest (2018) World Energy Outlook New Policies Scenario (see link below chart – in addition to chart data his post also contains a valuable commentary on the issue). The analysis continues to show the same pattern of obviously misleading projections, with the IEA showing the rate of solar PV installation declining from today’s rate until 2040. Of course eventually the market will mature, and rates of installation will stabilise, but this seems a long way off yet.
IEA projections for solar PV in successive World Energy Outlooks compared with outturn
In 2013 I was inclined to give the IEA the benefit of the doubt, suggesting organisational conservatism led to the IEA missing a trend. This no longer seems tenable – the disconnect between projections and reality has been too stark for too long. Instead, continuing to present such projections is clearly a deliberate choice.
As Hoekstra notes, explanations for the disconnect have been advanced by the IEA, but they are unsatisfactory. And as renewables become an ever-larger part of the energy mix the distortions introduced by this persistence in misleading analysis become ever greater.
There is no excuse for the IEA persisting with such projections, and none for policy makers taking them seriously. This is disappointing when meaningful analysis of the energy transition is ever more necessary.
Comparing cumulative per capita emissions since the UNFCCC was adopted in 1992 shows that China has an opportunity for leadership. Such leadership is notably lacking from the USA at the national level and Australia.
Under the Paris Agreement each country sets out actions to reduce emissions as Nationally Determined Contributions (NDCs). However, the Agreement says little about how contributions should be balanced across different countries to meet its goals.
In this post I’ll focus on one indicator: per capita emissions, both now and cumulatively. Countries with higher per capita emissions should, other things being equal, have a greater obligation to reduce emissions. Clearly other criteria, such as income and abatement opportunities, also affect an appropriate distribution of obligations under NDCs, but I’ll ignore these for now.
Comparing per capita emissions
Per capita emissions vary enormously between countries – not just between developed and developing countries, but also within these groups. Chart 1 shows per capita CO2 emissions for major economies since 1990. There are some striking differences. The worst performers are the USA and Australia, which now have around three times the per capita emissions of France and the UK. Germany and Japan’s emissions are lower than those in the USA or Australia, but well above French and UK levels, with no downward trend since 1990 for Japan. In contrast, France has had relatively low per capita emissions for many years, in large part due to a low carbon power sector, while the UK’s per capita emissions have fallen by some 40% since 1990. Both the UK and France are now quite close to the global average of 4.8 tonnes per capita.
Meanwhile the distinction between developed and developing countries has become less clear-cut. Emissions from China have risen rapidly along with its economic development. Per capita emissions in China rose above those in France in 2009 and the UK in 2012. By 2016 they were 33% and 45% respectively above the UK and France. However they remain below those of Germany and Japan, and are still less than half the levels of the USA and Australia.
Chart 1: Per capita emissions of CO2 from energy and industry (1990-2016)
Cumulative emissions per capita
Climate change depends on cumulative emissions rather than emissions in any one year. Equalising cumulative emissions per capita (that is cumulative emissions divided by cumulative population) in effect shares a fixed carbon budget equally across countries over time[i]. The calculation here looks at emissions and population since 1992[ii], the date at which the UNFCCC was adopted[iii]. At this point all countries committed to the objective of limiting dangerous anthropogenic interference with the climate[iv] (more on this choice of period below).
On this basis even the best performing large developed economies, France and the UK, have higher cumulative emissions than China. However the difference is now reducing as China’s per capita emissions have risen. This trend may continue. The UK has a legally binding commitment under its Climate Change Act to reducing emissions by 80% from 1990 levels by 2050. France faces similar targets as part of the EU’s commitment to reduce emissions by 80-95% from 1990 levels. They will all then, under the Paris Agreement, need to reduce emissions to zero in the second half of the century.
China matching the UK in cumulative emissions after 1992
This raises the question of what emissions track would lead to China having the same cumulative emissions as major developed economies by 2050, or after. The scenario shown for China in Chart 2a is based on eventually equalling the UK’s cumulative emissions, assuming the UK meets its own targets. This convergence is shown in Chart 2b. The UK is chosen as a representative developed economy which is performing well in emissions reductions. Lower emissions than this would be required to match cumulative emissions from France. Higher emissions would be possible to equal Japan’s or Germany’s (not shown on chart 2a).
Under this scenario China decreases its emissions to about half current levels by 2050.
With China on the track shown the world would, provided other countries matched it, have a good change of limiting global temperature rises to below 2 degrees, though not 1.5 degrees.
Chart 2a: Scenarios for per capita emissions to 2050
Note: emissions track for France is indicative and depends on EU burden sharing.
Chart 2b. Cumulative emissions in China equal those in the UK under these scenarios
Note: Cumulative per capita emissions for China remain slightly below those for the UK in 2050 to allow for additional emissions after 2050 – China’s annual per capita emissions are still higher than the UK’s by 2050.
What about going further back for cumulative emissions?
These results are strongly dependent on taking into account emissions over the last 25 years, since the UNFCCC was adopted. The longer the time period, the greater China’s future emissions (and other countries) can be while still retaining cumulative emissions below those of developed countries.
Indeed, some favour counting all emissions over time, going back centuries, or at least to the beginning of industrialisation. They argue that countries are responsible for all their historic emissions, in part because developed countries are now benefiting from past emissions, which allowed them to build their economies. However, going this far back this seems to me inappropriate on a number of grounds.
Many of these emissions will have been from actions of people living long ago, with no knowledge of the harm they were causing. It does not, for example, seem appropriate to put obligations on current US citizens due to actions of US citizens in the 1920s driving model T Fords.
Not all past emissions have benefitted current citizens, and not all were under their control. For example, emissions from Eastern Europe in the Communist era (from 1945 to around 1989) were notably inefficient and unproductive.
Benefits of past emissions have gone beyond the emitting countries, to include citizens of developing countries. China’s extraordinary growth in the past three decades would not have been possible without learning from developed countries, so it has benefitted from the same historic emissions that enabled developed countries to reach their present state.
Countries developing now have opportunities to follow low emissions pathways not available to those that developed earlier, whereas those developing earlier may have infrastructure which gives a certain amount of emissions lock-in.
These arguments suggest, among other things, that cumulative emissions should not be used as a proxy for wealth, capability or opportunity, which should be considered separately.
In any case, allowing all countries to reach cumulative emissions to equal those of developed countries over all time would be incompatible with the commitments of the Paris Agreement. It is therefore not a suitable basis for action.
China, as the largest emitter in absolute terms, has a unique role in determining the success of efforts to avoid dangerous climate change. Emissions need to head rapidly downwards to at most half current levels by mid-century to match cumulative emissions since 1992 of the better performing developed countries, and to achieve the goals of the Paris Agreement. It will be of tremendous benefit to the world if China can achieve this.
This implies there is an opportunity for China to show strong leadership. But this window is closing rapidly. Meanwhile, leadership from the USA (at the national level) and from Australia, and to a lesser extent from Germany and Japan, remains disgracefully lacking.
[iii] The UNFCCC was adopted on 9 May 1992 and opened for signature at the Earth Summit in Rio de Janeiro from 3 to 14 June 1992. It entered into force on 21 March 1994, after enough countries had ratified it.
[iv] Article 2 sets out the objective of stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.