Policy for a net zero UK Professor Cameron Hepburn INET at Oxford - PowerPoint PPT Presentation

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 2017 1

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

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 CO 2 Concentration are completely stopped tomorrow, temperatures will remain flat and not fall for hundreds of years (years) 3 Source: Knutti & Rogelj (2015)

And the Paris Agreement agrees to (try to) achieve net zero emissions by 2050-2100 • “… 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

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

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

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

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 2025-2100 (> 100mt CO 2 p.a. cf Drax at 20mt CO 2 emissions) 8 Source: Pye et al (2017, Nature Energy)

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

Meeting targets that are over 20 – 50 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

1. T echnology: 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 11 Source: breakthroughenergycoalition.com

1. T echnology: 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 1 United 2 States 5.2 1.1 Europe 2.2 29.7 0 5 10 15 20 25 30 35 U.S. Dollars (billions) 12 Source: Pless et al (in preparation) Inducing and Accelerating Clean Energy Innovation with ‘Mission Innovation’

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

2. Infrastructure: avoid building assets that may need to be written off early (e.g. gas and coal) Emissions Cumulative emissions from remaining coal of 10 units (10 years x 1/year) Decision point Cumulative emissions from new gas of 20 units 1.0 (40 years x 0.5/year) Coal 0.5 New gas 0.0 Years 0 10 20 30 40 50 60 70 Source: Based on Pfeiffer et al (2016) 14

3. Economic: a credible long-term carbon price signal can work wonders…but we don’t have it yet Price /tCO 2 € 30 € 25 € 20 € 15 € 10 € 5 € 0 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

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

4. Financial: greater disclosure of climate risk is now being recommended by the TCFD Task Force on Climate-related Financial Disclosures (TCFD) • TCFD Phase I report (March 2016) • Chaired by Michael Bloomberg and included “forward - looking” disclosures commissioned by the Financial Stability • TCFD, Unilever CFO and Oxford co- Board (FSB), Chaired by Mark Carney hosted 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 • Investors must report on ESG / climate • BS > € 500m beyond carbon footprints • Includes “physical” and “transition” risks 17 Sources: fsb-tcfd.org

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 18 Sources: Covington et al (2016, Nature)

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

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

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)* U.S. 7000 Current policy* US BR2 'under current measures' 6000 NDC GHG emissions [MtCO 2 eq./yr] -26 to -28% relative to 2005 EU 5000 EU BaU (non climate policy)* Current policy* 4000 EU BR2 'with existing measures' -40% relative NDC to 1990 3000 Japan BaU (non climate policy)* 2000 Japan Current policy (nuclear power share of 15% by 2030)* 1000 Current policy (nuclear power share of -26% relative 20% by 2030)* to 2013 NDC 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 Source: Victor et al (2017, Nature) 21

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 – 22 Source: CCC analysis based on DECC (2015); Carbon Brief

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

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

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

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

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

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

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 (T exas) Germany Irish Market 70 100 100 3 200 90 90 2.8 60 50 180 80 80 2.6 160 50 70 70 2.4 40 140 60 60 2.2 40 120 € /MWh € /MWH $/MWh GW GW 30 50 50 2 100 GW 30 40 40 1.8 80 20 30 30 1.6 20 60 20 20 1.4 40 10 10 10 10 1.2 20 0 0 0 1 0 0 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 Wind and Solar Capacity Volume-weighted average price 29 Source: Farrell et al (in preparation) Is this the end of conventional wholesale electricity markets?