Brexit has come as a shock to the UK and the world. UK’s decision to leave the EU is shaking up markets and will have wide-ranging impacts across all industries. Energy included. Speculations have been flying about how the UK carbon budget commitments might be affected. In the midst of this post-Brexit uncertainty, and less than one week after the referendum, the UK Government announced its approval of the fifth carbon budget.
This announcement means that the UK accepts the Committee on Climate Change’s recommendations to reduce emissions by 57% below 1990 levels between 2028 and 2032.
But…what does this mean for the energy industry? Are you up to speed on the fifth carbon budget? Do you know how could it impact your ESCO business in the UK?
Let’s take a closer look to better understand the UK’s carbon budget.
What does the carbon budget mean?
The Climate Change Act 2008 set a target for the UK to reduce its carbon emissions by at least 80% from 1990 levels by 2050. This will help to limit global temperature rise to as little as possible above 2°C.
As part of the Act, a series of 5-year carbon budgets were established as benchmarks to ensure ongoing progress towards the 2050 target. The budgets provide advice on measures that can reduce emissions across all sectors, at the lowest possible cost.
The first carbon budget was released in 2009 and four carbon budgets have already been approved by UK law. In November 2015, the UK Committee on Climate Change (CCC) proposed the fifth carbon budget, covering the period 2028-2032.
Why is the Fifth Carbon Budget Important Now?
Because the UK’s Government Department of Energy & Climate Change confirmed last 30th June that they will endorse the document, and consequently, the vision proposed in it.
The report is one of the most extensive and detailed readings that you can find to understand the energy market in the United Kingdom. You can get full access to it here.
After Brexit, many commentators and experts thought that the next approval would be delayed. Or, at least, that it would be strongly changed with new – and less idealistic – goals.
One of the possible outcomes from Brexit could be the increase in energy prices (as our CEO, Joan Pinyol, analysed in his latest post on LinkedIn).
The Climate Change Act and the resulting budgets have forced over 2,500 companies to comply with lower carbon emissions and inform the regulator about their energy consumption and energy efficiency plans.
Is the UK on target for its carbon emission limits? You can check the official Government yearly reports here. Let’s take a look at some of these figures.
The last statement, from 2014, was presented to the Parliament on March 2016. This period runs under the second carbon budget (covering the period from 2013 to 2017) and its emission cap is 2,782 MtCO2e.
According to the statement from 2014, UK’s hard work towards reducing the emissions is working. The net UK emissions for the year were 514.4 MtCO2e, meaning a 36% reduction in GHG emissions, compared with 1990. The reduction in carbon dioxide was 29% and methane underwent an even bigger reduction: 61%
The first draft of the 2015 emissions mention an additional 3% decrease versus 1990 levels, but final figures are still under calculation.
The UK’s energy mix is ever-changing, as the use of carbon-heavy coal decreases and renewables increase. In 2015, gas made up the largest share of the energy mix, providing 29.5% of the UK’s electricity, with renewables providing the second largest share, 24.7% (up from 19.1% in 2014).
Fifth UK Carbon Budget Targets
The Government support to the initiative has spotlighted its ambitious goals. The fifth carbon budget pursues the following goals:
- UK emissions should be 57% lower between 2028 and 2032, compared with levels in 1990. This will require a combination of energy saving measures and innovation in technology. As an energy manager, you need to be in the know and provide advice on these things.
- Ensure stronger policies to support the carbon emissions reductions. This is extremely important for you as energy manager. The United Kingdom has one of the most restrictive policies related to carbon emissions and sustainability affecting big and medium-sized companies. If the goal of the carbon budgets to come is to strengthen this regulation you will need to be aware of any change because it will affect your clients.
- Attract possible investors. The United Kingdom authorities have declared, after the support of the fifth carbon budget, that this step only reinforces their vision for a cleaner and more profitable energy market. This could push investors to back up Government initiatives, but also clean energy and energy services companies in the UK.
If the UK meet this goal, it will reinforce their way to achieve the utopian goals from the Climate Change Act: 80% less emissions by 2050 (remember, always compared versus the 1990 baseline).
According to the performance numbers, the UK is on track to meet the second and third carbon budgets. But analysts predict that it would be really difficult to meet the fourth carbon budget. This budget will cover the period between 2023 and 2027 and sets a 50% reduction on emissions.
Why should I care about the Carbon Budget?
The Climate Change Act is already affecting many of our partners and clients in the UK. Why? Companies need to worry more than ever before about compliance with carbon emissions regulation.
Is being climate-friendly good for business? A review by the LSE’s Grantham Institute has shown that current policies to tackle climate change have not harmed business competitiveness, and in the long term could in fact increase competitiveness by encouraging greater innovation and efficiency.
The Committee on Climate Change has drawn up a sectorial central scenario for the UK to reach the 2050 targets, as cost-effectively as possible. It details improved energy management and process control across industry, along with improved energy efficiency in buildings, such as through heating controls and efficient lighting.
Energy efficiency is a key way to reduce carbon emissions, along with the use of renewable energies. If you reduce your energy consumption, apply retrofits to your buildings for better energy conservation and apply energy efficiency tactics to your processes, carbon emissions can be dramatically reduced, not to mention costs. And at a national level energy efficiency can improve energy security through less dependency on imports.
Energy policy is not only a concern for those of you working inside big companies. If you work for a UK energy services company you need to be up to date on regulation and carbon budgets to be the first to inform your clients and act if needed. The energy industry faces unpredictable and frequently changing policies, which makes it complicated to stay on top of reporting, and also makes it an unstable environment for investment. If you can assist your clients in tracking policy and staying ahead of the game, this is a great advantage for both of you.
On the flip side, if your clients hear news from others before hearing it from you, this will damage your reputation as an energy manager.
Keeping up to date on market news and regulations is one of the evolutionary shifts changing the role of the energy manager. In our latest free-to-download guide we covered this shift and four more that could help you become the energy manager of the future.