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

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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

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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

Agenda

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Science suggests that stabilising temperatures at any level implies net zero emissions

CO2 Concentration

(years)

Idealised emissions profiles falling abruptly to zero at different times

Source: Knutti & Rogelj (2015)

Even in idealised emissions scenarios in which emissions of CO2 are completely stopped tomorrow, temperatures will remain flat and not fall for hundreds of years

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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 2oC above pre- industrial levels and pursuing efforts to limit the temperature increase to 1.5oC,…”

• “…to achieve a balance between anthropogenic emissions by

sources and removals by sinks of greenhouse gases in the second half of this century…”

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One interpretation of this is that the target is net zero globally by 2050 (with 5 GtCO2 CDR)

Source: Rockström et al (2017, Science)

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Another interpretation is net zero by 2070, with around 10 GtCO2 p.a. CDR

Source: Anderson and Peters (2016, Science)

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A domestic net zero commitment has been promised by UK politicians

Source: BBC News; Guardian

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The implications for the UK appear to be net zero by somewhere between 2045 and 2070

Source: Pye et al (2017, Nature Energy)

– Cumulative CO2 captured by the UK in these scenarios is around 10 GtCO2 over the 75 years from 2025-2100 (> 100mt CO2 p.a. cf Drax at 20mt CO2 emissions)

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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

Agenda

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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

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• 1. T

echnology: Hitting long-term net zero targets is likely to be much cheaper with 2x brainpower

• 20 large countries to double clean energy R&D

Mission Innovation (M:I)

Source: breakthroughenergycoalition.com

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• 1. T

echnology: calculations based on knowledge spillovers and analogies suggest > 5x is ideal

Source: Pless et al (in preparation) Inducing and Accelerating Clean Energy Innovation with ‘Mission Innovation’

29.7 5.2 2.2 2 1.1 1 5 10 15 20 25 30 35 Europe United States U.S. Dollars (billions) Current Investment Mission Innovation Target Optimal Investment

– Public R&D spend on renewable energy (excluding hydropower)

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• 1. T

echnology: for reasonable risk aversion, a more diversified portfolio is ideal at this early stage

Source: Way et al (in submission) Wright meets Markowitz

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• 2. Infrastructure: avoid building assets that may

need to be written off early (e.g. gas and coal)

Source: Based on Pfeiffer et al (2016)

Emissions Years 1.0 0.5 0.0 Decision point 10 20 30 40 50 60 70 Cumulative emissions from remaining coal

• f 10 units

(10 years x 1/year) Cumulative emissions from new gas

• f 20 units

(40 years x 0.5/year)

Coal New gas

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• 3. Economic: a credible long-term carbon price

signal can work wonders…but we don’t have it yet

€ 0 € 5 € 10 € 15 € 20 € 25 € 30 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

Price /tCO2

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• 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

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• Investors must report on ESG / climate
• BS > €500m beyond carbon footprints
• Includes “physical” and “transition” risks
• 4. Financial: greater disclosure of climate risk is

now being recommended by the TCFD

• Chaired by Michael Bloomberg and

commissioned by the Financial Stability Board (FSB), Chaired by Mark Carney Task Force on Climate-related Financial Disclosures (TCFD)

Sources: fsb-tcfd.org

• TCFD Phase I report (March 2016)

included “forward-looking” disclosures

• TCFD, Unilever CFO and Oxford co-

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

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• 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 5oC 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

Sources: Covington et al (2016, Nature)

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• 5. Carbon removal: With carbon prices low & not

credible, other policies may be necessary on CDR

Source: Millar et al (in preparation)

– One idea is the requirement for mandatory sequestration of a fraction of extracted carbon

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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

Agenda

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There is action but we are not on track to meet even Paris pledges, which would take us above 3oC

1000 2000 3000 4000 5000 6000 7000 8000 1990 1995 2000 2005 2010 2015 2020 2025 2030 GHG emissions [MtCO2eq./yr]

BaU (non climate policy)* Current policy* US BR2 'under current measures' NDC BaU (non climate policy)* Current policy* EU BR2 'with existing measures' NDC BaU (non climate policy)* Current policy (nuclear power share of 15% by 2030)* Current policy (nuclear power share of 20% by 2030)* NDC

EU U.S. Japan

U.S. EU Japan

• 26 to -28% relative to 2005
• 40% relative

to 1990

• 26% relative

to 2013

Source: Victor et al (2017, Nature)

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The UK legislated the legally-binding fifth carbon budget after the 2016 EU referendum

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

– The UK has been reducing its emissions, meeting targets so far – But we were not on track to meet 4th and 5th CBs, even before Brexit

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We remain a very long way from net zero, albeit with some good progress in a couple of areas

Source: CCC (2017) Meeting Carbon Budgets: Closing the Policy Gap – Fig 2. based on BEIS (2017)

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The big win has been the carbon price floor, which has all but removed coal from the electricity grid

Source: Aurora (2017)

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But Brexit makes it harder: EU policies contributed ~50% of the emissions reductions intended by 2032

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

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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

Agenda

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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?

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Post-Brexit Britain could convert the CPF to a US Republican style > $40/t carbon tax…

Source: Climate Leadership Council (2017)

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Reform of electricity markets is needed to fully integrate renewables at lowest cost

ERCOT (T exas) Germany Irish Market

20 40 60 80 100 120 140 160 180 200 10 20 30 40 50

GW

$/MWh 10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 GW €/MWh

Wind and Solar Capacity Volume-weighted average price

1 1.2 1.4 1.6 1.8 2 2.2 2.4 2.6 2.8 3

10 20 30 40 50 60 70 80 90 100 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

GW €/MWH

– As greater renewables are connected, wholesale prices have fallen – Other services will need to be priced – Procurement of capacity on a market competitive basis

Source: Farrell et al (in preparation) Is this the end of conventional wholesale electricity markets?

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Key policies on buildings are tighter standards now (to avoid regret), and moving soon on infrastructure

Source: CCC (2017) Meeting carbon budgets: closing the policy gap

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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

Agenda

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Globally, and in the UK, there may be large potential in various CCUS and land-based CDR approaches

Source: Hepburn et al (in preparation) Use it or lose it

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We have been reviewing the literature on different CCU / CO2 removal approaches for RS / NAS

Source: Hepburn et al (in preparation) Use it or lose it

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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

Agenda

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1. The UK should be net zero between 2045-2070 to hit Paris 2. This now requires forward thinking across 5 policy areas:

1. Technology: larger portfolio of early stage technological “bets” 2. Infrastructure: investment fit for a net zero world 3. Economics: incentives in various guises (especially carbon pricing) 4. Finance: regulation to manage risks of stranded assets 5. Carbon removal: Support for CDR / CCUS and potential legal intervention

3. We are not on track. 4. Key priorities to get back on track include accelerating electricity decarbonisation, planning ahead for buildings and transport to avoid later regret, getting moving now on land and CDR

Conclusions

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Thank you