UK Climate Change Act: What it means for business

The passing of the Climate Change Bill into an Act of UK law last week was a significant step on the UK’s path to a low carbon future.

In agreeing to reduce its carbon emissions by 80% by 2050, compared to 1990 levels, the UK is the first government in the world to introduce legally binding long-term targets on climate change. And as a result of its long-term nature, the Act should instill greater confidence for low or zero carbon investments throughout many industry sectors.

The Climate Change Act comes at a time when greenhouse gases worldwide continue to rise year on year – figures released by the UN’s weather agency last month confirmed: "CO₂ and N₂0, are increasing steadily and there is no sign of leveling off of [the] two gases".

Add to this the current financial climate and a law on emissions reduction appears an even bolder move. But will the Act really make a difference to the UK’s efforts to tackle climate change?

One of the most important aspects of the Act is its continuously review by a Climate Change Committee (CCC) that is independent of government. The Committee will perform its review in line with emerging climate science and make recommendations to government accordingly on the 2050 target. In addition it will advise on the five yearly carbon budgets to be set by the Government.

The Government has to have good reason to reject the Committee’s advice and indeed the Committee’s power has already been tested. It proposed a ramping up of the original 60% reduction target to an 80% reduction by 2050 and last month the Government accepted this recommendation.

The Committee released its first review earlier this week – at more than 500 pages the report contains many recommendations to government that could impact on UK business. One of these is an increase of the 2020 greenhouse gas reduction target from 26% to 34% - which could potentially rise to a 42% reduction if a global deal on climate change is reached.

The CCC’s report also sets out how the 5 yearly budgets might be met - addressing which sectors should be targeted to make emission reductions and which technologies could be used. Sectors paid particular attention include transport, power, residential property, and services and industry.

According to the Committee, significant carbon savings could be found in road transport through improved fuel efficiency of new cars and vans, over the next 15 years, whilst agriculture and waste have particularly good scope for reducing potent non-CO₂ greenhouse gases, like methane.

The onus of the report is on the power sector, however, which can apparently achieve a 40% emission reduction by 2020 through a combination of wind, nuclear, deployment of carbon capture and storage technology and increased energy efficiency. On the latter, the report argues: “There appears to be scope for significant energy efficiency improvement at a cost to the economy and to individuals which is low, nil, or indeed negative”.

But the path to energy efficiency may be far from smooth. The report also warns: “there are numerous barriers which prevent theoretically attractive opportunities from being implemented (e.g. due to lack of information, hidden costs, hassle factors).”

The Confederation of British Industry suggests in its Climate Change Tracker report, out this week, that a number of weaknesses surround the Government’s drive for energy efficiency. These include the longstanding lack of a clear definition of zero carbon housing – a problem that remains a year after the Government announced its target of solely building ‘zero-carbon homes’ by 2016. This lack of practical information helps to explain the government’s admission last month that only 15 homes had qualified as zero-carbon in the first year of the scheme.

Overall, the Committee estimates the affect of the Act on UK employment is “likely not to be negative and could be positive” with potential for the UK to gain competitive advantage from being a leader in specific technologies. Reference is made to other countries that have benefitted in a similar way. Danish and German leadership in wind turbine manufacture, and Japanese and German leadership in solar photovoltaic cells were all helped by national policy encouraging growth in the renewables sector. In the UK, sectors that could benefit most markedly, according to the report, include offshore wind energy, wave and tidal, and auto-engines.

The Act requires future UK governments to stick to strong emissions reduction targets regardless of International action on Climate Change. But what will happen if the five year budgets are not met? Or when governments change? The new law will not punish ministers if they fail to achieve these targets. It does, however, enshrine the targets in statute, thus opening government policies to judicial review. Judges will then assess whether measures will achieve the targets or not. How this works out in practice will be interesting to watch. If this topic is truly cross-party then this Act could be a test of whether one government can legislate successfully on a long-term goal in a way that won't be jeopardised in the future.

We have already seen the introduction of some policy and legislative measures that will help achieve the 80% reduction – the UK’s own emissions cap and trade scheme, the Carbon Reduction Commitment, is just one of these. However to achieve this magnitude of emissions reduction, significant savings across all sectors of the UK are going to be required. The CCC’s first report gives us a grainy picture of what a low carbon economy might look like in the UK. The pressure is now on the UK Government to think ahead of the economic crisis and figure out how to get us there.



Facts: The Confederation of British Industry’s climate tracker on buildings