1. 1 Meeting carbon budgets – 3rd Progress Report to Parliament Committee on Climate Change, June 2011 www.theccc.org.uk

2. 2 Contents 1.Context: Fourth budget and previous progress reports 2.Key messages of today’s report 3.Emissions and their drivers in 2010 4.Emissions in the non-traded sector 5.Emissions in the traded sector 6.Sectors a)Power b)Buildings and industry c)Transport d)Agriculture

3. 3 Large emissions reduction needed to 2050 2050 allowed emissions 4 th Carbon Budget emissions to 2030 2 2 Source: CCC (2010) The Fourth Carbon Budget

4. 4 Interim, Intended and Domestic Action budgets Source: CCC (2010) The Fourth Carbon Budget 1,950

5. 5 Context: Our third report on progress towards carbon budgets First application of indicator framework: Large emissions fall due to recession Indicators roughly as expected New policies needed to drive the step change First application of indicator framework: Large emissions fall due to recession Indicators roughly as expected New policies needed to drive the step change A framework of indicators consistent with budgets: Emissions trajectories Indicators for implementation of abatement measures Forward indicators of investments in the project cycle Policy milestones A framework of indicators consistent with budgets: Emissions trajectories Indicators for implementation of abatement measures Forward indicators of investments in the project cycle Policy milestones The need for a step change Aims: Report latest data Assess underlying progress Monitor against indicators Aims: Report latest data Assess underlying progress Monitor against indicators First (2009) Then (2010) Now (2011)

6. 6 Contents 1.Context: Fourth budget and previous progress reports 2.Key messages of today’s report 3.Emissions and their drivers in 2010 4.Emissions in the non-traded sector 5.Emissions in the traded sector 6.Sectors a)Power b)Buildings and industry c)Transport d)Agriculture

7. 7 Today’s report - Key messages Underlying trend was flat – not enough to meet future carbon budgets Performance against indicators has been mixed – step change still needed Electricity Market Reform and Green Deal key to driving emissions down Economy-wide emissions increased 3% – due to cold weather Can, and should, outperform first three budgets

8. 8 Contents 1.Context: Fourth budget and previous progress reports 2.Key messages of today’s report 3.Emissions and their drivers in 2010 4.Emissions in the non-traded sector 5.Emissions in the traded sector 6.Sectors a)Power b)Buildings and industry c)Transport d)Agriculture

9. 9 CO 2 emissions rose relatively sharply

10. 10 With biggest rises from energy used to heat buildings (% change 2009-2010) Note: ‘Other’ category includes agriculture CO 2 and emissions from land use, land use change and forestry (LULUCF)

11. 11 The recession caused a downward shift in emissions but no evidence of a change in the underlying pace of emissions reductions 11 In context of faster GDP growth than in 2010

12. 12 Contents 1.Context: Fourth budget and previous progress reports 2.Key messages of today’s report 3.Emissions and their drivers in 2010 4.Emissions in the non-traded sector 5.Emissions in the traded sector 6.Sectors a)Power b)Buildings and industry c)Transport d)Agriculture

13. 13 Non-traded sector emissions are well below the budget level, and even further in weather- adjusted terms 13 Non-traded sector emissions v. budget

14. 14 However continuing progress at the 2010 rate would not be enough to meet future budgets 14 Non-traded sector emissions v. future budgets

15. 15 Our indicators envisage a ramp-up in implementation of abatement measures beyond Budget 1 Annual uptake/improvement Budget 1 average Budget 2 average Budget 3 average Residential buildings Loft insulation (CERT professional) 0.9m2.1mn/a Loft insulation (DIY & other schemes) Cavity wall insulation0.8m1.4mn/a Solid wall insulation90,000150,000220,000 Efficient boilers1.0m0.9m0.7m Renewable heat Increase in renewable heat penetration+0.1%+0.8%+2.4% Road transport Improvement in new car CO2 -4 gCO 2 /km-6 gCO 2 /km Electric car sales (PHEV/BEV) 5,000130,000450,000 Increase in biofuels penetration (by vol)+ 0.7% +0.4% Car drivers undertaking eco-driving training 300,000320,000340,000

16. 16 Progress in 2009-2010 was mixed against the current modest ambition Annual uptake/improvement indicator 2009 indicator 2010 outturn 2009 outturn 2010 Residential buildings Loft insulation (CERT professional) 0.6m 0.8m0.5m Loft insulation (DIY & other schemes)0.3m0.8m Cavity wall insulation0.7m 0.4m Solid wall insulation70,00095,00015,00013,000 Efficient boilers1.0m 1.2m1.3m Renewable heat Increase in renewable heat penetration+ <0.1% +0.2%* Road transport Improvement in new car CO2-2 gCO 2 /km-4 gCO 2 /km-8 gCO 2 /km-5 gCO 2 /km Electric car sales (PHEV/BEV)05,000101167 Increase in biofuels penetration (by vol)+0.5% +0.6%+0.7% Car drivers undertaking eco-driving training300,000 5,00010,000 * Data not yet available 

17. 17 Successfully implementing abatement measures would lead to an outperformance of currently legislated budgets 17 Non-traded sector emissions v. future budgets

18. 18 Contents 1.Context: Fourth budget and previous progress reports 2.Key messages of today’s report 3.Emissions and their drivers in 2010 4.Emissions in the non-traded sector 5.Emissions in the traded sector 6.Sectors a)Power b)Buildings and industry c)Transport d)Agriculture

19. 19 Traded sector emissions rose, but remain below the cap for both UK and EU UK level UK becomes net seller in EU ETS / banks permits for future periods EU level Less CDM required at EU level to meet EU ETS cap

20. 20 Carbon prices and projections have therefore remained low Traded sector emissions remain low Limited progress at Cancun Carbon price has remained low (c. €16/tCO 2 ) Carbon price has remained low (c. €16/tCO 2 ) Risk carbon price remains low in future Undermines incentives for low-carbon investment UK carbon price floor is appropriate: £30/t in 2020 £70/t in 2030 UK carbon price floor is appropriate: £30/t in 2020 £70/t in 2030

21. 21 Contents 1.Context: Fourth budget and previous progress reports 2.Key messages of today’s report 3.Emissions and their drivers in 2010 4.Emissions in the non-traded sector 5.Emissions in the traded sector 6.Sectors a)Power b)Buildings and industry c)Transport d)Agriculture

22. 22 Slight rise in power emissions driven by short- term factors 22 1% increase in demand, may have fallen up to 2% without weather 1% increase in intensity, driven by nuclear outages

23. 23 Underlying achievable emissions intensity fell 23

24. 24 Additions of wind capacity broadly on track, with acceleration required in mid-2010s 24 Capacity in or awaiting construction covers build to 2015 Onshore: 2.0 + 3.3 GW (4.5 GW needed) Offshore: 3.1 + 0.9 GW (3.8 GW needed) Capacity in or awaiting construction covers build to 2015 Onshore: 2.0 + 3.3 GW (4.5 GW needed) Offshore: 3.1 + 0.9 GW (3.8 GW needed) Plus significant capacity in planning Onshore: 8.4 GW Offshore: 2.5 GW Plus significant capacity in planning Onshore: 8.4 GW Offshore: 2.5 GW Approvals needed No offshore approvals in 2010 Approvals needed No offshore approvals in 2010 Forward Indicators OnshoreOffshore

25. 25 Progress demonstrating CCS has been mixed 25 £1 billion allocated for first demonstration project Seven applications for EU funding Gas CCS included in second competition £1 billion allocated for first demonstration project Seven applications for EU funding Gas CCS included in second competition But... First project not yet signed Schedule for second set of projects unclear and already delayed But... First project not yet signed Schedule for second set of projects unclear and already delayed Award the first project this year Commence bidding and clarify funding for second set Select winning bidders in 2012 Award the first project this year Commence bidding and clarify funding for second set Select winning bidders in 2012 Major potential role for CCS in 2020s decarbonisation

26. 26 Key priorities for Electricity Market Reform E.g. Contracts for Difference More certain return than premium FITs Breaks link with rising carbon prices E.g. Contracts for Difference More certain return than premium FITs Breaks link with rising carbon prices E.g. Reserve contracts for less mature technologies with promising long-term potential Long-term Contracts Technology support Clear objectives Smooth transition E.g. Consider extending ROC beyond 2017, design arrangements suitable for renewables E.g. 50 gCO 2 /kWh

27. 27 Contents 1.Context: Fourth budget and previous progress reports 2.Key messages of today’s report 3.Emissions and their drivers in 2010 4.Emissions in the non-traded sector 5.Emissions in the traded sector 6.Sectors a)Power b)Buildings and industry c)Transport d)Agriculture

28. 28 Buildings emissions rose due to the cold weather and increased carbon intensity of electricity

29. 29 Need to accelerate implementation of insulation and renewable heat measures Loft insulation Cavity wall insulation Solid wall insulation Renewable heat* * Data not yet available for 2010

30. 30 Success will require strong incentives and removal of barriers: Green Deal and ECO 30 Proposals provide good basis Green Deal funds upfront costs of energy efficiency secured against property charge Energy Company Obligation (ECO) targets fuel poor and more expensive measures (e.g. solid wall insulation) Proposals provide good basis Green Deal funds upfront costs of energy efficiency secured against property charge Energy Company Obligation (ECO) targets fuel poor and more expensive measures (e.g. solid wall insulation) But some detail lacking and further strengthening may be required Risk of under delivery commit to insulating all lofts and cavity walls by 2015 align ECO with ambition to insulate 2m solid walls by 2020 Cost implications Consider use of cheaper mortgage finance But some detail lacking and further strengthening may be required Risk of under delivery commit to insulating all lofts and cavity walls by 2015 align ECO with ambition to insulate 2m solid walls by 2020 Cost implications Consider use of cheaper mortgage finance Percentage of housing stock by mortgage loan-to-value ratio Loan-to-value ≤20%≤40%≤65% % of stock 8%22%45%

31. 31 Industry emissions rose slightly during the recovery Industry CO 2 emissions Manufacturing output

32. 32 Contents 1.Context: Fourth budget and previous progress reports 2.Key messages of today’s report 3.Emissions and their drivers in 2010 4.Emissions in the non-traded sector 5.Emissions in the traded sector 6.Sectors a)Power b)Buildings and industry c)Transport d)Agriculture

33. 33 Available data points to a fall in surface transport emissions Cars - km Cars – emissions intensity Cars - emissions Emissions data for 2010 not yet available but... Vehicle-kms down

34. 34 New car CO 2 emissions are well ahead of our indicator trajectory 34 Will fall sustain without high prices, recession and scrappage policy? 2

35. 35 Very limited progress in other transport indicators 35 Electric vehicles Electric car registrations in 2010 mostly limited to pilot schemes Full electric cars only reaching dealers in 2010 Plug -In Car Grant confirmed in 2010 Spending Review £5,000 incentive available since Jan 2011 Infrastructure investment at Plugged-In Places pilots confirmed; nationwide strategy to promote infrastructure due June 2011 Electric car registrations in 2010 mostly limited to pilot schemes Full electric cars only reaching dealers in 2010 Plug -In Car Grant confirmed in 2010 Spending Review £5,000 incentive available since Jan 2011 Infrastructure investment at Plugged-In Places pilots confirmed; nationwide strategy to promote infrastructure due June 2011 IndicatorOutturn 5,000167 Behavioural measures Eco-drivingVery low levels of eco-driving training in 2010 Smarter ChoicesNeed to allocate and extend funding (e.g. Local Sustainable Transport Fund) Speed limitingViolation of speed limits on motorways increased in 2009 Land-use / transport planningFramework under review – need to fully account for transport emissions

36. 36 Contents 1.Context: Fourth budget and previous progress reports 2.Key messages of today’s report 3.Emissions and their drivers in 2010 4.Emissions in the non-traded sector 5.Emissions in the traded sector 6.Sectors a)Power b)Buildings and industry c)Transport d)Agriculture

37. 37 Agriculture emissions continue to decline steadily Priorities remain improvements in the evidence base and robust policy to drive abatement measures Decline in production partly offset by increased N 2 O intensity Livestock production down in line with meat consumption

38. 38 Recap of key messages Underlying trend was flat – not enough to meet future carbon budgets Performance against indicators has been mixed – step change still needed Electricity Market Reform and Green Deal key to driving emissions down Economy-wide emissions increased 3% - due to cold weather Can, and should, outperform first three budgets

39. 39 Future work of the Committee Shipping Review (autumn 2011) –Develop scenarios for UK international shipping emissions –Assess implications for inclusion in carbon budgets Bioenergy Review (late 2011) –Develop scenarios for availability of sustainable bioenergy –Consider where available sustainable bioenergy would best be used Advice on inclusion of aviation and shipping (spring 2012) –Required under CC Act to enable Government decision by end 2012 –Build on considerations on 4 th carbon budget report & Shipping Review Advice to the devolved administrations (2011) –Advice on targets and progress reducing emissions Adaptation (2011) –Assessment of UK preparedness and advice to Scotland and Wales –Advice on UK’s Climate Change Risk Assessment