Sunday, January 4, 2009


Response by the BIEE Climate Change Policy Group

3 January 2009

The group records its approval the overall thrust of the report and particularly endorses the report’s success in grasping two issues we believe are of fundamental importance and on which we have commented in earlier papers and responses.[1]

More demanding emissions targets. We strongly welcome the recommendations for adoption of an “80 % by 2050” pathway for CO2 emissions reductions as an appropriate revised target for UK policy. This is a timely recognition of the urgency implied by the increasing weight of scientific evidence, set in a context of the necessary corresponding global reductions.

Within that international context it makes sense not to place limits on trading within the EU but to be much more restrictive of the allowance of CDMs against targets. In the context of national targets we regard the approach to aviation and shipping as a sensible practical position, pending wider international agreement.

Achievement of a very low carbon or “decarbonised” power sector. We also endorse the recognition given to the central and prominent position attached to the task of decarbonising the power sector, and particularly welcome the proposition that this should be substantially achieved by 2030.

There are also a number of general issues and principles which we believe the committee will need to address in the next and subsequent phases of their work.

Reliance on markets to deliver solutions. We take the view that the Government’s apparent belief that existing market mechanisms, together with a carbon price derived from the EU emissions trading scheme, will be sufficient to stimulate the necessary investment in zero carbon forms of electricity production may be unduly optimistic. This belief depends on the theoretical proposition that markets, and private sector agents, will find the optimal route to emissions reduction, in this case the lowest cost and most effective and timely solutions. However this proposition holds only under a number of fairly stringent conditions, many of which are not met in the UK electricity market, or by the EU trading scheme.[2] This may imply the need to recognise a changing paradigm with less reliance on markets alone, and more radical approaches to a policy framework, including regulatory or other direct interventions, as well as modifications to the basic market structures and institutions.

Estimated costs of meeting targets. We concur with the Committee’s conclusions that the aggregate costs of meeting the more ambitious targets are small in relation to the potential costs of global inaction and can be represented as relatively insignificant in macro-economic terms over the long term. However it will be important to set out more fully some of the social and political costs which will be implied by specific policies, where for example higher carbon costs feed through into significant rises in consumers’ fuel prices.

A background of recession, financial crisis and volatile commodity prices. It will be very important to sustain the momentum of action on emissions reduction in a difficult general economic environment, although this will provide opportunities as well as challenges. Concerns over the ability of markets to deliver the right outcomes is accentuated by both the uncertainties of financial markets and the volatility in commodity markets.

Work Programme for the Group.

In early 2009 the Group intends to return to some of these, and related, issues and to developing ideas that may be relevant to the road map for future actions by the Government in moving forward.

[1] See for example Bringing Urgency into UK Climate Change Policy, December 2006, and subsequent papers, at
[2] For a longer exposition of some of these issues, see Will Markets Deliver Low Carbon Power Generation?, a recent addition to the Sussex Electronic Working Paper series.