Mr Speaker, today I am announcing that the Government proposes to set an ambitious target in law to reduce greenhouse gas emissions in line with advice from the independent Committee on Climate Change.
Signing up to an ambitious Fourth Carbon Budget will result in no additional costs to consumers during this parliament. We will undertake a review of progress in early 2014 to ensure our own carbon targets are in line with the EU’s. And we are working up a package of measures to be announced by the end of the year to help energy intensive industries adjust to the low-carbon industrial transformation while remaining competitive.
Mr Speaker, by agreeing to the Committee on Climate Change’s proposed level, we are demonstrating our desire to drive the changes needed to turn the UK into a dynamic, low carbon economy that is attractive to investors in the new and growing low carbon sectors.
We are also sending a clear signal to the international community: that the UK is committed to the low carbon economy. This will help us reach agreement in Europe on moving to a 30% emissions reduction target - and build momentum toward a legally binding global climate change deal
The Climate Change Act 2008 sets a target to reduce greenhouse gas emissions in the UK by at least 80% from 1990 levels by 2050. The Act also requires Government to set carbon budgets, which are limits on greenhouse gas emissions in the UK for consecutive five year periods. These carbon budgets must be set at least three budget periods in advance. They are designed to put emission reductions on an appropriate and cost-effective pathway to our 2050 target.
The first three carbon budgets were set in 2009, following advice from the independent Committee on Climate Change. The Fourth Carbon Budget - the limit on emissions for the five year period from 2023 to 2027 - has to be set in law by the end of June 2011.
As advised by the Committee on Climate Change, the level we propose setting in law would mean that net emissions over the Fourth Carbon Budget period should not exceed 1950 million tonnes of carbon dioxide equivalent - a 50% reduction from 1990 levels.
As required by the Climate Change Act, once the Fourth Carbon Budget has been set in law, we will publish a report setting out the policies and proposals required in the medium-long term to meet the budget, building on the strong foundation provided by our existing policies. This will take the form of the revised government carbon plan later this year, following the publication of the interim version in March.
How we will get there
Mr Speaker, the Committee on Climate Change advised that we should aim to meet the Budget through emissions reductions in the UK rather than relying on carbon trading, such as under the EU Emissions Trading System or the purchase of international credits from projects abroad. We will aim to reduce emissions domestically as far as is practical and affordable. But we also intend to keep our carbon trading options open - to maintain maximum flexibility, and minimise costs in the medium-long term. Given the uncertainty of looking so far ahead, this is a pragmatic approach.
Under the Climate Change Act, emissions reductions by the UK’s industrial and power sectors are determined by the UK’s share of the EU Emissions Trading System cap. This protects UK industrial and power sectors from exceeding EU requirements. However if the EU ETS cap is insufficiently ambitious, this could mean placing disproportionate strain on other sectors outside the EU ETS such as transport.
To overcome this and to provide clearer signals for businesses and investors, government will review progress towards the EU emissions goal in early 2014. If at that point our domestic commitments place us on a different emissions trajectory than the Emissions Trading System trajectory agreed by the EU, we will, as appropriate, revise up our budget to align it with the actual EU trajectory.
In line with the Coalition Agreement, Government will continue to argue for an EU move to a 30% target for 2020, and ambitious action in the 2020s.
As part of the transition to a low carbon economy, we need to ensure that energy intensive industries remain competitive and that we send a clear message that the UK is open for business. Before the end of the year we will be announcing a package of measures for energy intensive businesses whose international competitiveness is most affected by our energy and climate change policies. Rising electricity costs pose a key risk to these sectors which are critical to our growth agenda. We will, therefore, take steps to reduce the impact of government policy on the cost of electricity for these businesses, thereby allowing them to continue to play their part in delivering our green industrial transformation. In this way, we will ensure that that these sectors remain internationally competitive and we send a clear message that the UK is open for business.
Mr Speaker, it is important to stress that the UK’s existing policies already put us on track to meet the first three carbon budgets. They also provide a strong foundation for the fourth carbon budget, implying no additional near-term costs. We are reforming the electricity market, making homes and businesses more energy efficient through the Green Deal, ensuring that new homes are built to a high energy efficiency standard, encouraging the uptake of ultra-low carbon cars, and setting up a Green Investment Bank.
Meeting the 1950 million tonnes target we are proposing for the 2023-27 period is ambitious but achievable. By providing long term clarity for investors, the Fourth Carbon Budget places the UK at the leading edge of the global low-carbon industrial transformation. It will set Britain on the path to green growth. It will establish our competitive advantage in the most rapidly growing sectors of the world economy, generate jobs and export opportunities in these sectors, maintain energy security and protect our economy from oil price volatility. It is a framework not just for action on climate but for growth and prosperity.