Six take-aways from the Sixth Carbon Budget

Last week saw the launch of the much awaited sixth carbon budget from the UK Climate Change Committee. This builds on their ‘net-zero’ analysis and report from Spring 2019. The Committee’s research, data and analysis is frequently cited by 3Keel when advising corporate and NGO clients on long-term climate action in the UK. Here are six take-aways from the 453-page report from 3Keel partner Richard Sheane.

1. Non-power sectors need to start stepping-up.

The UK’s impressive emissions reductions since 1990 have come largely from the power sector shifting from coal to renewables. This has helped ensure businesses have been able to report reductions in their corporate (‘Scope 2’) emissions. However, those gains are going to slow in the 2020s and other sectors – such as agriculture, industry, and transport – are going to have to do more heavy lifting. Significant emissions reductions are going to get more complex and challenging to deliver for business.

2. Efficiency measures are a small part of delivering net-zero.

Delivering net-zero cannot be tackled through an ‘efficiency only’ mindset. The Committee estimates that only 5% of carbon reductions between now and 2035 will come through efficiency measures. They advise that all new purchases and investments will need to be in zero-carbon solutions by 2030 or soon after. This means net-zero considerations need to be a core part of any capex planning for businesses now.

3. There is a significant reliance on nature-based CO₂ removals. 

Compared to their 2019 ‘Further Ambition’ scenario for reaching net-zero in 2050, the Committee’s new ‘Balanced Pathway’ scenario relies on more afforestation and peatland restoration. The nature and scale of these removals is fast becoming one of the most contentious areas of UK and global climate policy. We are seeing a huge increase in interest from the private and public sector to learn more about how their emissions can be ‘balanced’ by removing CO₂ from the atmosphere (principally through nature-based solutions). As the Committee highlights in their report, there is a desperate need for a national “CO₂ removal strategy” ahead of the scaling up of these approaches in the late 2020s. By the same token, our view is that the private sector also needs to define ‘responsible removals’ i.e., what, when, where, by whom and how much. Given a significant share of residual emissions in 2050 are expected to be non-CO₂ agricultural emissions, this should be of particular interest to food businesses.

4. International carbon credits should not be used to meet commitments.

The Committee is continuing to advise that performance against the carbon budget should be judged based on actual UK emissions, without recourse to international carbon credits. One potential implication of this – alongside global ‘Article 6’ negotiations on future carbon markets – is that UK emissions will increasingly be balanced by UK-based removals as we approach 2040/2050. This could see a trend towards more UK-based carbon removals projects funded by the private sector.

5. Technology costs are falling.

One of the positive narratives in the new carbon budget is that key low-carbon technologies have continued to fall and the economic cost of delivering net-zero is now lower than estimated by the Committee last year (<1% of GDP). The Committee identifies that these cost reductions are driven by scale, investor confidence and ‘learning-by-doing’ during deployment. As major buyers, retailers and brands should seek to play an influential role in further driving demand and cost reductions in net-zero goods and services.

6. The transition must be fair.

A ‘fair’ or ‘just’ transition is becoming a key principle for assessing the effectiveness and quality of government and business climate action. In our experience, the social implications of corporate climate measures are seldom considered and will need to be increasingly factored into net-zero strategies and communications. The Committee warns that only a just transition will be successful.