1

Science+ Meeting

Policy for a net zero UK

Professor Cameron Hepburn

INET at Oxford Martin School

New College and Smith School,

University of Oxford

Grantham Research Institute, LSE

Royal Society, London. 6 December 2017

2

1. Pathways to net zero

2. Policy for net zero

3. Performance thus far

4. Addressing the policy gap

5. Negative emissions policies

6. Conclusions

Agenda

3

Science suggests that stabilising temperatures at any

level implies net zero emissionsC

O2

Co

nce

ntr

atio

n

(years)

Idealised emissions profiles

falling abruptly to zero at

different times

Source: Knutti & Rogelj (2015)

Even in idealised

emissions scenarios in

which emissions of CO2

are completely stopped

tomorrow, temperatures

will remain flat and not

fall for hundreds of years

4

And the Paris Agreement agrees to (try to)

achieve net zero emissions by 2050-2100

• “…holding the increase in the global average temperature to well

below 2oC above pre- industrial levels and pursuing efforts to

limit the temperature increase to 1.5oC,…”

• “…to achieve a balance between anthropogenic emissions by

sources and removals by sinks of greenhouse gases in the second

half of this century…”

5

One interpretation of this is that the target is net

zero globally by 2050 (with 5 GtCO2 CDR)

Source: Rockström et al (2017, Science)

6

Another interpretation is net zero by 2070, with

around 10 GtCO2 p.a. CDR

Source: Anderson and Peters (2016, Science)

7

A domestic net zero commitment has been

promised by UK politicians

Source: BBC News; Guardian

8

The implications for the UK appear to be net zero by

somewhere between 2045 and 2070

Source: Pye et al (2017, Nature Energy)

– Cumulative CO2 captured by the UK in these scenarios is around 10 GtCO2 over

the 75 years from 2025-2100 (> 100mt CO2 p.a. cf Drax at 20mt CO2 emissions)

9

1. Pathways to net zero

2. Policy for net zero

3. Performance thus far

4. Addressing the policy gap

5. Negative emissions policies

6. Conclusions

Agenda

10

Meeting targets that are over 20 – 50 years into the

future requires thinking ahead

Long-term thinking is needed across five policy areas:

1. Technology: larger portfolio of early stage technological “bets”

2. Infrastructure: investment fit for a net zero world

3. Economic: incentives in various guises (especially carbon pricing)

4. Financial: regulation to manage risks of stranded assets

5. Carbon removal: Prognosis is not brilliant; we will also need CDR

11

1. Technology: Hitting long-term net zero targets is

likely to be much cheaper with 2x brainpower

• 20 large countries to double clean energy R&D

Mission Innovation (M:I)

Source: breakthroughenergycoalition.com

12

1. Technology: calculations based on knowledge

spillovers and analogies suggest > 5x is ideal

Source: Pless et al (in preparation) Inducing and Accelerating Clean Energy Innovation with ‘Mission Innovation’

29.7

5.2

2.2

2

1.1

1

0 5 10 15 20 25 30 35

Europe

United

States

U.S. Dollars (billions)

Current Investment Mission Innovation Target Optimal Investment

– Public R&D spend on renewable energy (excluding hydropower)

13

1. Technology: for reasonable risk aversion, a more

diversified portfolio is ideal at this early stage

Source: Way et al (in submission) Wright meets Markowitz

14

2. Infrastructure: avoid building assets that may

need to be written off early (e.g. gas and coal)

Source: Based on Pfeiffer et al (2016)

Emissions

Years

1.0

0.5

0.0

Decision point

0 10 20 30 40 50 60 70

Cumulative emissions

from remaining coal

of 10 units

(10 years x 1/year)

Cumulative emissions

from new gas

of 20 units

(40 years x 0.5/year)

Coal

New gas

15

3. Economic: a credible long-term carbon price

signal can work wonders…but we don’t have it yet

€ 0

€ 5

€ 10

€ 15

€ 20

€ 25

€ 30

Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16

EU ETS RGGI (Auctions) Kyoto (CERs) California

Price /tCO2

16

4. Financial: investors need to have clarity over

business strategies to make their own decisions

• Oxford developed principles for

disclosure to guide on investors

about the risks of fossil investment

• Three suggested questions are:

1. Science: When (year or temperature) does

the company plan to hit net zero emissions?

2. Strategy: What does it’s business plan look

like in an NZE world?

3. Milestones and Metrics: How will the

company measure progress?

Source: Oxford Martin School

17

• Investors must report on ESG / climate

• BS > €500m beyond carbon footprints

• Includes “physical” and “transition” risks

4. Financial: greater disclosure of climate risk is

now being recommended by the TCFD

• Chaired by Michael Bloomberg and

commissioned by the Financial Stability

Board (FSB), Chaired by Mark Carney

Task Force on Climate-related

Financial Disclosures (TCFD)

Sources: fsb-tcfd.org

• TCFD Phase I report (March 2016)

included “forward-looking” disclosures

• TCFD, Unilever CFO and Oxford co-

hosted a meeting in July 2016

• TCFD Phase 2 report (December 2016)

went into much greater detail

French Article 173 of Energy

Transition law – for June 2017

18

4. Financial: Failure to manage climate risk might

leave fiduciary investors facing lawsuits

Here’s the logic:

1. Fiduciary investors have duty to control for ‘material risk’

2. A material risk is one that might trigger 5% or more loss in value

3. In present value terms, a 5oC warming path would deliver expected

losses of US $7trn on AUM of US $140trn

4. Therefore clients and beneficiaries might have a legal case against

investment managers who take no action as emissions erode value

5. The odds of a successful case increase as time passes

Sources: Covington et al (2016, Nature)

19

5. Carbon removal: With carbon prices low & not

credible, other policies may be necessary on CDR

Source: Millar et al (in preparation)

– One idea is the requirement for mandatory

sequestration of a fraction of extracted carbon

20

1. Pathways to net zero

2. Policy for net zero

3. Performance thus far

4. Addressing the policy gap

5. Negative emissions policies

6. Conclusions

Agenda

21

There is action but we are not on track to meet

even Paris pledges, which would take us above 3oC

0

1000

2000

3000

4000

5000

6000

7000

8000

1990 1995 2000 2005 2010 2015 2020 2025 2030

GH

G e

mis

sio

ns

[MtC

O2e

q./

yr]

BaU (non climate policy)*

Current policy*

US BR2 'under current measures'

NDC

BaU (non climate policy)*

Current policy*

EU BR2 'with existing measures'

NDC

BaU (non climate policy)*

Current policy (nuclear power share of15% by 2030)*

Current policy (nuclear power share of20% by 2030)*

NDC

EU

U.S.

Japan

U.S.

EU

Japan

-26 to -28% relative to 2005

-40% relativeto 1990

-26% relativeto 2013

Source: Victor et al (2017, Nature)

22

The UK legislated the legally-binding fifth

carbon budget after the 2016 EU referendum

Source: CCC analysis based on DECC (2015); Carbon Brief

– The UK has been reducing its emissions, meeting targets so far

– But we were not on track to meet 4th and 5th CBs, even before Brexit

23

We remain a very long way from net zero, albeit

with some good progress in a couple of areas

Source: CCC (2017) Meeting Carbon Budgets: Closing the Policy Gap – Fig 2. based on BEIS (2017)

24

The big win has been the carbon price floor, which

has all but removed coal from the electricity grid

Source: Aurora (2017)

25

But Brexit makes it harder: EU policies contributed

~50% of the emissions reductions intended by 2032

Source: CCC analysis based on DECC (2015); Carbon Brief

26

1. Pathways to net zero

2. Policy for net zero

3. UK performance thus far

4. Addressing the policy gap

5. Negative emissions policies

6. Conclusions

Agenda

27

Brexit offers some limited opportunities to change

UK climate policy…

1. Ignore 2020 renewables target? The 2020 renewables target (15% of

energy) is ambitious and costly, and the UK is not on track

2. Replace EU ETS? The UK helped establish the EU ETS. Iceland,

Liechtenstein and Norway now participate, and Swiss agreed a link in

2016 after 5 years of negotiations. UK already has a carbon floor price

that works as a fairly complicated carbon tax. Could a serious carbon tax

be politically popular in the UK? Could it facilitate a border adjustment?

28

Post-Brexit Britain could convert the CPF to a US

Republican style > $40/t carbon tax…

Source: Climate Leadership Council (2017)

29

Reform of electricity markets is needed to fully

integrate renewables at lowest cost

ERCOT (Texas) Germany Irish Market

0

20

40

60

80

100

120

140

160

180

200

0

10

20

30

40

50

GW

$/M

Wh

0

10

20

30

40

50

60

70

80

90

100

0

10

20

30

40

50

60

70

GW

€/M

Wh

Wind and Solar Capacity

Volume-weighted average price

1

1.2

1.4

1.6

1.8

2

2.2

2.4

2.6

2.8

3

0

10

20

30

40

50

60

70

80

90

100

Jan

-11

Jul-

11

Jan

-12

Jul

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

GW

€/M

WH

– As greater renewables are connected, wholesale prices have fallen

– Other services will need to be priced

– Procurement of capacity on a market competitive basis

Source: Farrell et al (in preparation) Is this the end of conventional wholesale electricity markets?

30

Key policies on buildings are tighter standards now

(to avoid regret), and moving soon on infrastructure

Source: CCC (2017) Meeting carbon budgets: closing the policy gap

31

1. Pathways to net zero

2. Policy for net zero

3. UK performance thus far

4. Addressing the policy gap

5. Negative emissions policies

6. Conclusions

Agenda

32

Globally, and in the UK, there may be large potential

in various CCUS and land-based CDR approaches

Source: Hepburn et al (in preparation) Use it or lose it

33

We have been reviewing the literature on different

CCU / CO2 removal approaches for RS / NAS

Source: Hepburn et al (in preparation) Use it or lose it

34

1. Pathways to net zero

2. Policy for net zero

3. UK performance thus far

4. Addressing the policy gap

5. Negative emissions policies

6. Conclusions

Agenda

35

1. The UK should be net zero between 2045-2070 to hit Paris

2. This now requires forward thinking across 5 policy areas:

1. Technology: larger portfolio of early stage technological “bets”

2. Infrastructure: investment fit for a net zero world

3. Economics: incentives in various guises (especially carbon pricing)

4. Finance: regulation to manage risks of stranded assets

5. Carbon removal: Support for CDR / CCUS and potential legal intervention

3. We are not on track.

4. Key priorities to get back on track include accelerating electricity

decarbonisation, planning ahead for buildings and transport to avoid later

regret, getting moving now on land and CDR

Conclusions

36

Thank you