1 Meeting Carbon Budgets – ensuring a low-carbon recovery 2 nd progress report to Parliament Committee on Climate Change, June

2 Main messages Second progress report Only 9 months since our first report Annually in June from now on Second progress report Only 9 months since our first report Annually in June from now on Emissions reductions in 2009 largely due to recession Should aim to outperform first budget and not bank to second budget Emissions reductions in 2009 largely due to recession Should aim to outperform first budget and not bank to second budget Step change still needed Limited progress on measures Some progress on policies but further action required Step change still needed Limited progress on measures Some progress on policies but further action required

3 Key areas for policy strengthening Encouraging a move to more carbon-efficient cars, including electric cars Delivery mechanisms and incentives to improve energy efficiency of buildings New policies for the agriculture sector Incentives for investment in low carbon power Electricity market reform Carbon price floor Emissions Performance Standard Electricity market reform Carbon price floor Emissions Performance Standard

4 i.Emissions trends and traded/non-traded split ii.The non-traded sector iii.The traded sector iv.Need for a step change and move to Intended budget v.Progress against indicators and future challenges Power, buildings, industry and transport vi.Opportunities for reducing emissions in agriculture vii.Future work of the Committee Structure of the presentation

5 (i) Emissions fell by 8.6% in 2009 with reductions in CO 2 (9.7%) and non-CO 2 (1.9%) CO 2 Non-CO 2 GHG

6 (i) CO 2 emissions fell in all sectors, particularly power and industry (% change in 2009)

7 (i) Non-traded sector emissions fell by 5.7% in 2009, more than the 1.3% annual average reductions required to meet budget

8 (i) Traded sector emissions fell by 12.5% in 2009, more than the 2.5% annual average reductions required to meet budget

9 i.Emissions trends and traded/non-traded split ii.The non-traded sector iii.The traded sector iv.Need for a step change and move to Intended budget v.Progress against indicators and future challenges Power, buildings, industry and transport vi.Opportunities for reducing emissions in agriculture vii.Future work of the Committee Structure of the presentation

10 (ii) Outperformance of the first budget due to the recession and other external factors is likely to be within the range we projected in our 2009 progress report Outperformance of first budget in the non-traded sector Outperformance of 3-6% of non-traded sector CO 2 emissions across first budget

11 (ii) Little of the outperformance is due to policy impacts in the non-traded sector in 2009 Emissions reductions from measures (MtCO 2 ) Expected*OutturnOut- performance Domestic sector Loft insulation (professional) Loft insulation (DIY)-0.1 Cavity wall insulation0.40.3~0 Solid wall insulation< 0.1 ~0 Efficient boilers0.50.6~0 Road transport New car gCO 2 /km< Biofuels (by volume)0.6 ~0 Total *i.e. Included in budget projections Emissions reduction from measures / total NTS CO 2 emissions reduction in 2009: around 10% Outperformance on measures / total outperformance in 2009: less than 5% Outperformance on measures / total outperformance in 2009: less than 5% Given recession impact, aim to outperform first budget and not bank to second budget

12 i.Emissions trends and traded/non-traded split ii.The non-traded sector iii.The traded sector iv.Need for a step change and move to Intended budget v.Progress against indicators and future challenges Power, buildings, industry and transport vi.Opportunities for reducing emissions in agriculture vii.Future work of the Committee Structure of the presentation

13 (iii) Reduced need for credit purchase at UK and EU levels due to recession 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

14 (iii) Carbon prices have remained low; projections revised downwards Traded sector emissions UK: down 12% in 2009 EU: down 12% in 2009 Traded sector emissions UK: down 12% in 2009 EU: down 12% in 2009 No binding global deal in Copenhagen Carbon price has remained low (c. 15/tCO 2 ) Carbon price has remained low (c. 15/tCO 2 ) Latest projections confirm risk of carbon price remaining low (e.g /tCO 2 ) Undermines incentives for investment in low- carbon power generation Strong case for introduction of a UK carbon price floor in the absence of EU-wide action

15 i.Emissions trends and traded/non-traded split ii.The non-traded sector iii.The traded sector iv.Need for a step change and move to Intended budget v.Progress against indicators and future challenges Power, buildings, industry and transport vi.Opportunities for reducing emissions in agriculture vii.Future work of the Committee Structure of the presentation

16 (iv) Despite emissions reduction in 2009, step change in underlying progress still required Implementing measures in the non-traded sector at 2009 rate would leave a shortfall to the Interim budget

17 (iv) Given step change, it could be possible to meet the Intended budget through domestic effort alone If impact of recession persists and measures in Committees Extended Ambition scenario are implemented, emissions will be below Intended budget We will consider possible move to Intended budget in context of advice on 4 th carbon budget ( )

18 i.Emissions trends and traded/non-traded split ii.The non-traded sector iii.The traded sector iv.Need for a step change and move to Intended budget v.Progress against indicators and future challenges Power, buildings, industry and transport vi.Opportunities for reducing emissions in agriculture vii.Future work of the Committee Structure of the presentation

19 (v) Power sector emissions fell 13% in 2009 due to reduced demand and less generation from coal /more from nuclear Between : Carbon intensity: 545 g/kWh to 496 g/kWh. Nuclear generation: 13% to 19% (outages ended) Coal: 32% to 28% (low gas price) Renewables: 6.1% to 7.3%. Between : Carbon intensity: 545 g/kWh to 496 g/kWh. Nuclear generation: 13% to 19% (outages ended) Coal: 32% to 28% (low gas price) Renewables: 6.1% to 7.3%. Lower demand (7%) especially in commercial and industrial sectors

20 (v) Progress investing in wind generation Underperformance due to slippage of 0.2 GW to early 2010 Need to move from less than 1 GW new wind capacity added in 2009 to over 3 GW on average annually in third budget Additional operational wind capacity installed per year

21 (v) Progress and challenges in power: transmission and planning Transmission Planning Enduring access regime now in place Offshore enduring regime on track Some slippage on agreement of onshore grid investments Enduring access regime now in place Offshore enduring regime on track Some slippage on agreement of onshore grid investments Decision times improving but still slower than indicator Fall in approval rates Decision times improving but still slower than indicator Fall in approval rates Important that there is no further slippage in the agreement for onshore grid investments Important that replacement of IPC does not adversely affect planning efficiency

22 (v) Progress and challenges in power: nuclear, CCS and market arrangements Nuclear CCS Market Progress on enabling actions now depends on decisions of Ministers and Parliament More clarity needed on financing for retrofit and operation of unabated plant into 2020s. Demos on gas should be considered together with Emissions Performance Standard More clarity needed on financing for retrofit and operation of unabated plant into 2020s. Demos on gas should be considered together with Emissions Performance Standard Short window for reform if key investments are to go ahead in time Full range of options should now be considered in detail Short window for reform if key investments are to go ahead in time Full range of options should now be considered in detail Draft National Policy Statement published in 2009 Other enabling actions on track (e.g. Regulatory Justification) Draft National Policy Statement published in 2009 Other enabling actions on track (e.g. Regulatory Justification) Demonstrations increased to four, commitment to rolling review from 2018 Initial findings of Energy Market Assessment published in March 2010, accepts need for intervention and sets out options

23 (v) Residential emissions fell 7% in 2009 Direct emissions fell 5% Indirect emissions fell ~10% reflecting 3% fall in electricity consumption 9% fall in carbon intensity Direct emissions fell 5% Indirect emissions fell ~10% reflecting 3% fall in electricity consumption 9% fall in carbon intensity Key drivers GDP down 5% Energy prices up 12% (gas), 3% (electricity) Colder winter on average but fewer cold days Some insulation measures Key drivers GDP down 5% Energy prices up 12% (gas), 3% (electricity) Colder winter on average but fewer cold days Some insulation measures

24 (v) Progress and challenges in the residential sector: need for step change in insulation

25 (v) Progress and challenges in the residential sector: policy development Further details needed around specific policy delivery elements of National Energy Efficiency Programme (e.g. other levers in addition to Pay As You Save to address non-financial barriers) Home Energy Management Strategy published March 2010 Political commitment to National Energy Efficiency Programme and Green Deal Home Energy Management Strategy published March 2010 Political commitment to National Energy Efficiency Programme and Green Deal In our 2009 progress report, Committee recommended a 3 pillar approach to National Energy Efficiency Programme 1.Whole house 2.Neighbourhood / area based 3.New financing mechanism (some subsidy, some Pay As You Save) In our 2009 progress report, Committee recommended a 3 pillar approach to National Energy Efficiency Programme 1.Whole house 2.Neighbourhood / area based 3.New financing mechanism (some subsidy, some Pay As You Save)

26 (v) Non-residential building emissions fell 9% in 2009 Key drivers Service sector output (GVA) down 3% Electricity price up 12% Key drivers Service sector output (GVA) down 3% Electricity price up 12% Direct emissions fell 5% Indirect emissions fell 13% reflecting 3% fall in electricity consumption 9% fall in carbon intensity Direct emissions fell 5% Indirect emissions fell 13% reflecting 3% fall in electricity consumption 9% fall in carbon intensity

27 (v) Progress and challenges in the non-residential buildings sector Consultation on Display Energy Certificate roll-out Impact Assessment underway on Energy Performance Certificate roll-out & minimum rating Analysis of policy options for SMEs underway, proposals due end 2010 Carbon Reduction Commitment Scheme launched Consultation on achieving zero-carbon new builds by 2018 Consultation on Display Energy Certificate roll-out Impact Assessment underway on Energy Performance Certificate roll-out & minimum rating Analysis of policy options for SMEs underway, proposals due end 2010 Carbon Reduction Commitment Scheme launched Consultation on achieving zero-carbon new builds by 2018 Time required to change primary legislation More effective compliance mechanism required New policy required to unlock SME abatement potential Need to set appropriate cap to deliver abatement (Committees advice to follow) Building stock turnover is slow – refurbishment of existing stock crucial Time required to change primary legislation More effective compliance mechanism required New policy required to unlock SME abatement potential Need to set appropriate cap to deliver abatement (Committees advice to follow) Building stock turnover is slow – refurbishment of existing stock crucial

28 (v) Industry emissions fell 18% in 2009 but largely due to falling output during recession Key drivers Manufacturing output (GVA) down 10% Key drivers Manufacturing output (GVA) down 10% Direct emissions fell 18% Indirect emissions fell 19% reflecting 11% fall in grid electricity consumption 9% fall in carbon intensity Direct emissions fell 18% Indirect emissions fell 19% reflecting 11% fall in grid electricity consumption 9% fall in carbon intensity Highly concentrated Nearly 50% of industry direct emissions in 3 sectors (Iron & steel, Chemicals, Cement) Significant reductions in key sectors Iron & steel down around 14% Cement down around 30% Highly concentrated Nearly 50% of industry direct emissions in 3 sectors (Iron & steel, Chemicals, Cement) Significant reductions in key sectors Iron & steel down around 14% Cement down around 30% Need to improve evidence base on scope for longer term emissions reductions in industry Committee to provide assessment of abatement options in 4 th budget report Need to improve evidence base on scope for longer term emissions reductions in industry Committee to provide assessment of abatement options in 4 th budget report

29 (v) Progress and challenges in renewable heat Draft Renewable Heat Incentive published. RHI to commence in April Significant increase in uptake required Questions over support for specific technologies Need to ensure non- financial barriers to deployment are addressed Need to ensure integration with energy efficiency policy Significant increase in uptake required Questions over support for specific technologies Need to ensure non- financial barriers to deployment are addressed Need to ensure integration with energy efficiency policy

30 (v) Road transport emissions fell 3.9% -2.7%+0.3% -8.5%-9.1%

31 (v) Car emissions fell 2.7% in 2009 driven by falls in mileage and carbon intensity -1.2% -1.6% -2.7%

32 (v) Progress and challenges reducing road transport emissions: carbon efficiency of new cars Average new car gCO 2 /km fell 4% in 2008 and a further 5% in 2009 to 149 gCO 2 /km, outperforming our indicator of 158 gCO 2 /km New car sales 2007: 2.39m 2008: 2.11m 2009: 1.97m New car sales 2007: 2.39m 2008: 2.11m 2009: 1.97m

33 (v) Improvement in new car gCO 2 /km driven by more efficient cars in each category plus greater share of more efficient cars Policy (e.g. differentiated VED) needed to lock in changes in purchase behaviour

34 (v) Progress and challenges reducing road transport emissions: need ambitious targets for electric vehicles and vans EU draft framework for new van emissions (October 2009) ambitious but feasible targets to 2020 (200 gCO 2 /km 135 gCO 2 /km) DfT consulting on draft regulation to inform negotiations with EU EU draft framework for new van emissions (October 2009) ambitious but feasible targets to 2020 (200 gCO 2 /km 135 gCO 2 /km) DfT consulting on draft regulation to inform negotiations with EU Blend increased to 2.9% by volume 8% (energy) required by 2020 (Gallagher) Blend increased to 2.9% by volume 8% (energy) required by 2020 (Gallagher) Price support for new electric and plug in hybrid cars announced Commitment from new Government to mandate national charging network Plugged In Places pilot projects announced and first 3 pilots selected Price support for new electric and plug in hybrid cars announced Commitment from new Government to mandate national charging network Plugged In Places pilot projects announced and first 3 pilots selected Electric cars Biofuels Significant increase in uptake Annual sales , million required in fleet in 2020 Need deployment targets for 2020 Greater price support may be required to support early market Significant increase in uptake Annual sales , million required in fleet in 2020 Need deployment targets for 2020 Greater price support may be required to support early market Need to understand likely availability of sustainable biofuels post 2020 Vans

35 (v) Progress and challenges reducing road transport emissions: limited progress on demand side Policy has moved backwards: planned Sustainable Travel City project withdrawn March Limited car driver training delivered in 2009 but Government exploring options for wider delivery. Eco- driving Smarter Choices Need to consider potential delivery mechanisms for wider roll out. No policy for roll out across UK towns and cities. No significant progress in developing integrated transport and land use strategy so far. Land use planning Proposed review of planning policy by new Government provides opportunity to consider new approach.

36 i.Emissions trends and traded/non-traded split ii.The non-traded sector iii.The traded sector iv.Need for a step change and move to Intended budget v.Progress against indicators and future challenges Power, buildings, industry and transport vi.Opportunities for reducing emissions in agriculture vii.Future work of the Committee Structure of the presentation

37 (vi) Estimated agriculture emissions fell by 1% in 2008 Emissions reductions driven mainly by: Greater efficiency in fertiliser use Falling livestock numbers Emissions reductions driven mainly by: Greater efficiency in fertiliser use Falling livestock numbers

38 (vi) Treatment of agriculture in this report Ambition in Low Carbon Transition Plan appears low relative to underlying maximum potential Devolved Administrations should set targets at least in line with the LCTP ambition Range of policies beyond provision of information/ encouragement should be seriously considered to address barriers to action More robust evidence base needed on current farming practice and emissions impact of changed practice. For agriculture we set out: New analysis of abatement potential and incentives A draft indicator framework Our main conclusions are:

39 (vi) Our indicator framework for agriculture Draft indicator framework sets out: Emissions projections range Trajectories for: emissions drivers (e.g. livestock numbers, fertiliser use) key emissions-reducing measures (e.g. farmer uptake of practice) Policy milestones Draft indicator framework sets out: Emissions projections range Trajectories for: emissions drivers (e.g. livestock numbers, fertiliser use) key emissions-reducing measures (e.g. farmer uptake of practice) Policy milestones Agricultural emissions trajectories Given uncertainties over emissions, focus should be on drivers and implementation of measures

40 Headline conclusions Second progress report Only 9 months since our first report Annually in June from now on Second progress report Only 9 months since our first report Annually in June from now on Emissions reductions in 2009 largely due to recession Should aim to outperform first budget and not bank to second budget Emissions reductions in 2009 largely due to recession Should aim to outperform first budget and not bank to second budget Step change still needed Limited progress on measures Some progress on policies but further action required Step change still needed Limited progress on measures Some progress on policies but further action required

41 i.Emissions trends and traded/non-traded split ii.The non-traded sector iii.The traded sector iv.Need for a step change and move to Intended budget v.Progress against indicators and future challenges Power, buildings, industry and transport vi.Opportunities for reducing emissions in agriculture vii.Future work of the Committee Structure of the presentation

42 (vii) Future work of the Committee Low carbon R&D review Review of the second phase cap for the Carbon Reduction Commitment Advice on the level of the fourth budget Low carbon R&D review Review of the second phase cap for the Carbon Reduction Commitment Advice on the level of the fourth budget Review of renewable energy ambition Advice on the Scottish cumulative emissions Budget Third annual report to Parliament Advice on use of offset credits to meet the second carbon budget Review of international shipping emissions Review of sustainable bioenergy Review of renewable energy ambition Advice on the Scottish cumulative emissions Budget Third annual report to Parliament Advice on use of offset credits to meet the second carbon budget Review of international shipping emissions Review of sustainable bioenergy Advice on inclusion of international aviation & shipping in carbon budgets Fourth annual report to Parliament Advice on inclusion of international aviation & shipping in carbon budgets Fourth annual report to Parliament