Only new fiscal rules will avoid a Budget carbon COP out
The Budget tomorrow will be the first real test of this Government’s commitment on climate and it needs to drive momentum in the decarbonisation of electricity, heat and transport or it will set us up for a failure on the world stage, writes SSE's Alistair Phillips-Davies.
When the Prime Minister stood alongside national treasure David Attenborough to launch the COP26 climate conference, there was a sense that we really were going to ‘Get Net Zero Done’ by 2050.
The Budget tomorrow will be the first real test of this Government’s commitment on climate and it needs to drive momentum in the decarbonisation of electricity, heat and transport or it will set us up for a failure on the world stage.
Ahead of COP26 in Glasgow I think it’s imperative the Treasury installs a new fiscal rule: the need for an annually increasing carbon price. Carbon must become a scarcity and priced high if we’re to meet net zero.
The UK has led the world when it comes to carbon pricing, helping to reduce its emissions from electricity faster than any other country. But the journey is not over, and a fiscal rule is needed to underpin the transition and send a signal to the world.
Without a strong carbon price, older renewable and nuclear plant will close earlier than they should and investment in new low carbon infrastructure like Carbon Capture Usage and Storage (CCUS), hydrogen and negative emissions technologies will stall. This Budget is a real opportunity to show leadership on carbon pricing.
Fully achieving net zero in electricity generation is a must if we’re to get on and do the more difficult job of electrifying heat and transport. Much of the focus over the last decade has been on this which should see us reach net zero for power by 2040. A policy framework combining a strong carbon price with support mechanisms for renewables, has seen offshore wind prices tumble by a third.
The Energy White Paper must maintain this momentum as well as explore how to keep older, lower carbon plant on the system when their subsidy ends. This Budget’s key job is to show how we take forward CCUS technology to capture emission from fossil fuel power stations, which can provide flexible clean back up plant when the wind is not blowing.
Alongside its role in the power sector, CCUS is crucial to tackling industrial emissions in low carbon clusters like the Humber, where manufacturers and others can share the infrastructure anchored around power plants, reducing costs and cutting emissions in a sector where decarbonisation would otherwise pose a challenge. At SSE we are also considering whether we can build the world’s first hydrogen power station which would need collaboration with the Treasury too.
In terms of transport, the ban on the sale of new petrol and diesel cars before 2035 is welcome, but now we need to resolve the chicken and egg problem with electric vehicles, where drivers fear the lack of charge points and charger installers fear the lack of demand. This Budget needs to crack the problem through an ambition to deploy the most extensive EV charging network in the world by 2025.
This will require a different approach if we’re to avoid the mistakes with the broadband roll out which saw some communities underserved and left behind. The reality is the market won’t deliver for everyone without some sort of intervention to help the hardest to reach. Electricity grid operators should work hand-in-hand with local authorities to coordinate a comprehensive rollout of tenders for charge points. There’s a key role to play by Ofgem and the Department for Transport in promoting this strategic investment which will help reduce costs, making a mass rollout cheaper and more coordinated – a win win for everyone.
The last part of the puzzle is heat, which presents one of the most significant challenges in the road to net zero. Here, the pathways to decarbonisation are less clear and include a range of options from heat pumps and heat networks, to repurposing the gas grid to deliver hydrogen. I lean towards electrifying as much as we can, but all options will require serious regulation and upheaval.
The first priority for Government should be to provide some clarity in their heat strategy expected later this year. This should set out a combination of public incentives and policies which are needed to support the deployment, at scale, of immature low carbon heat technologies, such as heat pumps and heat networks, as well as hydrogen demonstrations.
With the world watching ahead of COP we cannot afford a COP-out on low carbon. Our aim should be to develop a blue print to show other countries that a pathway to net zero is possible. A new fiscal rule on carbon, money for carbon capture, a well-planned EV rollout and clarity and progress on heat can make up the bulk of that blueprint. Only by setting an example for the world to follow we can make a success of COP26.