United Kingdom (UK) UK Carbon Budgets MRV System

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1 United Kingdom (UK) UK Carbon Budgets MRV System Good practice summary [Results/insights] Introduced in the Climate Change Act 2008 (CCA 2008), carbon budgets set legally binding limits on the total GHG emissions allowed from the UK in five year periods. The carbon budgets set the trajectory to the UK s long-term target of at least an 80% reduction in emissions by 2050 on 1990 levels. The first carbon budget started in The overall approach of the Measuring, Reporting, and Verification (MRV) system includes an annual evaluation of progress towards meeting the carbon budgets, carried out by an independent committee (Climate Change Committee, CCC), which provides a detailed report on progress, considering national and sectoral greenhouse gas (GHG) emissions as well as implementation and consumption related indicators, including at the level of individual mitigation actions. The UK met the first carbon budget target for and is currently in the second budget for , which is projected to be met. Scope covered Functions Measuring Reporting Verification Accounting Administrative scope National Regional City-level Policy/programme/project Corporate/Facility-level Legal basis [policies, regulations and commitments that the case study has to comply with] Climate Change Act : makes it the duty of the Secretary of State to ensure that the net UK carbon account for all six GHG emissions for the year 2050 is at least 80% lower than the 1990 baseline, toward avoiding dangerous climate change impacts. The Carbon Budgets Order : sets the first, second and third carbon budgets The Carbon Budget Order : sets the fourth carbon budget. The Carbon Accounting Regulations : establish the rules for determining and accounting for the amount of carbon units which may be credited to, and must be debited from, the net UK carbon account (what is compared against the carbon budgets to determine if they are being met). The Carbon Accounting ( Budgetary Period) Regulations : make provision for carbon accounting for the budgetary period, for the purposes of the CCA Operational since Carbon budgets have been operational since 2009, with the first three budgets set in law in May

2 How is this related to accounting? [The following is based solely on the consultant s opinion]» What kind of measures, policies, or commitments are a) monitored and included in an accounting system, b) only monitored, but not included in an accounting system, or c) not even monitored? GHG emission reductions product of a variety of initiatives and programmes (i.e. EU-ETS) impact the national GHG levels in the UK and are thus, reflected in its National GHG Inventory, supporting meeting the UK s commitment under the CCA The UK tracks progress towards its carbon budgets using its national GHG inventory. The UK can also do this in tracking progress towards its commitments related to the EU s Intended Nationally Determined Contribution (INDC) 6. Furthermore, the reductions required by the carbon budgets by 2030 exceed the 40% reduction compared to 1990 set as target for the EU s INDC. Case description Background» What was the need, pre-conditions, and/or experiences that motivated the country to develop this system? From 2006, following the Stern Review 7, the UK faced growing political consensus on the need for exceptional action to be taken on climate change. The Stern Review highlighted the need to act early, to put a price on carbon, to support low carbon technologies and to remove barriers to behavioural change. Pressure was also growing from the public, parliament and non-government organisations (NGOs) to take early action; this culminated in over 45,000 letters to the Government. There was also pressure from the EU level, where action against climate change was being taken, with a target to reduce GHG emissions by 20% by 2020 on 1990 levels; this target was set in As a response to these targets, increased pressure and changing attitudes, the UK CCA 2008 was formed. The CCA 2008 legally binds the UK to reduce carbon emissions by at least 34% by 2020, at least 51% by 2025, at least 57% by and at least 80% by The UK s 80% by 2050 target represents an appropriate UK contribution to global emission reductions consistent with limiting global temperature rise to as little as possible above 2 C. To ensure the UK achieve the 80% by 2050 target, a series of carbon budgets have been implemented. The UK, through the EU Emissions Trading Scheme, was one of the main contributors to the GHG emissions reductions but a system was still required to set specific targets in the United Kingdom, which would also support the development of policies and projects. General description of the system [Questions below should be answered only when applicable]» General definition/description of the system» What are the main types of action that mitigate GHG emissions?» What linkages to other systems/ system elements of environmental information (including adaptation to climate change or emissions trading schemes) do exist and why were they established? What linkages exist to other statistical/ monitoring systems?» Which platforms are used to transport information and are they specific to the purpose of usage MRV information? The progress towards the UK s target to reduce emissions by at least 80% by 2050, as set out in the CCA 2008, is tracked/monitored by annual reporting against five-year carbon budgets which set a cap on the amount of emissions during specified periods. The budget is an overall economy-wide aggregated number. To come up with the budget, detailed sector-level bottom-up modelling is carried out by sector

3 experts and following the cost-effective path (see below for further information on the cost-effective path). The sectors are power, buildings, industry, transport, agriculture and land use, land use change and forestry, and waste and f-gases. The budgets are five years in length and always to be set three budget periods ahead so that it is always clear what the UK s emissions pathway will be for the next 15 years. The budgets are designed to reflect a cost effective path to achieving long term objectives, namely the 2050 target. Specifically, the scenarios only include measures that have an abatement cost (expressed in /tco2e calculated as the measure s total lifetime cost divided by its total lifetime emissions saving) which is currently lower cost, or will be lower cost by 2050 (dynamically cost-effective), than the Government s published carbon values. The carbon values reflect estimates in the literature and modelled scenarios and have been peer reviewed by an expert panel. To come up with the carbon values, DECC carry out modelling which includes a top-down global sectoral model for the world energy system under low, central and high projections for global technology costs, fossil fuel prices and global energy demand. The model is used to calculate carbon costs consistent with international action to limit the expected average increase in global surface temperatures to 2 C above pre-industrial levels. In a central case the carbon values reach 78/tCO2e in 2030, growing steadily (around 5% per year) to 220/t in Low and high values are 50% below and above the central level. Also used to estimate the cost-effective path is bottom-up modelling carried out by sector experts for each sector. The long-term carbon values haven t been revised since The CCC use the Government s published carbon values. Measures and policies to ensure the UK achieves its emission reduction targets in the first four carbon budgets and is on the right path to achieving the 2050 target are outlined in the Carbon Plan 9. It is a requirement under section 14 of the CCA 2008 for the Government to produce this plan. The carbon budgets cover the emissions of carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6 ). Each GHG is treated consistently 10 to allow a like-for like comparison consistent with the Protocol. The accounting framework for the final budget divides the sources of emissions into the traded sector and the non-traded sector depending on whether they are covered by the EU emissions trading system (EU ETS). The UK share of emissions from international aviation and shipping (IAS) is not currently within the scope of carbon budgets; however, IAS is included in the 2050 target so budgets are set to take account of this. There are currently four carbon budgets in place running up to 2027 (see Table 1 ). The fifth was set at the end of June 2016 covering the period 2028 to The fifth carbon budget was recommended by the CCC to be 1,765 MtCO2e, including emissions from international shipping, over the period , or 1,725MtCO2e excluding international shipping. The Government have accepted fifth carbon budget (1,725MtCO2e excluding international shipping). Table 1 Overview of the four UK Carbon Budgets and their percentage reduction The carbon budget system originated from the CCA 2008 which established the CCC, an independent but statutory body of experts, to monitor the progress against the carbon budgets and to give advice on the level of the budgets. It is also the responsibility of the CCC to give advice on the contribution that different sectors should make to the carbon budgets, the extent to which offsetting should be used, including international aviation and shipping in the carbon budgets, and any other climate change matters. The CCC is a public funded organisation and is therefore committed to transparency throughout its operations; all of the CCC s advice is set out and published on their website (this is a requirement of the CCA 2008). In providing its advice to Government on the level of carbon budgets, the CCC uses criteria set out in the CCA 2008 and must assess, by sector, what can be achieved to reduce emissions at least cost, taking account of available technologies and government policy based on the Global Warming Potential 100-year index 11

4 The CCC must take in to account a list of criteria (set out in Section 10(2) of the CCA 2008), which include: a) scientific knowledge about climate change; b) technology relevant to climate change; c) economic circumstances, and in particular the likely impact of the decision on the economy and the competitiveness of particular sectors of the economy; d) fiscal circumstances, and in particular the likely impact of the decision on taxation, public spending and public borrowing; e) social circumstances, and in particular the likely impact of the decision on fuel poverty; f) energy policy, and in particular the likely impact of the decision on energy supplies and the carbon and energy intensity of the economy; g) differences in circumstances between England, Wales, Scotland and Northern Ireland; h) circumstances at European and international level; i) the estimated amount of reportable emissions from international aviation and international shipping for the budgetary period or periods in question. The budgets must also be consistent with UK obligations towards EU targets (a binding EU-wide target to reduce GHG emissions by 40% by 2030, based on 1990 levels), and as a contribution to required global emission reductions. For the current EU agreed pledge the CCC s best estimate is that this means a UK reduction of 53% below 1990 levels in 2030, within the range 50-56%. It is the duty of the Secretary of State (UK Government) to set a limit on the net amount of carbon units that may be credited to the net UK carbon account for each budgetary period based on advice given by the CCC. The process and responsibilities of those setting the carbon budgets are presented in Figure 1 below. Table 2 Climate Projects timeframe

5 Responsibilities for each government department and for the devolved administrations are clearly defined and set out in the Carbon Plan. A cross-government National Emissions Target (NET) Board, which was established to provide senior level oversight of carbon budgets and national climate policy, has also been set up. MRV and accounting systems, processes and procedures [Questions below should be answered only when applicable]» How is information generated, communicated, integrated, and verified at each stage of the MRV chain?» What information needs to be gathered in order to quantify the effect of these actions?» How is such information gathered or estimated? By whom?» How is this information reported? How is it verified?» In what areas information is shared among accounting and MRV systems?» What kind of agreements are used to establish the relevant institutional roles? To calculate UK performance and to track progress against Carbon Budgets, verified data is taken from the UK national GHG Inventory. The data is adjusted to take into account removals of emissions from the atmosphere by carbon sinks from LULUCF activity, giving net UK emissions. This total is then adjusted to ensure that UK emissions in the traded sector are taken to be the same as the UK s allocated share of allowances under the European Union s Emission Trading System (EU-ETS) cap and to take into account any carbon units that have been bought from, or sold to, a third party outside the UK or otherwise disposed of. Once net UK emissions have been adjusted for trading, the new total is referred to as the net UK carbon account and is the value that is then compared against the base year (1990 for all gases, except f-gases which are compared to a base year of 1995). Almost all data processing and analysis is done on Microsoft Excel. The detailed rules for these calculations are contained in the Carbon Accounting Regulations and These regulations set out the method for calculating the UK net emissions; presented in Figure Figure 2: Calculating the net UK Carbon Account 12

6 A downfall of the Carbon Accounting Regulations is that they effectively allow the government to ignore emissions from the traded sectors as they are covered by EU-ETS (electricity and heavy industry); the emissions cap for these sectors is set by the EU. This means that, when determining whether the carbon budgets have been met, responsibility for emissions from the traded sectors is shifted to the EU-ETS and to the companies covered by that policy 13. In effect, this makes the government only accountable for around half of the carbon budgets (i.e. the sectors that do not fall under the scope of the EU-ETS). These regulations also set an upper and lower bound within which GHG emissions must fall each year (if they do not, the Government must explain why and how it will make up the shortfall in future years). International aviation and shipping emissions have not been included in the first four budgets. Although not required by the CCA 2008, the CCC has developed a framework of indicators for monitoring the budgets; this is so that progress to meeting the budgets is considering both emissions and indicators of progress in implementing measures that drive emissions reductions (to understand what is happening and, importantly, why). The framework is composed of a set of trajectories for actions that, taken together, would put the UK on track to future carbon budgets and the statutory 2050 target. Progress in each sector against the indicator framework is assessed and reported annually. Sectoral indicators were decided based on expert knowledge of the sector and policies for reducing emissions. The framework of indicators is broken down into headline and supporting indicators. Headline indicators:» Emissions; sectoral breakdown of economy wide emissions» Emissions intensity and demand; high level indicators of the supply and demand side factors which drive emissions. E.g. supply trajectories for carbon intensity of power generation. Demand trajectories for vehicle miles/passenger miles. Supporting indicators: Each headline indicator is underpinned by a set of supporting indicators which track progress in implementing the measures required to achieve the emission reduction.» Implementation indicators; a set of indicators which track progress in implementing the measures required to achieve sustainable emissions reduction» Forward indicators: trajectories for forward indicators that are used to assess whether the UK is on track to deliver measures as required» Policy milestones: In order that measures are successfully implemented, the appropriate enabling framework will have to be in place. Policy milestones therefore track measures needed to enable future action to reduce GHG emissions. Headline and supporting indicators were well documented in the CCC s 2012 progress report 14. An example is shown in Table 2. To monitor progress towards, necessary data (e.g. generation of offshore wind energy) is collected from the relevant data supplier. Much of this data comes from other UK Government departments (specifically, Department of Energy and Climate Change DECC) and is publically available hence there are no formal data supply agreements in place. There are, however, data access agreements to ensure CCC have access to all the necessary data when it is not publically available. The data needed to monitor progress is identified, collected and analysed by sector experts for their specific sector. As an indication of what type of data is collected, the following data is used for the transport sector:» Emissions and distances travelled by mode of transport (car, van, HGV) (government statistics)» Government projections of demand for travel» Emissions for new car sales by market segment (industry statistics and comparison are made to other countries)» Data on tax rates for transport (including vehicle excise duty, company car tax, enhanced capital allowances)

7 Global outlook on electric vehicles sales, government commitments, manufacturer commitments, battery cost projections» UK electric vehicles market sales, models, charging infrastructure,» UK biofuels use sales, sales by type, emission savings, future prospects» Funding for, and uptake of, smarter travel choices» Efficiency and emissions from freight logistics The CCC also uses a wide range of data from different sources to build a credible picture of the reasons for emissions trends, including information on contextual factors such as population, GDP, climatic patterns (e.g. focussing on temperature-adjusted emissions as this strips out the effect of changing weather and allows a comparison of underlying progress each year), etc. *Outturn refers to what actually happened during the year that is being reported. Table 2 indicators and tracking related to the power sector The carbon budgets MRV system takes into account mitigation measures by sector (buildings, industry, transport, agriculture and land use, waste, and exports) and from the devolved administrations (England, Wales, Scotland, Northern Ireland), as outlined in the Carbon Plan. Actions and decision points are given for each sector in the Carbon Plan, and are split into sector-specific groups e.g. for buildings - low carbon, gas, energy efficiency measures. The CCC annually give further recommendations for how targets can be achieved. The annual reporting cycle is as follows:» An Annual Statement of Emissions is published by the UK Government in March each year. This provides final UK-wide GHG emissions data for the calendar year from two years previously and provides provisional data for the latest year. This report shows the progress made annually towards the commitment in the current carbon budget and also whether emissions fall within the upper and lower bounds set out in the Carbon Accounting Regulations.» The CCC reports to Parliament on emissions trends over the past year and evaluates underlying progress in implementing carbon reduction measures and policies in the UK. The Committee uses an evaluation framework to produce this report which draws on a wide range of emissions and policy progress indicators, including those produced by government departments and additional primary analysis commissioned by the CCC. The Committee's report is published annually every June.

8 The Government's response to the CCC s annual progress report comes next, published in October each year. The Government gives a response to each of CCC s recommendations and outlines the actions that need to be taken in order to address those recommendations. The Government's response, which must be laid before Parliament by October, is agreed with all relevant departments. Design and set-up [Questions below should be answered only when applicable]» How was the system designed?» What was the overall process to set-up the system? The Carbon budgets MRV system is designed based on annual reporting to monitor progress towards meeting the five-year budgets. The CCA 2008 outlines statutory reporting requirements for the carbon budgets. The three parliamentary committees who responded to the draft Bill included the Ad Hoc Joint Committee on the Draft Climate Change Bill, the Environment, Food and Rural Affairs Committee and the Environmental Audit Committee. Nearly 17,000 individuals and organisations responded to the public consultation on the draft Bill, which closed on 12th June An overwhelming majority of respondents were supportive of the Bill s aim to set and enable the achievement of ambitious emissions reduction targets 15. Improvement over time '» Is there an internal evaluation of the systems established aiming to enable improvement over time? There are no formal arrangements for evaluation of the carbon budgets MRV system. Gaps are identified in the knowledge needed to implement the carbon budgets themselves. For example, currently, the CCC have identified renewable heat as a gap in their knowledge so are working towards filling the gap through commissioning a report and research. In terms of the MRV system itself, to our knowledge, there isn t a mechanism for identifying and implementing improvements. The emissions inventory is continually updated for improvements but this is a process required by the UNFCCC, rather than the carbon budgets system. If there is a significant change in circumstances, carbon budgets can be adjusted to reflect circumstances; for example, there have been recommendations for the UK to strengthen their long-term goal to reflect the stronger climate objectives in the Paris agreement. It is recommended that the 5th carbon budget be adjusted accordingly15. If such changes are to take place, the Government must seek the advice of CCC. Institutions involved» What institutional arrangements allow for the flow and integration of this information?» What types of entities take a role in the above structures? Lead: CCC and DECC - DECC takes the lead role in coordinating the management of carbon budgets and is responsible for the response to the CCC s annual reports and the Annual Statements of Emissions. The CCC monitors progress in meeting the budgets. DECC coordinates data and actions from across government to set and meet carbon budgets and also provides some of the information used by the CCC to 15

9 track progress. The CCC are responsible for advising on the level of carbons budgets and monitoring progress. The Government is required to take the CCC s advice into account when setting carbon budgets. Institutional arrangements: National Emissions Target (NET) Board - DECC provides the secretariat for the NET Board; a cross-government board established to provide senior level oversight of carbon budgets and national climate policy, and to provide a link to Cabinet committees that consider national climate change. It is chaired by the DECC Permanent Secretary and its membership includes the Director Generals responsible for carbon management in the departments with responsibility for sectors which produce the majority of carbon emissions, DECC, Defra, DfT, DCLG, BIS, together with HM Treasury and the Cabinet Office. Government departments - responsible for implementing measures to meet the carbon budgets. Policy teams across government, including in DECC, report to DECC s central carbon budgets team, on quarterly trends in emissions in their sectors, and progress in delivering policy milestones. Data suppliers an important type of institution for the carbon budgets team are the data suppliers. The CCC rely on data from DECC, other government departments and the national inventory agency (Ricardo Energy & Environment). Case learning Why is it good practice Use of a range of tiered indicators to evaluate policies and measures allows for detailed assessments not only of emissions trends but also the causes of these trends. The CCC uses a wide range of data from different sources to build a credible picture of the reasons for emissions trends, including information on contextual factors such as population, GDP, climatic patterns etc. The use of forward indicators helps build a picture not only on what has happened so far but also what needs to happen in future. Use pre-existing and high quality emissions data (from national inventory) to track progress. However, the inventory cannot provide all indicator data (hence need for indicators and other data). Enshrined in law Carbon budgets are flexible - if emissions are too high one year, it can be compensated in later years in that Carbon Budget. Independent evaluation by non-government organisation (CCC) lends credibility to the result. Barriers that have been overcome [barriers that have been overcome till date] Capacity: Technical capacity is high all staff are analysts and many of the CCC staff used to work in government, and the Committee itself includes engineers, scientists, economists etc. The CCC is supported financially by the government so also have resources for commissioning new research if necessary information cannot be gathered by the CCC itself. Institutional: The CCC was established under the CCA 2008 in order to full the requirements of the Act. Although not strictly a barrier, it was necessary to set this organisation up for another country, setting up such an organisation might act as a barrier.

10 Barriers to overcome [barriers that are still present and needed to overcome] Information: The biggest continued barrier is data availability. By in large, this isn t a large problem as much of the data used (e.g. the GHG inventory) already exists; however, sometimes the publication or release of data is delayed. The CCC are in a fortunate position in that they have the ability to commission primary research to produce additional data if needed. Institutional: The NET board has met irregularly (7 times in 3 years from mid-2010 to June 2013), not as frequently as was initially intended (quarterly). The board has also not had a role in collectively overseeing the government's response to the CCC 16. This is not strictly a barrier, but may be a barrier if another country were to set up such a board. Information: One important barrier is the inclusion of IAS (domestic aviation and shipping are included). Due to uncertainties at the time the CCA 2008 was agreed, IAS emissions were not included. The CCA 2008 required the UK government to reconsider the inclusion of these emissions in 2012; the decision made was to defer a firm decision on whether to include IAS emissions within the UK s net carbon account. However, IAS emissions are in the 2050 target so carbon budgets are set to include them; therefore, the inclusion/exclusion of IAS emissions in carbon budgets is an accounting issue. Quantitative information Funding obtained The majority of the progress tracking is carried out by CCC which is funded by the UK government. The department of Energy and Climate Change (DECC) are the lead sponsoring department with the Strategy unit within DECC acting as lead sponsor officials. The government also provides staff time to prepare annual statements of emissions and the response to the CCC annual reports. During financial year, the CCC was wholly funded by the DECC, Defra, the devolved administrations, Natural Environment Research Council (NERC) and the Environment Agency. Resource allocation during the year was 4,109,617 ( , 3,726,289). The total Grant-in-Aid funding drawn down during the year was 4,042,588 ( , 3,898,237). The CCC s net operating cost for the year was 4,071,382 ( , 3,711,661). Additional funding was negotiated and received from sponsoring bodies which permitted more research during the year and as a result increased the net operating costs 17. Funding required The accounts show a deficit on the Statement of Comprehensive Net Expenditure of 4,071,382 for the year ended 31 March Staff [Number of staff involved in the design and implementation of the case study] The CCC employs 31 members of staff 18. This comprises a Chief Executive, 25 analytical staff (of which 6 support the Adaptation sub-committee), and 6 staff providing corporate support including specialists in finance and communication. Not all 31 members of staff are involved in the MRV system. The DECC carbon budgets team that would respond to the annual reports would consist of 2-3 people; this is a central coordination role. There is also support from the GHG inventory team, the GHG projections team and numerous other teams across Government departments and DECC working on specific policies

11 Time [Time required to get to this stage] March 2007 October 2009 (2 years 8 months) Further information Contact for enquiries Owen Bellamy Committee on Climate Change Senior Analyst owen.bellamy@theccc.gsi.gov.uk Website References CCC (2012). Meeting Carbon Budgets: 2012 Progress Report to Parliament. London. June Available at: org.uk/wp-content/uploads/2013/07/1585_ccc_progress%20rep%202012_interactive.pdf CCC (2015a). Reducing emissions and preparing for climate change: 2015 Progress Report to Parliament. London. June Available at: CCC (2015b). The Fifth Carbon Budget: The next step towards a low-carbon economy, London, November Available at: documents.theccc.org.uk/wp-content/uploads/2015/11/committee-on-climate-change-fifth-carbon-budget-report.pdf CCC (2015c). CCC, Annual Report and Accounts 1 April 2014 to 31 March June Available at: uk/wp-content/uploads/2015/06/ _ccc_ara_acc.pdf DECC (2014). Triennial Review of the Committee on Climate Change, January Available at: uploads/system/uploads/attachment_data/file/270886/committee_climate_change_triennial_review_2013.pdf HM Government (2011). The Carbon Plan: delivering out low carbon future, DECC, London, December Available at: gov.uk/government/uploads/system/uploads/attachment_data/file/47613/3702-the-carbon-plan-delivering-our-low-carbon-future. pdf National Audit Office (2013). Carbon Budget Management: Briefing for the House of Commons Environmental Audit Select Committee, DECC, London, July Available at:

12 Ricardo-AEA (2014). National policies for emission reduction and GHG measurement. Presented by John Watterson, Ricardo-AEA, at Asia Regional Workshop for GIZ Information Matters project in Manilla, Philippines. Available at: default/files/john_watterson_ricardo-aea_-_national_policies_for_emission_reduction_and_ghg_measurement.pdf Stern, N. (2006). Stern Review on The Economics of Climate Change. HM Treasury, London. Available at: Case study authors Eleanor Kilroy, Raúl Salas Reyes, and James Harries (Ricardo Energy and Environment) Case study contributors Owen Bellamy (Committee on Climate Change), Ximena Aristizábal, Diana Barba, and Rodrigo Villate (GIZ) Organisers This series of fifteen best MRV and Accounting case studies, and the Global Case Study Analysis accompanying them was prepared by Ricardo Energy and Environment for the project Accounting Rules for the Achievement of the Mitigation Goals of Non-Annex I Countries. This project is implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH as part of the International Climate Initiative (IKI). The Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety of Germany (BMUB) supports this initiative based on a decision taken by the German Bundestag.