Utility Week

16 | 16TH - 22ND NOVEMBER 2018 | UTILITY WEEK Policy & Regulation Roundtable Rethinking decarbonisation incentives BEIS conference centre, London Capturing carbon At a recent roundtable in London, industry leaders met to mull over research by the Energy Systems Catapult into how best to promote economy-wide decarbonisation. Adam John was there. T he first output from the Energy Systems Catapult's "Rethinking decarbonisation incentives" project was an analysis published in May of the current pattern of "effective carbon prices" in the UK for decarbonisation in different economic sectors and activi- ties. This showed a range of prices, with a number of areas that appear "under- taxed", including coal and gas genera- tion and energy con- sumption in homes and businesses. From this baseline, leading industry fig- ures took part in a roundtable discussion at the Department of Business, Energy and Industrial Strategy (BEIS), hosted by the Energy Systems Catapult and Network, a sis- ter publication of Utility Week. The discussion focused on three topics: • Implications of the current pattern of "effective carbon prices" for energy and economic policy, including the Industrial Strategy, the Clean Growth Strategy and innovation. • What we can learn from the approach of other countries to carbon pricing and incentives for decarbonisation. • How far the UK can go in moving towards a more coherent set of carbon price signals and incentives. The first part of the Catapult's work high- lights significant variation in the effective carbon prices across different parts of the economy. Participants were asked to discuss how important this was and how important it was for getting the right technology mix to decarbonise the economy and deliver the Clean Growth Strategy. One participant said that whether trans- port fuel duty is called a carbon price or not, it is working as a carbon price in that electric vehicles (EVs) have become cost-competitive on a whole-cost of ownership basis. They added that the UK was "at a precipice" where EVs are going to take off "largely because of this effective carbon price on fuel". Brexit was also discussed. With the UK's impending departure from the European Union, participants were asked to consider whether Brexit would open up any specific opportuni- ties to improve the cur- rent picture. One participant said they believed there are areas of EU policy that are not particularly well designed, one of them being the common agricultural policy (CAP). "Through the CAP we are subsidising forms of agriculture that are environmentally dam- aging," one attendee said. As well as looking at the implications of carbon prices in the UK, the discussion explored what could be learnt from the approach of other countries to carbon pric- ing and the incentives for decarbonisation. The Catapult has produced a set of 11 case studies around carbon policy, with examples looking at a range of approaches such as standards, subsidies, tradeable certificates and interacting suites of policies. One participant said they did not believe any country had a model that the UK could "pick off the shelf ". One cited South Africa as an example of where policy had been "watered down" to appease different sectors. The third and final discussion point for the aernoon was about what the opportuni- ties are for the UK to improve carbon policy now. The Catapult says it recognises how dif- ficult it is to do far-reaching, radical reforms but that people should be thinking about how to move from where the UK is now to something that offers a more durable, economy-wide framework for incentivising decarbonisation. Five stylised reform options were mooted as a basis of discussion: • Aligning sectoral policies for carbon. • Taxing carbon upstream. • Introducing a UK emissions trading scheme. • Setting standards for carbon intensity. • Taxing carbon at the point of consumption. One participant said they did not think the points "captured innovation funding" and expressed concerns that this was a miss- ing category. Another said they believed carbon taxa- tion was an "important but not sufficient" condition to drive innovation. It was also important to examine areas where there are problems or gaps in carbon pricing, and to analyse this in a more coherent way to get a better signal across the economy. Changing behaviour Price, one delegate argued, is one of several mechanisms to achieve decarbonisation. Behaviour change is another such mecha- nism. They cited the example of the plas- tics debate, which has completely changed not just through issues surrounding price but though alignment of different measures. "That would be a really important criteria for looking at how you assess the different options," they said. Discussing prices is almost missing the point, one attendee warned. They added that the most successful UK decarbonisation policies "did not involve the official setting of prices". As the roundtable drew to a close, del- egates were asked to summarise one thing they thought needed to be done within the next year to achieve distinct decarbonisation incentives in all sectors. One participant proposed that the Indus- trial Strategy be used as a vehicle to engage with a broader swathe of business sectors, while another suggested an economy-wide approach needed to be taken. Another wanted to see the UK work with other coun- tries, because climate change is a worldwide issue. The most successful UK decarbonisation policies "do not involve the official setting of prices"

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