Monday, October 26, 2015

Who should pay the most to fix the climate?

Despite what many climate sceptics in the UK would like to be the case, the country still does have a Climate Change Act. Under this, the arms length body the Committee on Climate Change (CCC) sets carbon budgets for the country and publishes regular reports on progress report cards. (The Committee is chaired by John Gummer, now known as Lord Deben, once Conservative Prime Minister John Major's Environment Secretary.)

A new report has just been published, which is about the UK's fifth carbon budget. This will set the limit on greenhouse gases emissions from the whole of the country between 2028 and 2032, and marks the halfway point from the first budget (2008-12) to the UK’s 2050.

The report analyses the pledges made by governments around the world in advance of the UN conference in Paris in six weeks where the world will adopt a new, legally binding, agreement that will supplement the existing objective to limit global temperature rise to 2°C.

As usual, the report has been greeted by complaints from some quarters that the brakes the Act allegedly compels the UK to put on industrial activity are unfair.

But are they? But what is fair? How can we decide?

But what is fair?

At every climate conference it always boils down to countries complaining that other countries are not playing fair. This time around the Russian billionaire Oleg Deripaska has urged governments not to sign the Paris accord because China and India are not doing enough. Like, we should really listen to a billionaire, especially a Russian one.

There have been many attempts to figure out what would be a fair way of dividing up the tasks and costs. Below is a summary of seven of them. Each of them addresses a different idea of fairness or combines several ideas. Talk at Paris this year will be around agreeing which model will work best, combining domestic action, trading and other forms of co-operation.

These come from the GLOCAF model using methods described in Averchenkova et al (2014):

1. Equal cumulative emissions: nations are allocated an emissions budget over 1990-2050 on the basis of their share of global population.
2. Brazilian proposal (or “index-based approach”): the share of emissions reduction (relative to a path of no climate action) is determined by contributions to historical emissions during 1990-2020.
3. Contraction and convergence: all nations converge towards equal per capita emissions by 2050.
4. Common but differentiated (CBD) convergence: as above, but using a staged approach in which low emitters can continue to increase emissions until they reach global average per-capita emissions.
5. Equal fraction of GDP: each nation faces the same mitigation cost as a fraction of their national GDP.
6. Income grouping: the amount paid by nations on mitigation is indexed by their GDP so that wealthier countries pay a greater fraction than poorer ones. 'High income” nations' (as decided by the World Bank) are allocated double the fraction of their GDP compared to others.
7. Equal marginal cost: the marginal cost of mitigation (i.e. the carbon price) is set to be the same for all nations.

Analysis of these models has shown that the ones with the chance of creating the greatest reduction by 2030 for the EU and the UK are 'Equal marginal cost' and 'Contraction and convergence', followed by 'Equal fraction of GDP' and 'CBD convergence'.

Anyone fancy taking bets on which one will come out the winner at the talks?

Who's really to blame?

Maybe we should be looking at who is ready to blame for global warming and get them to pay the most. But this is not as simple as it seems either. It depends and what criteria you use. Check out these figures on total final energy consumption per capita of the G7 and BRIC countries from 2012. You can see that under this criteria Canada is by far the worst performer.

Country toe = tonne of oil equivalent/capita
United States
Russian Federation
United Kingdom
South Africa
Source: Federal Statistical Office, G7 in Figures, 2015

But if you use energy intensity as a criteria, which is a measure of how efficiently energy is used, particularly by industry (including power generation), the Russian Federation comes out worst by far:

This is supported by this graph comparing energy intensity, GDP and population:

Yet again, the G20 ranked by percentage of global emissions, puts China worst (though not per capita).  (But look at the last column – who is the most vulnerable to sea level rise amongst these countries – perhaps this should be another way of viewing fairness?):

Carbon dioxide emissions
Average annual deforestation (+) / afforestation (–)
Population living in areas where elevation is below 5 metres
% of global emissions
tonnes per capita
kg per 1,000 int. US$ GDP
% change on 1990
% of total forest area
% of total population
United States
European Union (EU28)
Russian Federation
Republic of Korea
Brazil 1.5 2.6 99 134.2 0.5 4.9
Indonesia 1.4 2 100 207.6 0.51 11.2
Saudi Arabia 1.4 16.6 151 189.3 0 1
United Kingdom 1.3 7.5 254 −19.2 −0.31 8.6
Mexico 1.3 3.9 168 52.8 0.3 2.7
Italy 1.1 6.4 215 −8.4 −0.90 7.5
Australia 1.1 16.9 314 43.9 0.37 7.2
France 1 5.7 169 –6.3 –0.39 4
South Africa 0.9 6.2 464 22.6 0 0.5
Turkey 0.9 4.4 138 121.5 −1.11 2.4
Argentina 0.5 4.5 213 74 0.81 4.5

Cumulative emissions

But what about cumulative, historical emissions, the ones that got us into this mess? Would it be fair for the countries responsible for that to pay the most?

The United States is responsible for 20 per cent of global warming experienced over the industrial period, more than twice the emissions of China in second place. But when you look at emissions per person, the UK beats the US into first place. The biggest emitters – US, China, Russia, Brazil, India, Germany and the UK – are together responsible for 63 per cent of total cumulative emissions. The researchers say highlights the huge disparity between rich and poor countries with respect to per person emissions.

This approach must not just examine countries' greenhouse gas emissions from fossil fuel burning and land use change, methane, nitrous oxide and sulphate aerosol emissions. A study published in Environmental Research Letters by researchers from Canada's Concordia University does this, for emissions between 1750 and 2005.

Historical contribution to climate warming by country. US leads the table with 0.15 degrees warming by 2005, with the UK coming in seventh. Source: Matthews et al., ( 2013)

Some less developed countries like Brazil sit quite high up in this scale because they have been turning large amounts of forest into cropland. 

Countries’ climate contributions relative to geographic area. Red indicates countries with very high relative climate contributions, green indicates countries with very small relative climate contribution. UK comes top here. Source: Matthews et al., ( 2013)

Carbon pricing anyone?

Regardless of who is to blame, where is the money going to come from? Who is going to pay the price of the changes in infrastructure that are required, especially in developing countries?

This is known as the north-south finance gap – the money that should flow from developed countries, who are the most to blame, to developing ones, who need it to get their lifestyles up to the same as ours, which, after all, is only fair.

Many business leaders, for example Shell, are calling for a global price on carbon as a way of providing this cash. Environmental NGOs like Greenpeace suggest that this is a delaying tactic that would permit business as usual to continue for longer.

In 2013 (latest figures) 18% of global emissions are already covered by carbon pricing schemes.

Also, 76% of global surface transport emissions are covered by emission/fuel efficiency standards (2015 figures). These are constantly improving, but, as we have seen with the Volkswagen diesel emissions scandal, compliance is not always guaranteed.

So, if carbon pricing doesn't work, I repeat:

Who's going to pay?

Recent research on bridging this finance gap puts the cost of fixing the climate at between US$400 billion and $2 trillion by 2050. That doesn't seem an awful lot compared to what has been paid out as a result of the banking crisis over the last eight years.

In fact, it seems like a bargain given that much money is already needing to be spent our new infrastructure in developing countries.

Still, it needs to come from somewhere. So where?

The researchers say that most of the currently deployed means of attempting to bridge this gap – public aid, private investment, development banks, and special climate-related facilities – are insufficient and the barriers "appear particularly hard to overcome".

The researchers conclude that "expanding private finance, either in the form of Foreign Direct Investment or through the issuance of ‘green bonds’, appears to be a more promising direction".

Maybe that's the answer.

This year, so far (9 months) there have been around $21 billion worth of green bonds issued, according to Climate Bonds. Over 14.3 years at the same rate it would in fact be US$400 billion, the bottom estimate figure above, and that just takes us to 2030.

So dare we think that we could do it?

The chief lenders are: Bank of America Merrill Lynch, JP Morgan, CITI, Morgan Stanley, Credite Agricole, CIB, HSBC and MEB. But there are many more smaller ones.

If these people at the heart of capitalism see a profit to be made from climate change, who am I to argue?

I suppose the question is: is it going to the right place? I don't know the answer yet.

So, what do you think would be the fairest way to spread the cost and challenges?

And what is the progress so far? Should we be hopeful or despairing?

Europe's position

EU’s Member States are generally agreed to be leading the world in tackling climate change with an agreed 2030 target for EU emissions of at least 40% below 1990 levels. Some say they shouldn't be taking a lead if other countries don't pull their weight.

EU emissions are already on the road to beat the EU’s 2020 target of a 20% reduction below 1990 levels, ending up between 24% and 30%. This raises the 43-52% possibility of a cost-effective attainment by 2030 of 48% below 1990 levels.

The CCC estimates that within this agreement, the UK will contribute emissions reductions between 51% and 57%. The EU and UK together have target of at least an 80% reduction compared to 1990 by 2050.  By the way, this excludes international shipping and aviation emissions.

The world's position

The CCC also estimates that current pledges by nations globally are not sufficient to set us on a cost-effective path to the agreed 2°C limitation. However they believe that it might be reduced by "remaining pledges, increasing ambition in pledges and further commitments to reduce emissions beyond 2030".

As has always been said, the longer action is delayed, the more expensive it gets. It also forces us to become reliant on technologies that are not yet proven, for example carbon capture.

Median estimates of business-as-usual global emissions in 2030 are 68 GtCO2e. Analysis of nations' submitted proposals in advance of Paris talks suggests that global emissions would reach 53-55 GtCO2e in 2030. These would limit warming to around 2.7°C instead of 4°C by 2010. We need to be at around 40 GtCO2e by that year.

There is therefore a 6-13GtCO2e gap that needs filling. Around 50 countries still have to submit their pledges so there is a slim chance that this can be met that way. There's also a chance that negotiations leading up to and including Paris will make an attempt.

Friday, October 23, 2015

INFOGRAPHIC: How investment in efficiency has reduced fuel consumption & GHG emissions since 1990

 Here is proof of how energy efficiency is the first fuel. Investment is cost-effective and reduces energy demand, therefore the need for investment in generation plant, and reduces greenhouse gas emissions.
INFOGRAPHIC: How investment in efficiency has reduced fuel consumption & GHG emissions since 1990

Click for higher resolution.

Tuesday, October 20, 2015

Why PPP cannot solve the affordable housing problem

It is now well established that, in an age where increasingly more people live in cities than in rural areas, squeezing in a higher population per square mile is preferable to urban sprawl for a number of reasons. This principle is highlighted by the second of a series of new reports from the Urban Land Institute (ULI) and TH Real Estate that was launched last week in London and San Francisco.

The Density Dividend: Solutions for Growing and Shrinking Cities takes a look at six European cities (Birmingham, Dresden, Istanbul, London, Stockholm and Warsaw) that are at various stages of population change – growth and decline – and concludes that they have little choice but to densify or face being increasingly inflexible, unattractive to live in, unsustainable, and ultimately uncompetitive.

It tries to establish what does and doesn’t work in making densification successful and popular.

But are the solutions the report offers sufficient to ensure success?

Cities vary in their attitudes. Some are new to urban redevelopment or lack the tools to deliver density in an integrated way, relying instead on ad-hoc initiatives and innovation.

The report identifies three distinct elements that need to be in place to ensure synchronised, sustained progress towards better, higher density:

  1.  A strong story and vision for future evolution that can galvanise attention and support from residents, workers and investors alike together with a robust growth plan that provides a guiding framework within which development can proceed.
  2. A prioritised tactical plan about where and how to densify, targeting areas for a critical mass of redevelopment matched to durable systems of investment and improved legal, land-use, and asset management tools.
  3. Foster a demand for new urban space and focus on the positive psychology of vibrant urban lifestyles and locations.

The report comes from the Urban Land Institute (ULI), whose 34,000 members represent all aspects of land use and development disciplines, and TH Real Estate, an investment management company specialising in real estate equity and debt investing worldwide, owned by TIAA-CREF, a US financial services company. Once you realise that it has assets of around £557bn you begin to realise where this report is coming from.

The report advocates public private partnerships (PPP) as a way of solving investment problems. These kind of partnerships are favoured by both sides (developers / investors, and local authorities) because they appear to be a way of sharing the investment burden of creating new housing, particularly affordable housing, the need for which is desperate in most cities.

But is this true?

The experience of London

The picture that the report paints of London, however, is at variance with the reality. It is not a London which I recognise. Since I know this city better than the others, a comparison of the painted picture with what I know serves as a way of evaluating the authoritativeness of this report as a whole.

Of London, the report commends The London Plan which it says:
"has allowed London to be strategic about its re-urbanisation over the past 15 years. It supports compact city development and rules out sprawl as a means of accommodating the extra 300-400,000 homes and 500,000+ jobs forecast as needed by 2030. The plan is distinctive for identifying over 40 ‘opportunity areas’ for mixed-use intensification, mainly brownfield sites around transport interchanges. It also provides an overarching vision which allows large-scale projects such as Crossrail and the Olympics to be organised and delivered with confidence."

Some of this is true. Research from around the world about livability and sustainability in cities stresses the importance of development around public transport hubs and of making maximum use of existing brownfield sites. Wherever public transport hubs are sited, whether they are bus rapid transit, Metro or rail, real estate values go up, an increase in density occurs, and so does the level of economic activity and satisfaction of inhabitants.

Crossrail is an incredible achievement, one of the most impressive contemporary engineering projects in the world, and it will be vital to target density can improvements around the new stations. Istanbul is an example of a city that has increased population density without planning and without improvements in transport infrastructure with disastrous results.

But improvements do need to be made with regard to the needs of local people. They must be brought on side and listened to, which did not happen in the case of the Olympics site in London 2012. As the focus was on the timescale and the need to create a world-class sporting destination, local needs were bulldozed out of the way.

Everything depends for its success in urban development on the provision of housing that satisfies real needs. This is true no matter where you are in the world.

Part of the London Plan is The London Housing Strategy, which has an aim of delivering over 42,000 new homes a year in the city by creating a ‘Housing Bank'. This is supposed to help subsidise rent for households looking to buy their home, give bespoke financial support to speed up house-building on public land, and offer low-cost loans for developers and housing associations.

This is cited in the report as an example of a successful approach.

But is it?

First of all, the Bank doesn't even attempt to meet the actual needs for London's additional housebuilding, estimates of which fall within a range of 50,000-80,000 per year. New homes are in fact well below this level; in 2012-13 there were 21,900. Reports in January suggested that the Bank is likely to miss its target to create 3,000 homes, as documents show developers are planning to build just 106 properties by the 2018 deadline. Its website today talks of support for just 643 homes.

Graduates, young professionals, essential workers in service sectors like health, i.e., the very people that cities need to attract to be competitive and successful, are being priced out of London by the housing market. This is overheated due to a combination of lack of supply and investors from overseas buying up houses which then sit empty. Since 2002, London’s population has increased by 14 per cent, yet housing stock has only increased by 9 per cent during the same period.

The city’s average house price was £450,000 in December 2013, 73% higher than the national average and up 12% in the last year.

According to housing charity Shelter, the four main barriers to housing development in London are the same as for the rest of the country, but made worse by London’s tight administrative boundaries, status as an international property market and lack of fully devolved powers, including those over taxes.

The development market in London has become concentrated into too few firms, and the hurdles to involvement are too high. The price of land is also too high.

The Mayor’s London Housing Strategy itself states that delivering 42,000 per year will be ‘a huge challenge in itself.’

So is PPP the answer to this problem?

In 1980-81 local authorities were responsible for 70% of housing completions in London. Then Margaret Thatcher declared war on local authorities in England and introduced the Right to Buy for council tenants, stopping local councils from reinvesting the proceeds from the sale of their housing stock to tenants in building new homes. So in 2014-15 the equivalent figure was 2%.

Post 1980, new home building in the British capital reached a peak of 24,060 in 2004-05, in comparison to the lowest figures of 10,960 in 1984-85 (data from the Department of Communities and Local Government (DCLG)). So even the 2004-05 peak is less than half of the more conservative estimates for the need for new homes.

In other words, it was better when councils were allowed greater control of their finances and able to build council homes themselves.

Many of these homes must be affordable, although there is some debate over what this actually means. Nevertheless, according to one definition in 2013-14, just 9,200 affordable new homes were provided in London. 88% of these were new build, and comprised 45% of all new dwellings. The rest were provided by acquisition of existing stock.  This shows just how far behind the need the situation is and why homelessness is such a big problem.

The Housing Bank, to be fair, is meant to solve these problems. Some social housing associations like the Peabody Trust are taking advantage of it. But it is not up to the scale of the challenge.

Jamie Ratcliff, assistant director for programme, policy and services at the Greater London Authority, says the Housing Bank is offering deals at an initial one per cent, "approximately a third of the recent historic record low rate achieved by The Housing Finance Corporation/Affordable Housing Finance with their Government-guaranteed bond". He adds: "There are projects in parts of London where the costs, including decants, leaseholder buybacks and demolition, exceed projected sales values. This at best delays and at worst prevents the development of homes for sale or shared ownership."

The point of accessing funding from the London Housing Bank is to help "cash flow the development, allowing viable homes to be built now and sold in later years, once values have adjusted, ensuring the building of homes now, not vacant sites", he adds.

Yet finance is only one part of the obstacle course facing anyone wanting to tackle this problem. The lid is taken off this by a House of Commons briefing paper published a month ago called "Meeting London’s housing need", which cites many of these barriers.

At the institutional level there are staff and resource shortages in the planning departments, a lack of institutional memory within local authorities and limited partnership working between the many boroughs which make up London. From the point of view of developers there are uncertainty in the planning system, dysfunctional viability procedures, difficulties in land assembly and complex land ownership. The briefing note also acknowledges high land values, density being too low, and land supply constraints.

The solutions suggested include a more strategic outlook across boroughs, redefining the role of the Greater London Authority, modifying compulsory purchase order powers and procedures and introducing more consistent targets for affordable housing. Support also needs to be given to builders and developers to bring more players into the market.

Going back to the Urban Land Institute (ULI) report, it makes little reference to the complexity that is seen on the ground in this type of situation. One of its conclusions is:

"Cities that build an idea and ambition about what they want to become, and which instil this aspiration in their citizens, find it much easier to achieve the behaviour change that is necessary to increase densities of interaction and development."

But the experience of London shows it's not the citizens whose behaviour needs changing.  The required changes are institutional.

Large house builders like Persimmon and The Berkeley Group are reported as giving their executives record bonuses despite building fewer homes: Berkeley bosses will pocket £42m this year and up to £500m in the next five years, while Persimmon boss Jeff Fairburn could get £100m by 2021 according to Sunday's Observer magazine – are they members of the ULI, I wonder? Something clearly needs to change.

David Thorpe is the author of:

Monday, October 12, 2015

New English tax on single use plastic bags 'a missed opportunity'

England has finally joined the rest of the UK in imposing a tax on non-reusable plastic bags. Wales was the first UK country to adopt such a tax in 2011, copying the Republic of Ireland which has had one in place since 2002.

From now on, anyone purchasing a bag in an English supermarket must pay 5p, in an attempt to tackle the pandemic of the 8.5 billion bags they issued in the UK in 2014. In England, the average person uses 11.7 bags per month in England compared to two bags in Wales.

But the new law [the Single Use Carrier Bags Charges (England) Order 2015] is not as strong as the ones in the three other principalities of the UK. This has led Alice Ellison, the British Retail Consortium's Environment Policy Adviser, to say that "the charge will not deliver the same environmental impact as the rest of the UK".  The BRC is the lead trade association for the retail sector.

Only retail companies employing over 250 people have to charge for single-use bags, whereas elsewhere the number is ten. This means that most retailers that are not supermarkets can carry on issuing bags free of charge. Given that 8 billion bags were issued by supermarkets in 2013, that means 7,

Ellison has called the England plastic bag charge "a missed opportunity" in that it will not "reduce the number of bags will not deliver the same environmental benefit as in the rest of the UK.

"Carrier bag numbers for Wales, Northern Ireland and Scotland indicate that a carrier bag charge can trigger significant reductions in carrier bag use," she said, calling the English version "unnecessarily complicated and not consistent with the simple approach taken elsewhere in the UK. 

"The charge leaves retailers with complex messages to communicate to shoppers, such as to why some stores and some bags are exempt from the charge and why these exemptions do not exist elsewhere in the UK.  Supermarkets' environmental work extends well beyond carrier bags to wider and more important green goals including reducing packaging, carbon emissions, food waste and waste to landfill. An obsession with carrier bags must not get in the way of these bigger green goals," she said.

Policies compared:

When law brought in
Minimum number of employees above which businesses must charge for bags
Where the money goes
England 2015 n/a 250 voluntarily: local good causes
Scotland 2014 12.8% 10 voluntarily: local good causes
Northern Ireland 2013 81.2% 10 voluntarily: local good causes
Wales 2011 78.2% 10 voluntarily: local good causes
Ireland 2002 93.5% 10 Mandatory: Environment Fund with Landfill Tax

Where will the revenue go?

In Ireland, it must all go to a big pot, the Environment Fund, together with the Landfill Tax revenue. About $9.6 million was raised in the first year and the money is used for a range of environmental purposes, including schemes to prevent/reduce waste.

But in the UK, once retailers have deducted reasonable costs, they are only "expected" voluntarily to donate all proceeds to good causes. The regulations put the onus onto schools, small local community groups or national charities to apply to retailers for a share of the tax proceeds.

This money can be substantial. In Wales, from when the 5p charge was introduced up to October 2014, additional donations to good causes were up to £22 million. Between 2001 and 2014 there was an estimated overall reduction in bag use of 57% and consumer support for the charge is now riding at 74%.

In all countries, a levy on plastic shopping bags has a strong anti-litter emphasis. The Regulations in Ireland, Wales, N. Ireland and Scotland do not distinguish between biodegradable plastic bags and other plastic bags. Biodegradable bags still take a considerable time to degrade. While they may be preferable in a final treatment situation, such bags will continue to pose a litter problem.  But the English government is considering an exemption to these bags to encourage development of a new, genuinely biodegradable, more environmentally friendly bag.

The problem with plastic bags

Plastic bags are a global scourge. Over one trillion of them are used every year worldwide (source: Earth Policy Institute). An estimated 3,960,000 tons of plastic bags, sack and wraps are produced annually. Of those, 3,570,000 tons (90%) are discarded. This is almost triple the amount discarded the first year plastic bag numbers were tracked (1,230,000 Just 0.5% to 3% of all bags are recycled (BBC, CNN).

China, a country of 1.3 billion, consumes three billion plastic bags a day, according to China Trade News.

Not only do they cause a litter problem but scientists estimate that every square mile of ocean contains approximately 46,000 pieces of plastic floating in it (United Nations Environment Programme), which get into the food chain and contaminate fat with dangerous chemicals – PCBs.

This has led to Arctic-dwelling Inuit mothers being told not to breastfeed their babies for fear of giving them cancer. It has also been the cause of the deaths of uncountable marine creatures.

The bags can take up 500 years to degrade. At the least, high-density polyethylene will take over twenty years to degrade, but in landfill this can rise to over 500 years.

The manufacturing of plastic bags also consumes oil, which contributes to climate change. Each bag takes an average of 0.48 MJ (megajoules) or 0.133kWh of energy to produce (the oil that the plastic is made from and the energy to manufacture the bag).

To put this in perspective it means that you could power a an average car with 6.25 plastic bags per kilometer (= 10.06 plastic bags per mile). [This assumes a car goes 12km per litre of fuel and that petrol has an energy density of 10kWh/litre, giving 0.833kWh/km.] Figures from the Australian Bureau of Statistics.

In Ireland it's estimated that consumption has dropped approximately 90% from around 1.2 billion plastic bags each year, before the tax was implemented to 230 million per year, saving around 18,000,000 litres of oil.

However, in some countries, like England a proportion of the bags are made of recycled plastic, which saves oil, but this does not solve the other problems caused by disposable plastic bags.

Plastic bag laws in other countries

Policies in the rest of the world vary.

The European Parliament passed a law on 28 April this year to drastically slash the eight billion or so of these bags that end up polluting the European environment every year, by amending the Packaging and Packaging Waste Directive (PPWD) as part of its work to create a 'circular economy'.

Watch a video: the problem and how the EU-wide ban will work: “An ocean of plastic to eradicate”.

The move has been welcomed by trade body European Bioplastics as a step towards banning oxo-degradable plastics, which are not properly biodegradeable despite often being touted as such, as it endorses the EN13432 standard to certify biodegradation and further improve biodegradability and compostability labelling for plastic carrier bags.

The new law will take four years to come into effect, however. It requires member states to progressively reduce their use of plastic bags, with an initial threshold of ninety bags per person per year by 2019, down to forty bags in 2025.

Some EU member states like Finland and Luxembourg are already nearly there. France, for example, has an average consumption of 79 plastic bags per person per year, and has adopted a national ban on the distribution of single-use plastic bags, which will enter into force at the start of 2016.

As of July 2014, in the USA 20 states and 132 cities where some 20 million U.S citizens dwell have bans in place or pending.

Australians use around 6 billion plastic bags per year, over half of which are supermarket bags, so if Australia introduced a similar tax to England it could by up to 3 billion plastic bags a year. Although Australia does not ban lightweight bags, the states of South Australia and North Territory along with some cities have independently set a ban. Coles Bay, Tasmania was the first. The introduction of the ‘Zero Waste’ program in South Australia led to its lightweight bag ban in October 2008. It is estimated that 400 million bags are saved each year.

Thursday, October 08, 2015

Britain moves to simplify carbon tax and reporting framework

Over last weekend, around 60,000 cyclists attended a climate justice festival in Paris, part of preparations by climate activists to try and ensure a decent result from the UN Climate Summit in early December.

They have friends in what might have seemed previously unlikely places. This week Mark Carney, the Governor of the Bank of England, and chair of the Financial Stability Board, told the world that climate change is the biggest issue of the future and poses a huge risk to global stability, that fossil fuel stranded assets are substantial, and that investors must be given the data they need to “invest accordingly”.

And Shell wrote off a staggering $7 billion worth of investment by deciding to abandon drilling for oil and gas in the Alaskan Arctic, while last week Goldman Sachs put out a report saying that “coal is in terminal decline”.

The Conservative British government response to the climate crisis in the lead up to the Paris Summit is to argue in public that it's the market that should lead the changes required.

But its new consultation about overhauling the UK's corporate carbon reporting and taxation landscape implicitly recognises the necessity of rigging the market to achieve the policy goals of reducing emissions – albeit under pressure from the European Commission. Its strategy, though, is to try and reduce the administrative burden on industry.

The government's attitude, as expressed in a number of recent much criticised attacks on renewable energy and energy efficiency [link please to my recent article on this], is emboldening climate sceptics in the country such as Benny Peiser, who runs the cunningly named Global Warming Policy Foundation, and who issued a statement this week calling for energy-intensive industries such as iron and steel to be relieved of carbon taxes.

This is an effort by him to influence the new consultation. This proposes changes to the Climate Change Levy (CCL), Carbon Reduction Commitment Energy Efficiency Scheme (CRC) taxes, the Climate Change Agreements (CCA), the Energy Saving Opportunity Scheme (ESOS) reporting schemes, and the Electricity Demand Reduction (EDR) pilot incentive scheme, all of which energy-using industry has to respond to. (For an explanation of some of these, see below.)

The consultation seeks to develop a single reporting framework and a single tax in order to improve the uptake of energy efficiency measures. Writing in the foreword to the document, Exchequer to the Treasury Damian Hinds stresses that the proposals would not compromise the UK's decarbonisation efforts.

The government acknowledges some parties believe mandatory board-level reporting "creates a standardised framework that can provide information on energy and carbon consumption to investors and other stakeholders to inform investment decisions", while also leading to a reputational driver than incentivises decarbonisation. This is not just a belief but is backed up by independent research and evidence.

Consequently, it is proposing developing a "single effective reporting framework which incorporates the most effective elements from the existing range of reporting schemes and delivers a net reduction in compliance costs associated with reporting schemes".

The Energy Saving Opportunity Scheme (ESOS) will be the basis for the new reporting system. This is the EU-backed scheme that requires around 10,000 of the UK's largest firms to undertake energy efficiency audits and report on their results every four years with the first audits due by December 5th this year.

The government is consulting on whether the new reporting requirements should have board level sign off (well of course) and whether the data should be made publicly available (why not?).

The CRC scheme would be scrapped to be replaced by a new version of the Climate Change Levy (CCL) that would aim to impose a more consistent carbon price on different businesses and industries, but elements of it would also be incorporated into an improved ESOS the tax system.

It would seek to rectify the current imbalance in the rate of carbon tax imposed on electricity and gas under the CCL, which some believe has under-incentivised investment in improving heat efficiency, and is asking for opinions on whether the CCL should be set at the same level for all businesses with tax breaks then offered to sectors at risk from international competition or designed to be set at variable levels for different industries.

Climate Change Agreements (CCAs) are voluntary agreements set up alongside the Climate Change Levy (CCL) that give eligible sectors a discount on the main rates of CCL in exchange for agreeing to energy efficiency targets. CCAs cover 53 sectors, ranging from primary industries through to manufacturing and service sector processes. This relief provides a 90% CCL discount on electricity and 65% discount on gas and other taxable fuels but the government acknowledges that views on the effectiveness of CCAs have been "mixed".

"A number of stakeholders have suggested that CCAs are effective in mitigating the impact of the CCL and delivering energy efficiency improvements," the report states. "When asked if all sectors currently covered by a CCA were at risk of being put at a significant competitive disadvantage due to the CCL, some stakeholders said that they were not."

Many environmental groups have said for a long time that companies are receiving tax breaks after making only marginal improvements to their energy efficiency.

The government also wants to know which industries should be able to use the tax breaks to incentivise energy efficiency improvements, whether it should be extended to the public sector and charities, and whether further incentives are required to stimulate investor confidence in corporate energy efficiency, given the assumption that energy efficiency investment "pays for itself" but has failed to deliver optimised use of energy across the private sector.

"The government is open to considering options for new incentives," it says, but any new incentives would have to be funded by tax increases in order to "support fiscal consolidation objectives". "Proposals would also need to be simple, meet strict value for money criteria and be more effective than other options".

Any changes to the current regime are unlikely to come into effect until 2017.

What are The Carbon Reduction Commitment and the Energy Savings Opportunity Scheme?

In Britain the CRC Energy Efficiency Scheme is a mandatory reporting and pricing scheme to improve energy efficiency in large public and private organisations, which are together responsible for around 10% of the UK’s greenhouse gas emissions. (ESOS, described below, applies only to the private sector.)

The scheme is designed to target emissions not already covered by Climate Change Agreements (CCAs) and the EU Emissions Trading System (EU ETS). It features a range of drivers to encourage organisations to develop energy management strategies that promote a better understanding of energy usage and to take up cost-effective energy efficiency opportunities.

Organisations that meet the qualification criteria of consuming over 6000MWh per year through half-hourly metering, must buy allowances for every tonne of carbon they emit, so have to measure and report upon their emissions. The scheme is expected to reduce non-traded carbon emissions by 16 million tonnes by 2027, supporting an objective to achieve an 80% reduction in UK carbon emissions by 2050.

Evaluation of phase 1 of the scheme, which ran from April 2010 to the end of March 2014, by the Department of Energy and Climate Change (DECC) indicated that it succeeded in driving energy efficiency investments in more than half of obligated businesses. Almost all of them were taking some form of action to address energy efficiency, with over 70% of energy managers reporting that their organisation’s level of action on energy efficiency had increased since the scheme was introduced in 2010.

The research also showed that rising energy prices were the main driver for organisations investing in measures to improve energy efficiency (80.5%), followed by an increase in board-level priority (67.4%) and a desire to improve or protect reputation (64.2%).

The CRC scheme was ranked fourth, with 56% citing it as a key factor. The most common forms of energy efficiency measures taken included the installation of energy efficient technologies, improved energy monitoring, energy audits and increasing staff awareness through training and education.

However, from a policy design angle, many participants questioned felt that it imposed a significant administrative burden, especially at the beginning, although it was later simplified.

At the start, revenues from the scheme were recycled into rewards for companies to improve energy efficiency, perceived as a good thing, but later the government turned it into a general tax, which was either felt to be unfair or it was felt that the administrative burden should in turn have been lightened. Others felt that the process of reporting energy consumption and approving purchase of CRC allowances helped to make energy efficiency more visible within their organisations.

ESOS is a new mandatory energy assessment scheme that was only established in 2014 by the UK government to implement Article 8 (4-6) of the EU Energy Efficiency Directive (2012/27/EU). It is aimed at large organisations employing 250 or more staff and with an annual turnover greater than €50 million, and, as with the CRC, the UK Environment Agencies are responsible for compliance and enforcement. These agencies hold a list of approved assessors. Establishments owned overseas are included.

These organisations must either implement ISO 50001 or carry out their own audits of their energy use in buildings, industrial processes and transport every four years, to identify cost-effective energy saving measures, and notify the Environment Agency by a set deadline that they have done so.

This involves calculating the total energy consumption, identifying the areas of significant energy consumption and appointing a lead assessor to be responsible for the whole process. Audits are based on 12 months' verifiable data and use energy consumption profiling. Energy saving opportunities must be evaluated for cost effectiveness based on the entire life cycle of the opportunity including cost of purchase, installation, maintenance and depreciation.

However, there is no regulatory requirement for participants to implement the energy-saving opportunities identified: that is that up to the organisations themselves to decide upon. Penalties for non-compliance include financial penalties.

Mandatory or voluntary?

Mandatory energy management agreements are considered to be far more effective than voluntary agreements. Anywhere in the world where process plants are facing environmental regulations, compliance almost universally requires the mandatory measurement and documentation of energy use and emissions. This is frequently linked to energy efficiency.

Mandatory standards in Russia

The Standards and Labels for Promoting Energy Efficiency in Russia pilot program is executed by the Ministry of Education and Science of the Russian Federation in partnership with the United Nations Development Programme, using:
energy efficiency standard and label (S&L) schemes and public procurement models;
local verification and enforcement capacity building;
establishment of compliance checking and certification systems;
infrastructure construction in accordance with international best practices;
awareness-raising about energy efficient appliances and systems.

Federal Law No. 261-FZ established standards for regulating energy consumption and requires energy audits and metering for all public buildings. It required public agencies to reduce their energy and water consumption by 15% from 2009-2014, restricted the sale of incandescent light bulbs, required energy efficiency information on product labels, provided guidelines on mandatory commercial inventories of energy resources, and created standards on the energy efficiency of new buildings.

Mandatory standards in Tokyo

In Tokyo, over 21,000 small and medium facilities are covered by a mandatory reporting program, and their emissions data is publicly available online. An additional 11,000 facilities submit and disclose their data voluntarily. In January 2010, the Energy Performance Certificate Program established a framework for non-residential buildings, requiring owners to present their buildings’ energy efficiency performance data with rated results.

Mandatory standards in the USA

The U.S. Environmental Protection Agency (EPA)'s Greenhouse Gas Reporting Program, begun in 2009, established rules for the mandatory reporting of emissions from major sources and continues to enforce more recent and more stringent national environmental legislation. Some plants opt to pursue ISO 50001 to introduce a level of formal commitment to continuous process improvement.

David Thorpe is the author of: