Explanatory Memorandum to The Climate Change (Wales) Regulations 2018
Explanatory Memorandum to:
1. The Climate Change (Interim Emissions Targets) (Wales) Regulations 2018
2. The Climate Change (Carbon Budgets) (Wales) Regulations 2018
3. The Climate Change (International Aviation and International Shipping) (Wales) Regulations 2018
4. The Climate Change (Credit Limit) (Wales) Regulations 2018
5. The Carbon Accounting (Wales) Regulations 2018
This Explanatory Memorandum has been prepared by the Economy, Skills and Natural Resources Group and is laid before the National Assembly for Wales in conjunction with the above subordinate legislation and in accordance with Standing Order 27.1.
Cabinet Secretary’s declaration
In my view, this Explanatory Memorandum gives a fair and reasonable view of the expected impact of The Climate Change (Wales) Regulations 2018:
1. The Climate Change (Interim Emissions Targets) (Wales) Regulations 2018
2. The Climate Change (Carbon Budgets) (Wales) Regulations 2018
3. The Climate Change (International Aviation and International Shipping) (Wales) Regulations 2018
4. The Climate Change (Credit Limit) (Wales) Regulations 2018
5. The Carbon Accounting (Wales) Regulations 2018
I am satisfied that the benefits justify the likely costs.
Lesley Griffiths AM
Cabinet Secretary for Energy, Planning and Rural Affairs
6 November 2018
Contents
PART 1 – EXPLANATORY MEMORANDUM
2. Matters of special interest to the Constitutional and Legislative Affairs Committee
4. Purpose and intended effect of the legislation
Part 2 – Regulatory Impact Assessment
The Climate Change (Interim Emissions Targets) (Wales) Regulations 2018
The Climate Change (Carbon Budgets) (Wales) Regulations 2018
The Climate Change (International Aviation and International Shipping) (Wales) Regulations 2018
The Climate Change (Credit Limit) (Wales) Regulations 2018
The Carbon Accounting (Wales) Regulations 2018
Reducing the impacts of climate change on well-being
Glossary
BEIS: UK Government Department for Business, Energy and Industrial Strategy
CCC: Committee on Climate Change
CCRA: UK Climate Change Risk Assessment
CDM: Clean Development Mechanism
CER: Certified Emissions Reduction
CO2: Carbon dioxide
DECC: UK Government Department for Energy and Climate Change
EV: Electric vehicle
EU-ETS: European Union Emissions Trading System
FTR: Future Trends Report
GDP: Gross Domestic Product
GHGI: Greenhouse Gas Inventory
GVA: Gross Value Added
ICE: Internal Combustion Engine
NWEA: Net Welsh Emissions Account
PHEV: Plug-in Hybrid Electric Vehicle
PV: Present Value
RIA: Regulatory Impact Assessment
SoNaRR: State of Natural Resources Report
UNFCCC: United Nations Framework Convention on Climate Change
PART 1 – EXPLANATORY MEMORANDUM
1. Description
A suite of five regulations are covered within this Explanatory Memorandum and are referred to collectively as the Climate Change (Wales) Regulations 2018. Under Part 2 of the Environment (Wales) Act 2016 (“the Act”) Wales committed to reducing emissions of greenhouse gases from Wales by at least 80% in 2050. These regulations establish a system of interim emissions targets and carbon budgeting to create an emissions reduction trajectory towards the 2050 target. They also set out how the Welsh Ministers can utilise international carbon credits and provide for how we will deal with emissions from international shipping and internal aviation in calculating our emissions.
2. Matters of special interest to the Constitutional and Legislative Affairs Committee
Under section 44(3) of the Act the Committee on Climate Change is appointed as an independent advisory body. Section 49 of the Act requires that before exercising any regulation-making power under Part 2 the Welsh Ministers first obtain advice from the advisory body and take that advice into account. Under section 49 (6) of the Act, if thereafter the Welsh Ministers propose making different provision from that recommended by the advisory body, they must also lay before the National Assembly a statement setting out the reasons why. The Welsh Ministers have obtained and accepted the advice of the advisory body in relation to the Climate Change (Wales) Regulations 2018 now laid before the Assembly.
The Carbon Accounting (Wales) Regulations 2018 utilise the UK Registry to host the Welsh credit account. The UK Registry is governed by Commission Regulation (EU) 389/2013 establishing a union registry pursuant to Directive 2003/87/EC establishing a system for greenhouse gas emissions trading within the European Union. In a Technical Note of 12 October 2018, the UK Government confirmed that in the event of ‘no deal’ there is a risk that the UK will not maintain access to the registries system, established under this EU legislation.[1] The UK Government is considering contingency measures for this scenario and will issue further advice later in 2018. The Welsh Ministers may need to amend the Carbon Accounting (Wales) Regulations 2018 to make alternative provision for registering and keeping track of carbon units held by the Welsh Ministers in those circumstances.
3. Legislative background
The purpose of Part 2 of the Environment (Wales) Act 2016 is to require the Welsh Ministers to meet targets for reducing emissions of greenhouse gases from Wales.
Part 2 puts in place a statutory emissions reduction target that requires the Welsh Ministers to ensure that net emissions of greenhouse gases in Wales, for the year 2050, are at least 80% lower than the baseline.
Part 2 also requires that the Welsh Ministers, by regulations approved by the National Assembly, set interim emissions reduction targets for the years 2020, 2030 and 2040, and establish a system of 5 yearly carbon budgeting that together create an emissions reduction pathway to the 2050 target.
Part 2 also confers powers on the Welsh Ministers in relation to a number of regulations to support delivery of the Act, namely:
The Climate Change (Interim Emissions Targets) (Wales) Regulations 2018
Section 30 (1) requires the Welsh Ministers set emissions reduction targets for the years 2020, 2030 and 2040. Section 30(4) requires this to be done before the end of 2018.
The Climate Change (Carbon Budgets) (Wales) Regulations 2018
Section 31requires the Welsh Ministers create a system of 5 yearly carbon budgets. The first two budgetary periods for the time periods 2016–2020 and 2021–2025 must be set before the end of 2018.
The Climate Change (International Aviation and International Shipping) (Wales) Regulations 2018
Under section 35 the Welsh Ministers may make provision for how emissions of greenhouse gases from international aviation and international shipping count as Welsh emissions of the gas. These regulations make that provision.
The Climate Change (Credit Limit) (Wales) Regulations 2018
Section 33 provides that the Welsh Ministers must limit how many traded carbon units can be credited to the net Welsh emissions account in a given period. These regulations make that provision.
The Carbon Accounting (Wales) Regulations 2018
Section 36 provides that the Welsh Ministers may by regulations define what type of carbon unit may be utilised in the net Welsh emissions account and for how those units may be used in the account.
Procedures for laying regulations
The regulations are subject to the approval of the National Assembly for Wales via the affirmative procedure.
In accordance with Section 49, before laying draft regulations the Welsh Ministers are required to request and take into account the advice of the advisory body. By virtue of no declaration being made by Welsh Ministers appointing an advisory body, Section 44 by default appoints the Committee on Climate Change (CCC) to be our statutory advisory body. Where regulations make different provision to the advice provided by the CCC, the Welsh Ministers must lay a statement before the National Assembly setting out the reasons why.
The Climate Change (Wales) Regulations 2018 follow the advice of the advisory body. In its original advice, the CCC advised against placing a limit on the use of emissions credits in legislation to allow maximum flexibility for unforeseen circumstances. However, Section 33 of the Act requires Welsh Ministers to set a limit in regulations. Following further correspondence, the CCC confirmed it believes the proposed limit for the first carbon budget “would provide sufficient flexibility, whilst meeting [the] statutory duty under the Act.” Although not required by the Act, the Decarbonisation Ministerial Task and Finish Group has committed to seeking the CCC’s advice before using offset credits in relation to the first carbon budget or 2020 target.
In 2017, following calls for evidence, the CCC provided their advice to Welsh Ministers in two parts. The first report, ‘Advice on the design of Welsh carbon targets’, was published in April 2017. This report provided the advisory body’s views on:
· How carbon units should be used in relation to the EU Emissions Trading System (EU-ETS) and the overall design of the Welsh targets, and
· The inclusion of emissions from international aviation and international shipping.
The second report, ‘Building a low-carbon economy in Wales – Setting Welsh carbon targets’, was published in December 2017. This report provided the advisory body’s views on:
· The level of interim targets
· The level of the first two carbon budgets, and
· The limit for the use of offset credits.
In giving their advice on the level of the targets and budgets the CCC consider different emissions scenarios across all sectors of the economy.[2] The CCC developed ‘Minimum’ feasible emissions reduction scenarios for each sector that reflect Wales’ contribution to the CCC’s Central scenario for the UK and are consistent with the existing statutory UK carbon budgets. They also developed ‘Maximum’ reduction scenarios for each sector that reflect the CCC’s assessment of Wales’ greatest feasible emissions reduction to 2050.
The levels the CCC then recommended are based on a combination of the ‘Minimum’ and ‘Maximum’ sectoral scenarios to ensure an overall reduction of at least 80% in 2050. In creating the sectoral scenarios and reaching its recommended interim targets, the CCC generated estimates of annual emissions for a number of years. The CCC used these estimates to reach its recommended levels for the first two carbon budgets.
Well-being of Future Generations (Wales) Act 2015 and Prosperity for All
The Well-being of Future Generations (Wales) Act ensures we consider the social, cultural, economic and environmental impacts of our decisions, both now and long-term. The Act requires us, alongside other Welsh Public Bodies, to achieve seven well-being goals to ensure we are all working to the same purpose for the future generations of Wales. The goals are to create a prosperous Wales, a resilient Wales, a healthier Wales, a Wales of cohesive communities, a Wales of vibrant culture and Welsh language, and a globally responsible Wales. In order to ensure we maximise our contribution to all the well-being goals, twelve well-being objectives were set within our national strategy Prosperity for All, which are mapped across the goals. Under our responsibilities within the Act, we also need to ensure that our decisions and actions are undertaken following a ‘sustainable development principle’. To show how we have applied this principle we need to ensure we consider the long-term impacts of decisions and how we prevent problems occurring, ensure integration, work in collaboration and involve interested parties.
In Wales, we recognise climate change as one of the biggest threats our future generations will face and understand the important role reducing emissions has in creating a more positive social, cultural, economic and environmental future for our country. In all decisions around the legislation we have ensured we applied the above ways of working and considered how the action can help both achieve our well-being objectives and contribute to the organisation’s maximisation of the well-being goals. Our methodology and findings are explored within the ‘Consultation’ and ‘Reducing the impacts of climate change’ sections.
Figure 1: Welsh Government Well-being Objectives
4. Purpose and intended effect of the legislation
The Climate Change (Interim Emissions Targets) (Wales) Regulations 2018
Current
Until the Environment (Wales) Act 2016, Wales did not have a specific legislative framework for emissions reduction and therefore Wales has not had statutory targets.
Purpose
The purpose of this regulation is to set decadal targets that represent a pathway to the 2050 target established in the Act. The Welsh Ministers must set each interim target at a level that they are satisfied is consistent with meeting the 2050 emissions target established in the Act. They must also have regard to the following:
· The most recent report under section 8 on the state of natural resources in relation to Wales
· The most recent future trends report under section 11 of the Well-being of Future Generations (Wales) Act 2015
· The most recent report (if any) under section 23 of that Act (Future Generations report)
· Scientific knowledge about climate change
· Technology relevant to climate change
· EU and international law and policy relating to climate change (including international agreements on measures designed to limit increases in global average temperatures)
Welsh Ministers must also obtain advice from the CCC and take it into account before making regulations setting the interim targets. In December 2017, the CCC provided their advice to Welsh Ministers on the recommended level of interim targets and the first two carbon budgets.[3]
In giving their advice on the level of the targets and budgets the CCC consider different emissions scenarios across all sectors of the economy.[4] The CCC developed ‘Minimum’ feasible emissions reduction scenarios for each sector that reflect Wales’ contribution to the CCC’s Central scenario for the UK and are consistent with the existing statutory UK carbon budgets. They also developed ‘Maximum’ reduction scenarios for each sector that reflect the CCC’s assessment of Wales’ greatest feasible emissions reduction to 2050. The levels the CCC then recommended are based on a combination of the ‘Minimum’ and ‘Maximum’ sectoral scenarios to ensure an overall reduction of at least 80% in 2050.
Having considered the CCC’s advice along with other evidence, including modelling from our Wales 2050 Calculator and the Well-being of Future Generations ‘Future Trends Report’, the purpose of this regulation is to accept the CCC’s recommendations by setting the following targets:
· a 2020 target for an emissions reduction of 27% on 1990 levels
· a 2030 target for an emissions reduction of 45% on 1990 levels
· a 2040 target for an emissions reduction of 67% on 1990 levels
Following this pathway to 2050 provides the best balance between cost to the Welsh taxpayer and potential contribution to achieving our well-being goals and objectives. It allows for the most achievable low-carbon transition, given Wales’ emissions profile.
This regulation must be set before the end of 2018.
Intended effect
The combination of targets and carbon budgets provides an effective response to limit global increases in temperature by setting out both a long-term pathway to 2050 (interim targets) and limiting the total cumulative emissions to the atmosphere in the intervening years (carbon budgets).
The Climate Change (Carbon Budgets) (Wales) Regulations 2018
Current
Until the Environment (Wales) Act 2016, Wales did not have a specific legislative framework for emissions reduction and therefore Wales has not had carbon budgets.
Purpose
A carbon budget sets a maximum limit on the total amount of Welsh emissions permitted over a 5-year budget period. The first budget period runs from 2016 to 2020, with subsequent budgets covering successive 5-year periods to 2050. The Welsh Ministers must set each carbon budget at a level that they are satisfied with meeting:
· The 2050 emissions target
· The interim target for any interim target year that falls within or after that budgetary period
They must also have regard to the following:
· The most recent report under section 8 on the state of natural resources in relation to Wales
· The most recent future trends report under section 11 of the Well-being of Future Generations (Wales) Act 2015
· The most recent report (if any) under section 23 of that Act (Future Generations report)
· Scientific knowledge about climate change
· Technology relevant to climate change
· EU and international law and policy relating to climate change (including international agreements on measures designed to limit increases in global average temperatures)
Welsh Ministers must also request advice from the CCC and take it into account before setting carbon budgets in regulations. In December 2017, the CCC provided their advice to Welsh Ministers on the recommended level of interim targets and the first two carbon budgets.[5] In creating the sectoral scenarios and reaching its recommended interim targets, the CCC generated estimates of annual emissions for a number of years. The CCC used these estimates to reach its recommended levels for the first two carbon budgets. Having accepted the CCC’s recommended interim targets, the purpose of this regulation is to accept the CCC’s recommended levels for the first two carbon budgets:
· First Carbon Budget (2016 – 2020): an average of 23% below 1990 emissions
· Second Carbon Budget (2021 – 2025): an average of 33% below 1990 emissions
This regulation must be set before the end of 2018.
Intended effect
The combination of both targets and carbon budgets provides an effective response to limit global increases in temperature by setting out both a long-term pathway to 2050 (interim targets) and limiting the total cumulative emissions to the atmosphere in the intervening years (carbon budgets).
The Climate Change (International Aviation and International Shipping) (Wales) Regulations 2018
Current
Until the Environment (Wales) Act 2016, Wales did not have a specific legislative framework for emissions reduction and therefore Wales has not had any statutory commitments relating to emissions from international aviation and shipping. Emissions from international aviation and shipping were not included in previous policy targets.
Global emissions of carbon dioxide from aviation and shipping are growing at a combined rate of 3-5 percent annually.[6] Direct emissions from aviation account for about 3% of the EU’s total greenhouse gas emissions. A large majority of these emissions comes from international flights. Global maritime transport emits around 1000 million tonnes of CO2 annually and is responsible for about 2.5% of global greenhouse gas emissions.[7]
Purpose
The purpose of the regulation is to include the Welsh share of emissions from international aviation and international shipping as part of our accounting framework through the NWEA.
Intended effect
Including these emissions within Wales’ national emissions target has the following intended effect:
· Compliance with statutory advice. This approach would be in line with the CCC advice.
· Transparency. Demonstrating that Welsh Ministers are taking account of all emissions in Wales, including our contribution towards international aviation and international shipping emissions.
· Global responsibility. Reporting emissions from international aviation and international shipping demonstrates Welsh Ministers’ support for curbing global emissions from these sources.
The intent of the regulation is to ensure that emissions arising from international aviation and international shipping in Wales are accounted for within the NWEA on the basis of bunker fuel sales. Estimates of bunker fuel sales for Wales are currently estimated within the National Atmospheric Emissions Inventory and the UK wide figures are reported to the UNFCCC as a memo item. Evidence suggests that bunker fuels sales is a good proxy for a country’s share of international transport emissions.[8]
The intention of including these emissions within our account is to provide a clearer and more transparent approach to accounting for Welsh emissions and to support global efforts to reduce emissions in this sector. However, the CCC highlights that inclusion of these sources within our emissions targets does not automatically mean that strong carbon policies should be enacted at national level to limit them. They conclude that appropriate approaches to reducing international aviation and shipping emissions are at the global, or possibly EU, level rather than unilateral action at the country level. It is the intent of these regulations to encourage Wales to pursue cost-effective policies to reduce emissions in these sectors through appropriate international action and not necessarily through unilateral action in Wales.
The Climate Change (Credit Limit) (Wales) Regulations 2018
Current
Until the Environment (Wales) Act 2016, Wales did not have a specific legislative framework for emissions reduction targets and therefore we have not needed to use offsetting as a mechanism to comply with targets.
Purpose
The Act requires Welsh Ministers to set a limit on the total amount that the NWEA can be reduced through the use of carbon units. The Carbon Accounting (Wales) Regulations 2018 defines carbon units as the international offset credits generated through Certified Emission Reduction (CER). Offset credits provide a means by which Wales can invest in emission reduction activities overseas and use the emission reductions achieved to offset domestic emissions within the Welsh targets.
This regulation sets this limit on the use of carbon units for the first carbon budget period.
The level of permitted offsets provides a statement of the level to which Wales’ targets are to be met through domestic action versus overseas offsetting. A limit is required in recognition of the need to ensure that business and wider sectors in Wales have certainty in the level of domestic emissions reduction to which we are committed.
Intended effect
This regulation is intended to set a limit on the use of offset credits for the first carbon budget, balancing issues of cost, clarity in domestic policy intent and the advice received from the CCC with the need to provide adequate flexibility to account for unexpected volatility in Welsh emissions.
In their 2017 advice the CCC recommended that any economy-wide use of offset credits to provide flexibility should be small. However, they recommended that additional flexibility is introduced to account specifically for significant unforeseen increases in industrial activity in Wales. The advice did not recommend placing a specific limit on the use of emissions credits in legislation because doing so would limit the flexibility to allow higher offset use in the case industrial emissions are significantly greater than anticipated.
However, Welsh Ministers have a statutory
duty to set a specific limit on the use of offset credits in
regulations. This regulation therefore sets a limit of 10% of the
first carbon budget. This limit is expected to provide sufficient
flexibility to account for industrial sector flexibility, based
upon a historical assessment of variability in Welsh industrial
sector emissions. Following further correspondence, the CCC
confirmed it believes the proposed 10% limit for the first carbon
budget “would provide sufficient flexibility, whilst meeting
[the] statutory duty under the Act.” Although not required by
the Act, the Decarbonisation Ministerial Task and Finish Group has
committed to seeking the CCC’s advice before using offset
credits in relation to the first carbon budget or 2020
target.
The
Carbon Accounting (Wales) Regulations 2018
Current
Until the Environment (Wales) Act 2016, Wales did not have a specific legislative framework for emissions reduction, although we had two policy targets as described in the Climate Change Strategy for Wales 2010.[9] Part 2 of the Act sets the context for the operation of the NWEA and begins by including all emissions in Wales.
Purpose
This regulation sets out what is to be counted as a carbon credit (carbon unit) for the purposes of accounting and how they are to be administered.
Intended effect
The purpose of the regulation is to define the type of carbon unit which may be counted towards our targets and budgets. This will be used to determine compliance with the targets and budgets established by the Act. The regulation also aims to make the process of administering and using these carbon units robust and transparent by setting out formal administrative processes in relation to the government’s purchase and use of carbon units, and how units are to be credited to the NWEA.
Carbon units
There are two main routes by which carbon units can currently be generated and which dominate global offsetting practice. They are:
· The Compliance Market: A regulated market defined by international rules and a legal framework set out by the United Nations Framework Convention on Climate Change (UNFCCC) under the Kyoto Protocol and/or the EU-ETS. This type of market includes Certified Emission Reduction (CER) units generated through the Clean Development Mechanism (CDM).
· The Voluntary Market (or non-Compliance Market): Credits on the voluntary market are typically not regulated by any formal legal frameworks and have been developed separately from government targets and policies.
The Act makes provision for Wales to create its own offsetting scheme, which could align with existing activity such as Wales for Africa.
Following the policy decisions around treatment of the EU-ETS (see The Carbon Accounting (Wales) Regulations 2018), the units designated in this regulation only permits CERs issued under Article 12 of the Kyoto Protocol to be credited to the NWEA.
Administration
The effectiveness of the offset schemes depends upon accurate record keeping. The EU legislated for this within the Registries Regulation. To ensure accurate accounting of carbon units, each member state operates a registry in the form of a standardised electronic database and also appoints a national administrator.
This regulation establishes a “Welsh credit account” through adapting the UK Registry, which is run by the Environment Agency. The Welsh credit account creates a formal transparent system in which carbon units must be held by the Welsh Ministers. The regulation provides a mechanism for returning carbon units which have been transferred into the credit account in error to the account from which they were originally transferred.
The regulation also aims to provide Welsh Ministers with the power to delegate the functions of this regulation to another person to administer on behalf of the Welsh Ministers.
Crediting the Net Welsh Emissions Account (NWEA)
The regulation specifies the conditions that need to be met in order for a carbon unit to be credited to the NWEA. This includes a requirement that to be credited a carbon unit must be cancelled to ensure it is no longer available to offset further emissions. The regulation also specifies that Welsh Ministers must not use carbon units that have to their knowledge been used previously to offset emissions elsewhere and should therefore have previously been cancelled.
The regulation requires Welsh Ministers to maintain a register of all transactions containing information about the carbon units credited to the NWEA.
5. Consultation
As required by the Act, the Welsh Ministers asked the CCC to provide advice to inform the development of these regulations. The CCC ran public Calls for evidence, as well as stakeholder events that were supported by the Welsh Government, to capture the views of organisations and individuals on matters relevant to the Regulations. The CCC provided its advice in two parts:
CCC advice Part 1: Advice on the design of Welsh carbon targets. This advice focused on defining the NWEA, including the approach to offsetting and international aviation and shipping (published April 2017).
The Call for evidence ran from 16 December 2016 until 6 February 2017.[10] It set out a number of questions on the following topics:
· Form of emissions targets and carbon accounting framework
· Role for emissions trading and implications for the competitiveness of Welsh industry
· Scope of emissions targets
The Welsh Government and CCC ran a stakeholder event to publicise the Call for evidence on 26 January 2017 with representatives from private industry, academia and the public sector. There were 11 formal responses to the Call for evidence.[11]
CCC advice Part 2: Building a low-carbon economy in Wales – Setting Welsh carbon targets. This advice focused on setting the level of interim targets and carbon budgets (published December 2017).
The Call for evidence ran from 6 July 2017 until 11 September 2017.[12] It set out a number of questions on the following topics:
· Climate science and international circumstances
· The path to 2050
· Emissions targets and action
· Wider considerations
The Welsh Government and CCC ran two stakeholder events during the period: one in Cardiff on 6 July 2017 and one in Deganwy on 13 July 2017, with around 50 delegates attending in total. There were 15 formal responses to the Call for evidence.[13]
Cabinet agreed with the CCC’s advice and the Cabinet Secretary for Energy, Planning and Rural Affairs issued two Written Statements to that effect.[14] The advice did not recommend placing a specific limit on the use of emissions credits in legislation because doing so would limit the flexibility to allow higher offset use in the case industrial emissions are significantly greater than anticipated. However, Welsh Ministers have a statutory duty to set a specific limit on the use of offset credits in regulations. Following further correspondence, the CCC confirmed it believes the proposed 10% limit for the first carbon budget “would provide sufficient flexibility, whilst meeting [the] statutory duty under the Act.”
Part 2 – Regulatory Impact Assessment
Introduction
As set out above, the role of the regulations is to set the emissions accounting framework, including the definition and limit on the use of carbon units, the approach to international aviation and international shipping emissions and the levels of the interim targets and first two carbon budgets. The regulations do not set the policy action to meet the targets or budgets, the detail of which will be set out in subsequent reports. The report which sets out the policies to meet the first carbon budget will be published in March 2019.
The Act requires that for the year 2050, Wales achieves at least an 80% reduction in the NWEA compared to 1990 levels. However, the Act provides that a number of details regarding the coverage and operation of the NWEA, and the levels of interim targets and carbon budgets are set in regulations. The following provides details of the evidence and options considered for each regulation in reaching the final decision.
The Climate Change (Interim Emissions Targets) (Wales) Regulations 2018
This regulation sets interim emissions reduction targets for the years 2020, 2030 and 2040.
The Act requires that for the year 2050, Wales achieves at least an 80% reduction in the NWEA compared to 1990 levels. The Act requires Welsh Ministers to set a level for the interim targets at 2020, 2030 and 2040 and the first two carbon budgets (2016-2020 and 2021-2025). Section 32 of the Act requires the interim emissions reduction targets to be set at a level which is consistent with meeting the 2050 target. Welsh Ministers must have also regard to a number of matters when setting the targets, including scientific knowledge, technology, international agreements on climate change, the most recent Future Trends and Future Generations Reports, the most recent State of Natural Resources Report and advice from the CCC.
We have considered a number of pathways to ensure the interim targets and the first two carbon budgets are set at a level that will enable us to achieve our 80% reduction target in 2050. In order to analyse and model the most achievable pathway to at least 80% emission reduction in 2050 and therefore identify the costs and impacts, high-level assumptions have been made around policy interventions and the sectors in which they will occur. These have been based upon:
· Advice from the CCC
· The Well-being of Future Generations ‘Future Trends Report’
· The Natural Resources Wales ‘State of Natural Resources Report’ (SoNaRR)
· Scottish and UK climate change policies and international evidence on climate change
· Our Wales 2050 Calculator modelling
· Costs explored within the Stern review
· Costing modelling from external contractors and consideration of existing costing on climate change mitigation
· Modelling of impacts mapped to our well-being objectives and the well-being goals as set out by the Well-being of Future Generations Act (2015)
· Evidence of impacts of climate change mitigation elsewhere
Options
These regulations set the strategic decarbonisation framework and the detailed impacts and costs of delivering the required emission reductions will not be known until the portfolio of policies are developed. However, the evidence above allows us to consider the costs and high-level impacts of potential interventions around the pathways. The monetisation of emissions reduction measures is provided as an illustration only and is based on knowledge of theoretically achievable options, which are assumed to be deliverable from a technical perspective. There is a high degree of uncertainty around resulting electricity demand changes, the costs and availability of emissions reductions technologies and energy prices.
The costs and impacts explored within this assessment are therefore based on assumptions and potential inventions within high emitting sectors in Wales outlined in National Atmospheric Emissions Inventory and not necessarily the actual costs and impacts or the interventions we may follow.
The costs and
benefits for each of the provisions set out in this RIA have been
assessed relative to a baseline “business as usual”
option (Option 1), based on an extrapolation of the historic trend
of Welsh emissions from 1990 to 2014. It is not a ‘do
nothing’ pathway but rather maintains the existing level of
action in Wales and the UK onwards to 2050. It is not a legally
viable option as it does not deliver the 80% target. Nonetheless we
have included this to provide a baseline against which to assess
the other options.
· Option 1: Baseline – no further policies (not legally viable)
· Option 2: A pathway modelled through the Wales 2050 Calculator based on advice from the CCC designed to achieve their 80% pathway
· Option 3: A pathway modelled through the Wales 2050 Calculator based upon advice from the CCC on what would be the maximum technically feasible pathway
· Option 4: A pathway created through the Wales 2050 Calculator model which provides an alternative route to deliver the 2050 target
In addition to quantified costs and benefits, other impacts of the potential pathways have been analysed using the policy intervention assumptions. In line with our responsibilities under the Well-being of Future Generations Act (Wales) 2015, we have considered the social, cultural, economic and environmental impacts of the potential actions, and opportunities to maximise value in the context of our well-being goals and objectives.
The RIA has been informed by work undertaken by independent consultants. The consultants’ performed an assessment of the potential costs and benefits for setting the regulations. They also developed a methodology for considering and analysing the other impacts of options and opportunities to maximise value in the context on the well-being goals. The costs and benefits have been considered alongside evidence of other cost estimates, such as Scottish and UK Government costings, the Stern Review and CCC advice.
Advice from the Committee on Climate Change (CCC)
In December 2017, the CCC provided their advice to Welsh Ministers on the recommended level of interim targets and the first two carbon budgets.[15] The CCC recommended that we adopt a flexible percentage-based target approach because percentage reduction targets will generally be more robust to changes in the greenhouse gas emissions inventory. It suggested that this could be done by defining the budget as: “an average percentage reduction to be achieved across the five year period, based on 1990 levels”.
In preparing their advice the CCC developed one main emissions reduction pathway (the Wales 80% pathway). This was aimed at achieving the statutory 2050 target of at least an 80% reduction in 2050 and was based on cost-effectiveness where possible.
The CCC also explored a range of other pathways that delivered between 76% and 85% reduction in 2050. The reduction of 76% in 2050 is the CCC’s assessment of Wales's contribution to meeting a cost-effective 80% reduction across the UK but would not allow us to meet our legislative 80% target. The 85% reduction in 2050 is the maximum reduction potential identified for Wales.
Figure 2: The CCC’s 80% pathway and range
Evidence considered
Well-being of Future Generations Future Trends report
The recommended pathway for Wales promotes a range of policies and activities which are required to counter the negative trends highlighted by the FTR, such as supporting the transition to a low carbon industrial sector and the rollout of low emission transport and heat. It encourages policies which capitalise on some of the opportunities identified, such as the untapped growth potential to generate energy.
In addition to supporting the recommended pathway for Wales, the findings of the FTR will also be a useful tool for policy makers and Ministers in developing the policies and proposals for each carbon budget period.
State of Natural Resources Report (SoNARR)
The SoNaRR categorises variability and change in climate as a direct driver of change, which has had significant impact on the state of our natural resources. The SoNaRR highlights the risks and opportunities related to the changing climate, with the risks significantly outweighing the opportunities, and re-enforces the fundamental reason why the emissions reduction provisions are included in the Act.
International and scientific evidence on climate change
The Paris Agreement’s central aim is to strengthen the global response to the threat of climate change by keeping average global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. In the setting of interim targets and carbon budgets, Welsh Ministers must have regard to “EU and international law and policy relating to climate change (including international agreements on measures designed to limit increases in global average temperatures)”.
On the basis that each nation in the world has an equal per capita share of the remaining global carbon budget, it is possible to estimate the UK and Welsh contribution to a 1.5°C future. For the UK, the CCC concluded that the aims of the Paris Agreement would entail a steeper downward path (86-96% below 1990 levels) than implied by the current UK 2050 target, which was set on the basis of achieving a 2 degrees Celsius goal. For Wales, the range of per-capita emissions levels for 1.5°C would imply reductions of between 92% and 98% by 2050.
However, the CCC concluded the current legislated requirement for a reduction in Welsh emissions of at least 80% in 2050 is more stretching than the equivalent reduction at UK level (as a share of a UK 80% target Wales would contribute a 76% reduction) and close to the maximum feasible reduction identified in their scenarios. For these reasons, its assessment is that it is not sensible to plan for Welsh emissions on a production basis reaching as low a per-capita level by 2050 as those for the UK as a whole.
Furthermore, the current Welsh target specifies a reduction of “at least 80%”, and therefore does not preclude going beyond 80%. This approach is consistent with the ratchet mechanism introduced by the Paris Agreement to encourage greater action over time. The EU (on behalf of Wales, the UK and the other EU nations) has currently pledged to reduce its emissions by at least 40% below 1990 levels by 2030. In comparison, the CCC has recommended that Wales sets a 2030 target of -45%.
The CCC also concluded that once the evidence base has been strengthened with regard to the implications of the Paris Agreement for the levels of domestic targets, the Committee could provide further advice on whether to increase the legislated 2050 ambition. The recent Intergovernmental Panel on Climate Change (IPCC) Special Report on Global Warming of 1.5°C was published on 8 October 2018 and contains the most up-to-date assessment of the science on impacts relating to global warming of 1.5°C and associated greenhouse gas emissions pathways.[16] This report is the best assessment of all currently available knowledge on the subject. The report found that the world is already 1°C warmer than in pre-industrial times, with many regions experiencing even greater warming, and that at current rates of warming we would reach 1.5°C by around 2040, which would result in serious negative impacts for humans and the environment. We have issued a joint letter with the UK Government and Scottish Government to the CCC, seeking its advice to understand the impact of the IPCC report on long-term targets in the UK.[17]
Technology relevant to climate change
The technology choices are system-wide, covering all parts of the economy and all greenhouse gas emissions. The scientific and engineering realities which underpin these choices, including what is physically and technically possible in each sector, are considered throughout the evidence base. However, there are uncertainties when looking to the future.
Knowledge of technology underpins the assessment of feasible emissions reductions, and plausible pathway scenarios. The cost-benefit analysis presented depends on estimates of the costs and availability of different technologies. The analysis of emissions pathways to 2050 presented highlights the critical role of uncertainty around key emission reductions technologies.
Economic outlook
The UK has recorded steady Gross Domestic Product (GDP) growth in recent quarters as the recovery from the recent economic downturn continues. However, according to the World Bank’s Global Economic Prospects report, after reaching 3.1 percent in both 2017 and 2018, global growth is expected to decelerate over the next two years.[18] Growth in emerging market and developing economies is projected to plateau, reaching 4.7 percent in 2019 and 2020, up from 4.5 percent in 2018.[19]
The Office for Budget Responsibility projects UK growth of 1.5% in 2018, slowing a little more in 2019, then picking up modestly over the subsequent three years, meaning over the next five years an average growth of 1.4%.[20] Annual growth at this level would remain below historic trends.
Costs
As with all costs, there will always be uncertainty when looking at the long-term and across different sectors. However, the CCC has provided estimates on the cost of reducing emissions to the Welsh economy. In summary, they estimate that the total cost of following their 80% carbon emissions reduction pathway is around £30bn, over the period to 2050 and compared to a pathway where no new policies are implemented. This cost will not be borne exclusively by the Welsh Government, as this estimate refers to the costs of decarbonising to society as a whole. In reality the costs will be split between the UK Government, the Welsh Government, businesses, public sector and people in Wales.
A review of cost estimates from other sources concluded that when costs are expressed as a percentage of GDP, they appear to be consistent. It is estimated that the UK can implement an affordable (approximately 1% of GDP) 35-year transition to a low carbon energy system by developing, commercialising and integrating known but currently underdeveloped solutions.[21] The Scottish Government estimates the cost of an 80% emission reduction of Scottish emissions to amount to around 2% of Scottish GDP.[22] These estimates are in line with the Stern Review, which estimated the annual cost of climate change mitigation to the global economy is in the region of -1% (net gains) to 3.5% of annual global GDP by 2050, whereas unabated climate change could cost the world at least 5% of GDP and if more dramatic predictions come to pass, the cost could be more than 20% of GDP.[23]
Benefits
The UK Government has a set of carbon values, provided as part of HM Treasury’s Green Book, which are designed for use in policy appraisal and evaluation. These are known as the BEIS carbon value.[24] The carbon value attempts to monetise the benefits gained from reduced greenhouse gas emissions and energy use. The CCC used the BEIS carbon value to provide an estimate of the benefits gained by following their 80% reduction scenario. It estimates these to be that Wales’ contribution to global carbon emissions reductionworth is valued at £1.0bn per year by 2030.
The CCC analysis shows that by 2030 the value of the greenhouse gas emission reduction under the Wales 80% scenario (£1.0bn or 1.6% of Welsh GDP) would outweigh the costs of the abatement measures (£898m, 1.4% of GDP).[25] Once the abatement measures that lead to cost savings are also factored in (£137m or 0.2% of GDP), the Wales 80% scenario delivers a significant net benefit in 2030 (approximately £250m or 0.4% of GDP).
The CCC has been unable to estimate the benefit beyond 2030 but point out that the BEIS carbon values increase over time and by 2050 the value per tonne of abatement is nearly three times that in 2030. By contrast the average costs of abatement fall between 2030 and 2050, making the net benefit larger in 2050 than in 2030.
Whilst there are many benefits to emissions reduction that can be quantified and have a monetary value attributed to them, there are some that are more difficult to give monetary value but are equally as important. There are long-established links between action to reduce emissions and health, air quality and the environment. The Well-being of Future Generations (Wales) Act 2015 requires us to consider these in greater detail (see Reducing the impacts of climate change).
Comparison of options
Wales 2050 Calculator
The Wales 2050 Calculator was developed by Cardiff University on our behalf to model greenhouse gas emissions in Wales. It is a bespoke modelling tool for Wales based on a structure and methodology established by the former UK Government Department for Economy and Climate Change (DECC) with input from a wide range of experts and adapted to reflect the situation in Wales. The structure and methodology has been used to model UK emissions and has formed the basis for a range of international models at national and sub-national level including Wallonia in Belgium, China, South Korea, Taiwan, India South Africa, Japan and Bangladesh.
Its purpose is to facilitate policy development by modelling a range of choices, reflecting actions which impact on emissions, across the economy with outputs demonstrating the resultant change in emissions over time to 2050. For each choice, four trajectories have been developed, ranging from little or no effort (Level 1) to ambitious changes that push towards the physical or technical limits of what can be achieved (Level 4). The assumptions behind these trajectories are explained. The start date applied to the model is 2010, reflecting data availability in areas such as data on building conditions in Wales. Where available, more recent data has been applied to 2015, such as data on energy infrastructure in Wales. In displaying the results, the 2015 estimates of baseline data are used (1990/1995).
The interactivity of the tool allowed for significant input from policy areas across the Welsh Government in its development. The Calculator can, therefore, be used to model the emissions impact of different combinations of changes in the energy supply sector, energy using sectors, other sources of emissions such as agriculture and carbon stores.
Using technical information provided by the CCC we were able to produce a pathway akin to the CCC’s for comparative purposes.
Figure 3: Comparison of predicted emission levels under the four options
Pathway costs methodology
The costs of each pathway have been estimated using a costing model developed specifically for Wales (and based on the Cardiff University Welsh 2050 calculator and outputs). The costs reflect the total costs of emission reduction. The abatement costs for all of the individual measures are aggregated to produce a cost for the sectoral scenario, and then to the economy-wide level. This approach to calculating abatement costs is consistent with HM Treasury’s Green Book and DECC’s supplementary guidance.
The benefits of each pathway take account of the traded and non-traded value of carbon and are estimated based on reduction. The approach follows the HM Treasury Green Book methodology. The monetary benefits are subtracted from the costs to give the net benefits (or costs) of each pathway.
There are some limitations to estimating pathway costs and benefits, including:
· The portfolio of policies to deliver the interim targets and budget levels is unknown at this stage.
· The monetisation of emissions reduction measures is provided as an illustration only, and is based on knowledge of theoretically achievable options, which are assumed to be deliverable from a technical perspective.
· There is a high degree of uncertainty around resulting electricity demand changes, the costs and availability of emissions reductions technologies and energy prices going out to 2050.
· There are uncertainties when comparing and contrasting different models, which are based on different assumptions and scenarios.
· There are major uncertainties when looking at long-term pathways as there will be changing technologies, costs, actions, markets. These all make it hard to accurately assess costs.
Main affected groups
Given the above are the direct costs and benefits from Options 1-4 and given the length of time and uncertainties, it is unclear where costs will fall. We expect the costs to be borne by:
· Welsh Government
· UK Government
· Local government
· Consumers
Costs may fall on the specific sectors implementing the measures, namely:
· Energy sector (including fossil fuels and renewables)
· Transport sector (including passenger and trade aviation and shipping)
· Agriculture and livestock (for example through reduced fertilizer use, manure management)
· Other industry (for example through improved energy efficiency in sectors such as metals, minerals , chemicals, electronics, food and drink, automotive, paper and pulp)
· Waste
Changes in energy generation and a switch to ultra low emissions vehicles, may lead to costs for consumers. These are likely to arise through payment for services (transport, energy) or as part of the expected retirement rate of vehicles. Improvements in energy efficiency should lower emissions and reduce energy bills for businesses and consumers. However, the initial costs here are likely to be borne by the UK and Welsh Governments.
The benefits are indirect benefits, linked to the reduction in emissions and based on the value of carbon across traded and non-traded emissions. This is based on the new methodology adopted by UK Government in 2009, and updated in 2018, and following a target-consistent approach. The values are based on estimates of the abatement costs that will need to be incurred in order to meet specific emissions reduction targets.Other key non-monetised benefits by ‘main affected groups’ are included under Reducing the impacts of climate change.
Pathways costs analysis
The direct costs (point estimates, Present Value, £2017) are presented below. Included in the table are the actual cost estimates, the approximate additional costs (taking No Policy Intervention to be the baseline) and the annualised additional cost estimate. The final column represents the annual costs of the options versus estimates of the Welsh Gross Value Added (GVA).[26] The annualised costs of Option 2 are estimated to represent around 2% of the GVA for Wales, Option 3 around 3%, while the annualised related costs for Option 4 are estimated to represent around 9% of GVA.
|
Direct costs (PV, £2017) |
Additional costs (PV, £2017) |
Annualised additional costs (PV, £2017, pa) |
Annualised additional costs as a % of 2017 GVA |
|
|
Option 1 (Baseline – no further policies) |
£208bn |
- |
- |
- |
|
Option 2 |
£258bn |
£50bn |
£1.5bn |
2% |
|
Option 3 |
£272bn |
£64bn |
£1.9bn |
3% |
|
Option 4 |
£396bn |
£188bn |
£5.7bn |
9% |
Sector analysis
Option 1: Baseline – no further policies
Capital and operating costs amount to £208bn across the time horizon (2017-2050).
|
Sectors |
Cost[28] (PV, £2017bn) |
% of total cost |
|
Power |
£19bn |
9% |
|
Transport |
£163bn |
78% |
|
Buildings |
£25bn |
12% |
|
Agriculture and Livestock |
>£1bn |
>1% |
|
Industry |
>£1bn |
>1% |
|
Waste |
£1bn |
>1% |
|
TOTAL |
£208bn |
|
Table 2: Sector costs for Option 1
Options 2-4
An additional £50bn, £64bn and £188bn are incurred in the Option 2, 3 and 4 pathways respectively.
|
Sectors |
Option 2 |
Option 3 |
Option 4 |
|
Power |
£35bn |
£40bn |
£81bn |
|
Transport |
£12bn |
£13bn |
£89bn |
|
Buildings |
£2bn |
£5bn |
£3bn |
|
Agriculture and Livestock |
£1bn |
£1bn |
£2bn |
|
Industry |
£1bn |
£5bn |
£13bn |
|
Waste |
0bn |
0bn |
0bn |
|
TOTAL |
£50bn |
£64bn |
£188bn |
Table 3: Sector costs for Options 2-4
Power
The power sector is forecast to account for over 50% of the costs for the Option 2 and 3 pathways, as well as 43% of the option 4 costs. The roll-out of renewable technology in all three pathways is projected to have a significant impact on cost. In Option 2 around two thirds of all electricity generation costs are attributed to renewables. Wind technologies are the single most costly in the pathway, closely followed by nuclear, solar photovoltaic and hydro.
The additional costs under Option 3 are attributed to the costs of tidal and wave technologies. Tidal and wave generation does not feature in Option 2, whereas in Option 3 these technologies becomes the second most prominent by 2050, as measured by installed capacity.
The additional costs under Option 4 are largely driven by a rapid roll-out of nuclear, substantially larger than in the other options and additional investment in renewable technology. This roll-out of renewable electricity generation is projected to have a substantial impact on aggregate capacity. Peak energy supply is expected to increase as a result, creating a need for additional infrastructure in the grid, further increasing costs.
Transport
Options 2 and 3 assume a steady decline of the Internal Combustion Engine (ICE) vehicle fleet, with active ICE cars approximately halving by 2035 and continuing to decline to 12,000 vehicle units by 2050. ICE vehicles are modelled to be replaced by a combination of Plug-in Hybrid Electric Vehicles (PHEV) and Electric Vehicles (EVs).
Meanwhile there are forecast to be far greater additional costs in Option 4. This envisages an increase in the fleet of Hydrogen Fuel Cell vehicles from near-zero levels in the initial period to nearly a million vehicles by 2050. The cost of expanding public transport in all options is forecast to be relatively low, with the largest expense being attributed to rail.
Buildings
In Options 2-4 the additional costs are largely attributable to air-source heat pumps and ground-source heat pumps. The differences in the costs are attributable to the scale of installations, with Options 3 and 4 assuming a greater number of heat pumps than Option 2. Options 3 and 4 assume the same number of heat pumps; the higher costs in Option 3 is attributed to the cost of cooling technologies. Option 4 assumes no new installations of cooling technology such as air conditioning, whereas Options 2 and 3 assume costs in this area.
Agriculture and Livestock
Costs in the Agriculture and Livestock sector are largely made up of bioenergy fuel costs. Options 2 and 3 are identical: no bio-crop production is assumed and bioenergy fuel costs are split between straw, wood waste and manure fuel costs. There are some small abatement costs attached to reduced enteric, manure and soil emissions but these are negligible compare to the bioenergy fuel costs. The additional costs in Option 4 result from a greater reduction in the application of nitrogen fertiliser and greater changes of land management.
Industry
In the Industry sector, the cost estimate is derived from the capital and operating costs of implementing improved energy efficiency technologies. The cost estimates are roughly proportional to the size of each industry, with the metals industry and the food and drink manufacturing industry accounting for around a third of total direct costs across the Industry sector.
Under Option 3 costs are estimated at £4bn higher than Option 2, with most of these costs attributed to increased implementation of energy efficiency technology. Under Option 4 total direct costs are even higher due to an even greater implementation of energy efficiency technology. In addition to the energy efficiency costs, Carbon Capture Storage costs are also estimated to be £1bn higher in Option 4 than in Options 2 and 3.
Waste
Since no new plant installations are specified in any of the pathways after 2015, there are no costs additional to the baseline in Options 2-4.
Pathway benefits
The benefits represent the economic benefits of reduced mitigation as a result of compliance with the targets. Three sets of benefits are provided based on the Low, Central and High price of carbon. The discount rate is the reduced declining long-term discount rate from the HM Treasury Green Book (3.0% for years 0 to 30, then 2.57% for years 31 to 75). Due to the fact that the pathways under Options 2-4 achieve similar levels of emission reduction, the benefits are of comparable magnitude and are identical when all rounded to the nearest billion. Other non-economic benefits are expected but are not assessed here in monetary terms.
There will be benefits under Option 1 via the already agreed set of policies resulting in emissions reduction up to 2050. These will be related to UK Government policies in non-devolved areas and other market trends, such as the use of electric cars and/or efficiency gains reducing demand for energy for both industry and households.
Table 4 shows the estimated benefits and shows that under the Central estimate the benefits are £18 billion, using the reduced discount rate. Because the pathway analysis does not take account of the future impacts in Wales of the UK Government Clean Growth Strategy, the High estimate may be a better reflection of the real benefits of each option.
|
Estimate |
Option 1 (Baseline – no further policies) |
Options 2, 3 and 4 |
|
Low |
£9bn |
£19bn |
|
Central |
£18bn |
£38bn |
|
High |
£27bn |
£58bn |
Table 4: Benefits under the four options – Reduction in CO2e emissions (PV, £2017)
Differences in the modelling approach between CCC and the Wales 2050 Calculator
In providing advice to Wales on setting interim targets and carbon budgets, the CCC include their analysis of the costs and benefits associated with following an 80% emission reduction pathway to 2050. To inform the development of this RIA, test the CCC analysis and reduce uncertainty we commissioned independent research into the costs and benefits of delivering the 80% pathway. This analysis uses an alternative costing methodology.
|
Methodology |
CCC |
RIA |
|
Cost |
£30bn |
£50bn |
|
Benefit |
>£30bn[29] |
£10-£31bn |
|
Result |
Net benefit |
Net cost |
Table 5: Comparison of total costs and benefits from alternative methodologies
The CCC estimate the total cost to society of following the 80% pathway is around £30bn, compared to a pathway where no new policies are implemented. However, the CCC estimates the benefits of reducing greenhouse gas emissions will outweigh the costs, resulting in a net benefit.[30]
In comparison, the independent analysis estimates a higher total cost to society of £50bn for delivering the 80% pathway. It is also less optimistic with regards to the benefits, suggesting a net cost between £19bn and £40bn. For illustrative purposes, this is equivalent to 1% to 2% of GDP, or £193 to £391 per head each year in today’s terms.
Whilst the estimates appear to be significantly different, both fall within the range of other literature in this area such as the Stern review and figures published by the UK and Scottish Governments, all estimating the costs of mitigating climate change will fall between -1% and 3.5% of GDP. The following section explores in greater detail the reasons for the differences.
Differences in methodological approaches
In 2015 the CCC provided the UK Government with advice on setting the fifth UK carbon budget. When providing advice to us, the CCC costs were calculated by adapting UK cost estimates for Wales. The model used to produce this RIA, known as the Wales 2050 Calculator, is structured and based on the framework set out by the Department of Energy and Climate Change (DECC) in the UK 2050 Calculator.
Power sector
Emissions in the power sector occur from burning fossil fuels for energy generation. Wales is also a net exporter of energy; this means Welsh emissions from power are disproportionate to the amount of energy we consume. In order to reduce emissions in Wales, the amount of energy generated from burning fossil fuels must be reduced. This energy would need to be replaced with energy generated from low carbon sources to ensure we maintain supply to homes and businesses.
The CCC model assumes costs incurred in the power sector to be a percentage of the total UK cost, based on our share of electricity consumption in the UK system. The justification is that Wales is part of the wider power system in UK, within which it is relatively unimportant whether low-carbon generation occurs in Wales or England.
The Wales 2050 Calculator assumes Wales will continue to be a net exporter of energy. Furthermore, instead of assuming Wales will bear a share of the whole UK costs, the model considers the whole capital and operating costs of producing power within Wales.
Inclusion of international aviation and shipping costs
The CCC did not include the cost of reducing emissions from international aviation and international shipping. These costs are included in the Wales 2050 Calculator.
Behaviour change
The CCC pathway assumes behaviour change will lead to reduced emissions, particularly in the transport sector. Behaviour change in the CCC model such as “eco driving” leads to a reduction in emissions for very little cost. However, behaviour change could not be incorporated into the Wales 2050 Calculator and this leads to greater costs.
Discounting
In their report the CCC expresses costs and benefits in £2016 prices and does not apply a discount rate. The RIA applies the reduced long-term discount rate from the HM Treasury Green Book to the costs and benefits and expresses them in £2017 prices. The effect of discounting will reduce the value of the costs and benefits in the RIA analysis compared to the CCC analysis. Whilst the reduced costs are offset by the factors discussed above, the lack of discounting helps explain the difference in the estimated benefits the pathway will provide.
Well-being
In addition to exploring the monetised benefits and carbon value savings, we procured a methodology that would explore the social, cultural, economic and environmental impacts of potential interventions under the options to meet our requirements under the Well-being of Future Generations Act (Wales) 2015. The method considers changes that the interventions within the options may bring and maps them against impacts (or benefits and dis-benefits). The changes and impacts were created by considering the well-being goals and our well-being objectives.
