Achieving long-term UK emissions
reduction target in the light of short-term
political and societal challenges
Professor Neil Strachan
Dr Francis LiUniversity College London
n.strachan@ucl.ac.uk
ALPS conference, Tokyo
7th February 2017

Overview of talk1. The UK energy policy journey– Setting groundbreaking decarbonisation targets– The challenges in then implementing this low-carbon agenda

2. How energy modelling has underpinned evidence-based
policy making
FROM• Conventional optimisation energy models that focus ontechnological and economic uncertainties– TO• Insights from new socio-technical energy transition (STET)
models that focus on policy and society–2Opening question 1:

Is energy decarbonisation a special policy area?
• Both YES and NO• Yes– A government-led innovation, pricing and market enablingprocess– Impacts all sectors of the economy, and all segments ofsociety– Incumbent stakeholders, technologies, institutions• No– Competing policy priorities within the fast-moving highstakes political process3Part 1:The UK energy decarbonisation
journey (so far…)

4

Historical UK energy policy• Department of Energy (1974 – 1992)o Established after first oil price crisis
o Rising importance of North Sea oil and gas• Disbanded in April 1992
o Self sufficiency of North Sea oil and gas
o Dismantling of national coal monopoly and union powero Privatisation of energy-related industries• The energy issue had been solved…!
5

Setting decarbonisation targets (2000-2008)
RCEP 2000

Proposedtargets

EWP 2003

EWP 2007

Building evidencebase and politicalconsensus

CCC 2008

Legislative
framework andtargets
6Institutional framework is vital• UK was the first G20 economy to legislate long-term
decarbonisation targets (Climate Change Act, 2008)• CCC: Committee on Climate Change (2008 – Independent advisory body that sets and monitors 5-yearlycarbon budget process to reach an 80% reduction by 2050

• DECC: Department of Energy and Climate Change(2008 - 2016), with 4 main tasks– Legally binding long-term (2050) GHG emission reduction
targets– Energy security (net importer of energy from 2006)– Equitable access to energy (fuel poverty)– Open and competitive energy markets (EU interaction)

Implementation of decarbonisation policy (2008 • Focused on electricity• UK Renewable Obligation• UK Electricity Market Reform (2013)»»»»Carbon price floor
Feed in tariffs for low-carbon electricity (CfD)
Capacity markets for flexible generation
Emissions performance standard (450g/kWh)• Plus a set of enabling measures• Smart meter roll out (all residential homes by 2020)• Green Investment Bank – £3.4 billion (¥500 billion) invested• Large increases in research and innovation fundingUK carbon budgets (all GHGs)

BUT: 2008 financial crisis, UK territorial only
BudgetCarbon
budget level% reduction
below 1990Notes

1st(2008-12)

3,018
MtCO2e23%

Achieved

2nd(2013-17)

2,782
MtCO2e29%

Achieved

3rd(2018-22)

2,544
MtCO2e35%

On track

4th(2023-27)

1,950
MtCO2e50%???
???

5th(2028-32)

1,765
MtCO2e57%

Electricity generation target (50gCO2/kWh) not adopted
International aviation and shipping9
not included

Renewable energy winners and losers

Combinedrenewable
electricity
share 23.4%

BUT, limited policies on buildings and transport• 22 million residential gas boilers (97% market share)• 28 million privately owned petrol/diesel cars (99% market share)
10Committee on Climate
Change projects wide
shortfall of policies tomeet 2025 and 2030
emissions targets

When will the newEmission Plan bepublished…?
11New government (2015), new controversies• New nuclear plant (Hinkley) at a guaranteed strike price of £92.5(14,000¥) per MWhr for 35 years– Illustrates investment uncertainty in the UK electricity market• Axing of CCS demonstration programme– Chancellor needed to plug a £1 billion hole in government budget• Renewable obligation closed early to onshore renewables and solar• Carbon price floor reduced from £75/tCO2 (in 2030) to £18/tCO2• Cancelling of the Green Deal, the flagship programme forresidential building retrofitting• Approval of London Heathrow airport’s 3rd runway• A £500 million overspend on the Northern Ireland Assembly’s
renewable heat incentive– Cost £300 (45,000¥) per person, and a flashpoint for new elections
12

Impact of Brexit (2016)• UK Government in paralysis– All available policy band-width targeting theuncertainties surrounding the process of Brexit– STILL using the 2011 Carbon Plan
• Long awaited Emissions Plan
• Expected by end 2015, 2016, now 2017...

• Demise of DECC as an independent department– Final action was to approve the 5th carbon budget period(2030)– Energy rolled into the Industry department (BEIS)• New industrial strategy focused on job creation, supportingkey (export) industries
13Will UK recreate EU climate policy framework?
• Yes– 40% reduction in GHG emissions (from 1990 levels)• EU the UNFCCC signatory• EU submitted an overall INDC to the Paris COP in 2015

– EU-ETS• But very low prices• ???

– 27% renewable energy share (not nationally binding)– Energy efficiency: Indicative target of 27%– Vehicle emissions standards– EU Ecodesign of energy related productsImplementation challenge:

Instability in the UK energy ministry
Department
BEIS

DECC

BERR
DTIDateMinister

14 July 2016

Gregg Clark

11 May 2015

Amber Rudd

3 Feb 2012

Ed Davey

12 May 2010

Chris Huhne

3 October 2008

Ed Milliband

28 June 2007

John Hutton

5 May 2006

Alastair Darling

6 May 2005

Alan Johnson
15Implementation challenge:

Energy not a powerful player within governmentImplementation challenge:

Energy/climate is NOT a core voting issue

17

Part 2:
Energy modelling for evidence-based
policy making

18

Energy Systems Modelling for UK Energy Policy
A strategic modelling partnership between academic
researchers (UCL) and government modellers
Proposedtargets

Building evidence base andpolitical consensus

Developing thelegislative frameworkand confirming targets

RCEP 2000

EWP 2003

CCC 2008

EWP 2007Developing theImplementation
framework

DECC 2011

CCC 2013

Typical energy-economic model• Optimal technology pathways are achieved with the implicit
assumptions of:••••••

Rational decision-making
Perfect information
Competitive markets
Perfect foresight“Social planner” perspective
Only price-based demandresponse• This does not account for the (non-marginal) societal change
needed for the energy transition• Nor for how policy works in practice20

Socio-Technical Energy Transition (STET) Modelling

Source: Li, F. G. N., E. Trutnevyte
and N. Strachan (2015). A review
of socio-technical energy
transition (STET) models.
Technological Forecasting andSocial Change 100: 290-305. 21

Behaviour Lifestyles and Uncertainty Model• Stylized probabilistic energy simulation model• Lowest cost solution• But with changing landscape drivers, and new niche social practices• Actors make independent reactive investment decisions with highly limited
knowledge of the future

Detailed model information: Li F. and Strachan N. (2016), Modelling energy transitions for climate targets under landscape
22and actor inertia, Environmental Innovation and Societal Transitions, http://dx.doi.org/10.1016/j.eist.2016.08.002

BLUE: Structure and Actors• Currently eight actors (A-H), each representing decisions taken in individualsectors• Stylized model with a limited number of transition technologies (X) and changes
to lifestyles (Y)23BLUE: Actor’s behaviour• Actors are differentiated in their micro-economic behaviour by aset of elicited/exploratory parameters
Micro-economic Behaviour
Demand elasticities (e)Replacement/retrofit rates (b)BLUE Parameters
Actors are sensitive to energy price changes
Actors experience different limits to
deployment rates

Intangible/hidden costs (i)Different actors can view identical technologies
as having “hassle” or barrier costs to them

Hurdle rates (r)Actors have different sensitivities to up front
investments

Actors have different responses to competing
Heterogeneity of response (v) levelised technology costs(V = ∞ is cost dependent, v = 0 is cost independent)
For a fully cost-optimal framework: v→∞ ; r→r social(3.5%) ; i→0; b→1 ; e→124

Illustrative scenarios
POLICY

Name

Description
Smooth path to high carbon price, no volatility
in implementation

P1

Idealised policy

P3

Dysfunctional
policyOnly low carbon pricing allowed, substantial
volatility in implementation

BEHAVIOUR

Name

B1

Cost-optimal

B3

Heterogeneousdecisions &individualDescription
Individual choice as found in a typical costoptimisation model
Actor decision making behaviour is varied bycost response and by discount rates (note, firms
more cost driven than individuals)

Detail on model runs: Li F. (2017), Actors behaving badly: Exploring the modelling of non-optimal behaviour in energy25transitions, Energy Strategy Reviews, http://dx.doi.org/10.1016/j.esr.2017.01.002

Residential sector transitions

26

Transport sector transitions

27

Power sector technology transitions

28

Probability of UK CO2 emissions in 2050
CCC‘s assumed
UK emission
range forconsistency with
global 2°C target

29

Closing thoughts• Setting decarbonisation targets is easier than thelong process to implement them
• Should we be optimistic or pessimistic on thechances of achieving energy decarbonisation?
– Optimistic only if ....
• Drive new technologies to widespread diffusion• Engage with society and appreciate the pace of change• Maintain consistent and well designed policies
30

Back-up slides

31

DECC’s In-House Modelling Capacity• Energy system optimisation models (UKTM, TIAM-UCL) area key part of the UK government modelling portfolio
UKHouseholdTransportInternationalPower sector

Other

DECC Energy Model – econometrically derived demands
Policy specific models
National Household
Model

National Transport
Model *

Dispatch
Model
Policy specificmodels

UKTM – long-term energy system pathway model **HMRC Macro-economic CGE model *Non-CO2
projections*
Climate*Economy*Population*

TIAM-UCL *Global Carbon
Finance
Carbon PriceModel>31

Other
activemodels

UKTM – The UK TIMES energy system model
Energy flows

Technology
choiceCosts & capitalrequirements

EmissionsGDP

Coal processing

Resources and trade

Industry
Refineries

Domesticsources

Power plants
andTransportation

ImportsCommercial &tertiary sector

Process
energyHouseholds

CHP plants
and district
heat networks

Personkilometers
Freightkilometers

Gas network

Energyconversion

Heating area
LightingTransportation

Primaryenergy

Net
production
values,production
volumes

Finalenergy

Energyservices

Energy service demands,
link to economy

Population

Reference low-carbon transition: electricity generation
2010

2050

18%
7%

0%

14%

20%

339
TWh

13%

455
65% TWh47%

3%…and final energy consumption
2%
4%

2010

42%
6487
PJ

34%

18%

2050
16%
15%

16%

5887
PJ
28%

24%

1%

Coal
Nat. Gas
OilBiomass CCSWind
NuclearImports

Coal CCS
Nat.Gas CCS
BiomassCHP
Other RE
HydrogenElectricity

The impact of technology uncertainty
The reference case shows a consistent, least-cost pathway to achieve the UK’s lowcarbon energy transition, but …
Feasibility of large-scaleenergy investment
projects?

Biomass availability?

Barriers to investments inthe end-use sectors?

Comparative scenario analysis on thereference case

Name

Alternative assumptions on technology availability

INVESTMENTNo new investments in nuclear and CCS technologies

BIOMASSLow biomass availability; based on CCC Bioenergy Review Constrained Land Use Scenario

BARRIERS

Higher hurdle rate (20%) on highly efficient and innovativetechnologies

PESSIMISTIC

Pessimistic scenario, combination of the three cases above

9Scenario Comparison: Emission reduction: 2050 vs. 2010
-20%

0%

REFERENCE
REFERENCEINVESTMENTINVESTMENT
BIOMASSBIOMASSBARRIERSBARRIERSPESSIMITICPESSIMISTIC
Electricity
Industry

20%

40%

60%

Hydrogen
Residential

80%

100%

Services
Transport

Scenario comparison: Carbon price
1,600[£/t CO2eq]

1,400
1,200

REFERENCEINVESTMENT
BIOMASSBARRIERSPESSIMISTIC

1,000800600400
20002025 2030 2035 2040 2045 2050