contracts for zero emission sources, carbon pricing, or policies that address variable renewables and grid balancing) that can then be replicated elsewhere. See Vivid Economics (2020) Unpacking leadership-driven global scenarios towards the Paris Agreement. 403 Sixth Carbon Budget – The path to Net Zero Where there is uncertainty around the costs or scale of competing low-carbon options a portfolio of options should be pursued. For example, floating offshore wind turbines are likely to play a role alongside fixed bottom turbines in the future; small modular reactors could play a role alongside larger nuclear reactors; blue (methane-based) and green (electrolytic) hydrogen can both play a role; low- carbon hydrogen can provide an alternative to electrification for heavy goods vehicles and potentially for heating buildings; BECCS and DACCS can both be used for emissions removals at scale.19 Developing these options can give more certainty over future scale, and lower costs, of low-carbon options as a group as well as broadening the consumer proposition and routes to optimising across the Emerging technologies and behaviours Our scenarios also include a range of areas in which solutions have been proposed, but innovation will be required to go beyond the reach of established technologies or methods, such as in hydrogen, heavy goods vehicles, and carbon capture and storage. These also require a policy framework enables their value to be realised (recognising that initially some solutions will not be cost- competitive), provides supporting infrastructure, promotes sharing of knowledge to underpin commercial development and drives learning-by-doing. Demonstrations, pilots and pathfinder projects will be required to establish some of the low-carbon technologies, business models and behaviours in our scenarios, • Pathfinder cities can be funded to demonstrate the viability of low-carbon heat pumps at scale and (if possible) hydrogen at scale, prior to a wider roll-out. They should also be used to develop a better understanding of whole systems interactions across low-carbon heat, electricity and transport and how infrastructure investment can be coordinated efficiently. • Demonstrating low-carbon hydrogen at scale can prove the viability of low-carbon hydrogen production via methane reformation with CCS, and the viability of hydrogen as a consumer offering in homes and HGVs. • HGV trials across the three decarbonisation options – battery vehicles, hydrogen fuel cells and catenaries – can be used to demonstrate the most viable option, or combination of options, for the UK. • Improving flexibility in the energy system by rolling out mandatory half- hourly settlement for energy billing, and supporting cost-reflective charging and smart tariffs so as to provide an accurate source of information at household level which truly reflects how the electricity system is decarbonising and the savings which are accessible through load-shifting. This can be part of a wider strategy to encourage and integrate the use of data and digitalisation into the UK’s decarbonisation efforts. • Direct Air Carbon Capture and Storage (DACCS) could be a future solution for removing carbon from the atmosphere, but only a handful of demonstration projects exist, and future costs are highly uncertain. Demonstration of the technology in the UK during the 2020s can increase confidence over the viability and potential of the technology in a UK • Initial CCS demonstration projects, deployed at sufficient scale, can demonstrate the high capture rates and efficiencies considered to be available to the technology in engineering studies. evidence shows that costs fall

Chapter 9: The shape of the emissions path to Net Zero 404 • The need to deploy consumer technologies such as heat pumps and electric vehicles at scale will require business models to be tested and trialled before being rolled out at scale. • Delivering the high levels of societal behaviour change in our scenarios, such as diet change, will require a more detailed understanding of how policy can influence these changes. Moving beyond technology demonstration and towards mass deployment will require new processes, viable business models and behaviours, in order to reduce the need for travel, to promote re-use of materials, reduce consumption of animal protein, and increase the uptake of low-carbon technologies. Where appropriate, Government should play an active role in supporting technology development towards commercialisation, while ensuring a move towards technology neutrality. Digitalisation and its role in achieving Net Zero Digital technology is seen as an important enabler of the UK’s Net Zero transition. Alongside the low -carbon transformation of our energy, materials and land, the coming 30 years are expected to see fundamental changes in the way we collect, process and Reflecting this, a number of studies have been published this year, including by the Royal Society, ESC and Imperial College, noting the role that digitalisation can play in decarbonisation. To complement this, the CCC and techUK hosted a roundt able of industry and academic stakeholders in June 2020 to discuss the role of digital technologies in reaching Net Zero. The following consensus viewpoints • Digitalisation will be fundamental to the operation of a Net Zero economy , underpinning the production and use of energy across increasingly interconnected sectors, particularly with the widespread electrification of vehicles, buildings and • Energy services and pricing tariffs should become increasing flexible and dynamic , supporting prosumers (e.g. onsite renewables, batteries, vehicle -to-grid), home and local grid management, reducing the need for large amounts of grid back -up. • Digitalisation will help reduce demands for energy, materials, food and water . Artificial intelligence, mach ine learning, digital twins and the Internet of Things will lead to predictive analysis, efficiencies and waste reductions in manufacturing, farming, buildings and transport networks. Additionally, transport demands could be significantly reduced through v ideo-conferencing and augmented reality. • Digital tech and supercomputing will allow better forecasting, monitoring and modelling of emissions (e.g. the potential for assets to report Scope 1, 2 & 3 emissions in real-time, or land carbon stocks), a nd will shorten innovation cycles to bring new energy technologies to market faster. However, several emerging risks were identified as needing to be mitigated.
These are likely to require action from both the technology industry and • Concerns regarding data privacy, consumer protection and cyber -security need to be addressed early at the system design stage . Given the convergence of new energy and digital technologies, continued public trust and acceptance of change will be vital to avoid back lash against decarbonisation. • Data standards and models for data collection & sharing need further development (building on the Modernising Energy Data programme), working across industry, Government departments and regulators. Data should be ‘Presumed Ope n’ in order to improve transparency, and open -source tools promoted. 405 Sixth Carbon Budget – The path to Net Zero • Interoperability needs to be embedded , to ensure continued flexibility and consumer choice as markets evolve – lessons can be learnt from the UK’s smart meter roll -out. • Roll-out of infrastructure such as fibre -optic broadband, 5G and satellite networks are critical enablers to improved connectivity. Acceptable levels of system resilience and service reliability need to be established and communicated to consumers, particularly if more energy systems rely on a common piece of connectivity • IT infrastructure needs to be run on low -carbon electricity and maximise heat recovery opportunities. Continued focus is required on eco -design, repairs/upgrades, end -of-life criteria and procurement to drive down IT waste. Data centre energy efficiency needs to keep improving, even as data becomes more localised for latency and data • New, flexible regulatory vehicles that are sufficiently granular and responsive also need to be designed to keep pace with technology changes. Regulatory sandboxes need to be deepened and made systematic. Achieving Net Zero should be a Overall, the UK’s digital innovation system, including the Grand Challenges, needs to be aligned to the challenges of Net Zero, focusing on outcomes rather than prescribing approaches. Additionally, the National Data Strategy has to consider the data requirements of a transition to Net Zero. The Royal Society (2020) Digital technology and the harnessing computing to achieve net zero; Energy Systems Catapult (2020) Digitalisation for Net Zero; Imperial College London (2020) Digitalisation of Energy ii) Innovation in our scenarios Our advice on the Sixth Carbon Budget draws from a range of scenarios, which cover a broad scope of ambition on the availability of innovative low-carbon technologies, the cost of technologies, the rapid uptake of technologies and behaviour change. Three of our scenarios - Widespread Innovation, Tailwinds and Widespread Engagement - are deliberately more optimistic around the available whereas the Balanced Net Zero Pathway and Headwinds are more conservative in Most technologies in our scenarios are deployable at scale today, and in some cases (such as renewables, and electric vehicles) are already cheaper, or are expected to be cheaper than the high-carbon alternative. Other technologies, such as carbon capture and storage, are considered proven technologies, but given their importance in our scenarios require early demonstration to ensure they can operate at high efficiencies and CO2 capture rates. In all cases policy should establish the conditions for mass market deployment and, support innovation towards a goal of continued cost reduction. Our scenarios also consider innovation in business models and behaviour, in order to increase the uptake of low-carbon technologies. • Diet change involving reduced meat and dairy consumption of up to 50% compared today, replaced by plant-based foods, or lab grown meat. • Heat as a service business models, to overcome barriers, unlock flexibility benefits and reduce costs of installing and using low-carbon heating • Moving towards a circular economy by ensuring that product design maximises re-use of materials and minimises waste over the products lifetime can reduce emissions in UK manufacturing. Chapter 9: The shape of the emissions path to Net Zero 406 • Autonomous vehicles could extend road travel to those previously unable to travel by car, including people who currently do not hold a driver’s licence. More efficient driving and dynamic routing could effectively increase road capacity, freeing up road space for more cars, which could increase emissions and/or energy requirements for vehicles. • Digitalisation plays a role, including by avoiding the need to travel for work, due to improved video-conferencing facilities and working from home. Delivering the scenarios will also require innovations in policymaking and institutions. We explore some of these challenges, as well as innovation policy, in our accompanying Policy report. Our scenarios are intended to be explorative, not prescriptive. Some technologies play no, or limited, roles in our scenarios but may still have a role. Further research may still be valuable. Our scenarios contain a range of emerging technologies, such as DACCS and electric and hybrid aircraft, but given the time taken for In many cases their deployment could act as a substitute for alternative technologies while delivering comparable emissions pathways (e.g. where emissions already reach zero in our scenarios), in others they may be able to reduce emissions further and/or faster (e.g. DACCS, low-carbon aviation technologies, or breakthrough feed additives to cut emissions from livestock). Should innovation make faster emissions reductions achievable they should be pursued given the difficulty in reaching the stretching end of the ambition in the Paris Agreement (i.e. limiting global warming to 1.5°C). The prospect of potential breakthroughs should not be used as an excuse to delay actions that are available now and necessary to reduce other sources of emissions, such as from buildings, Summary of key innovations in the Widespread Innovation and Widespread Engagement scenarios Sector Key assumptions for further innovations Uncertainties & scope to go furt her • Battery costs fall to £42/kWh by 2030. • 3-4% of car journeys are switched to e -bikes in 2030, rising to 7-9% by 2050. • Autonomous vehicles included in the Widespread Innovation scenario, leading to an increase in demand for car trave l by • Optimal decarbonisation technology for HGVs is unclear at present.
Different options are • Impact of autonomous vehicles is highly uncertain and could increase or decrease • Renewa bles costs reach £23/MWh by 2050 in the Widespread Innovation scenario • Renewables contribute up to 90% of • Renewables already in development below this cost around the world, but typically solar power with higher irradiation than in the UK • Requires sufficient flexibility (e.g. from demand, hydrogen production, storage, low- carbon dispatchable generation) to Buildings • Air-to-water heat pump costs reach ar ound £3,850 for an average domestic uni t by 2050 and a combined seasonal performance factor** of 3.73 at 45 degrees flow • Closure of the gap between estimated and • While not quantified, the EINAs identify scope for cost reduction from innovations such as more integrated systems, modularisation, innovative new compressors and expanders,

407 Sixth Carbon Budget – The path to Net Zero • 6% reduction in heat demand achieved through multizone control of heating • The scale of the performance ga p is highly uncertain. Higher performance of measures is possible, and has been demonstrated via whole-house retrofit approaches such • Our assumptions on heat demand reduction from multizone control remain conservative. A range of sources indicate higher savings are possible, including up to 12% for t he UK. • Hydrogen used for direct reduction of iron in • Supply chains scale up so that by 2032, enough supply chain capacity exists to install fuel switching or CCS in, on average, 12% of each industrial subsector per year • Use of green hydrogen from dedicated renewables, without a grid connection. • Levels of energy and resource efficiency outside of the larger sectors are likely to be conservative because of very sparse evidence. • Supply chain growth re mains uncertain despite substantial stakeholder consultation. • Competition between electrification, green hydrogen and blue hydrogen remains Fuel supply • Electrolyser costs reach £350/kW by 2040 • CCS capture rates of 90 -95%, 99% after 2040 in Widespread I nnovation in some • Some estimates suggest £115/kW by 2030 could • Uncertainties around delivering high capture rates. Studies suggest capture rates above 95% achievable for most technologies* Aviation • Hybrid electric pla nes make up 9% of plane - • Aircraft efficiency increases 2% a year • Could have larger role for synthetic jet fuel from Direct Air Capture, if costs low enough and airlines favour this instead of Direct Air Capture + CCS. Hydrogen planes could also play a role. • Sector size and recovery post -COVID-19 is very uncertain, plus video-conferencing and digital Shipping • Ammonia cost reaches £64/MWh by 2040 • Engine retrofits all occur in the 2030s • Ammonia currently favoured, but hydrogen, methanol (from Direct Air Capture) or electricity could compete in certain ship types Waste • A third of waste could be prevented, and recycling rates could reach 80% • All energy from waste plants install CCS by • Optimal wastewater treatment option s after 2030 are unclear, especially in • Energy from waste plants could start installing • 50% reduction in all meat and dairy consumption, replaced by plant -based foods and some meat with lab grown meat • Lab-grown meat currently unavailable. Future uptake depends on continuing R&D to reduce production costs and public acceptability. • Feed additives could reduce methane emissions from livestock. Crop breakthroughs • BECCS used for power, hydrogen and jet fuel production, plus industrial heat • DACCS costs reach £120/tCO 2 by 2050 • More uncertain options not cons idered (e.g. biochar, enhanced weathering) suggest <£100/tCO2 may be possible by 2050 CCC analysis. *See, for example, IEAGHG (2019) Towards zero emissions CCS. For a detailed description of which assumptions are included in which scenarios for each sector, and the sources for key assumptions in our advice see the Methodology Report that accompanies the Sixth Carbon Budget advice. EINAs =Energy Innovation Needs Assessments. **A seasonal performance factor is a multiplier effect on heat output, per unit of electricity input, averaged over a year. Chapter 9: The shape of the emissions path to Net Zero 408 4. Why the recommendation does not require faster progress Our Balanced Pathway reaches Net Zero in 2050 for all greenhouse gases, including the UK’s share of emissions from international aviation and international shipping (IAS), and assuming forthcoming inventory choices that result in emissions at the high end of the potential range (see Box 2.1 in Chapter 2). The date for Net Zero would be earlier on other bases that exclude IAS emissions and/or are for CO2 rather than the full range of greenhouse gases* and/or assume When the Balanced Net Zero Pathway reaches Net Zero emissions on different bases ‘High-high’ inventory changes † ‘Low-low’ inventory changes Including IAS, all greenhouse g ases 2050 2048 Excluding IAS, all greenhouse gases 2047 2045 Including IAS, CO 2 only 2044 2043 Excluding IAS, CO 2 only 2041 2041 While our advice on the level of the Sixth Carbon Budget is based on making sufficient progress to get on track to achieving Net Zero by 2050, we have also considered an accelerated timeline – the Tailwinds scenario – should it be possible to get larger behavioural/societal changes and cost reductions faster and to a larger extent than we assume in a central case. However, as we set out in section 3 of Chapter 2, we cannot be confident that these changes will or can occur. The better performance under Tailwinds than our recommended Sixth Carbon Budget would be very welcome if feasible, and UK policy should seek to achieve the performance in this scenario where possible. However, given large questions over its feasibility, it would not be appropriate to make it a legal requirement at this stage. Setting out on our proposed path could enable deeper reductions should innovation and engagement develop positively. If that were to happen, it would be perfectly possible and sensible for the UK to outperform the budget, which would be beneficial for the climate and could be desirable for the UK economically.
That could be reflected in updated legislation in five years’ time when the Committee advise on the seventh carbon budget, as well as for the next The relatively limited extra impact of the Tailwinds scenario – it reaches Net Zero by 2042 rather than 2050 – is because the recommended pathway is already a highly ambitious pathway and, even with immediate policy action, there are real-world constraints across a range of sectors that mean it takes time to reach very high * Although all of the greenhouse gases (GHGs) contribute to warming temperatures, peak temperature change is determined by when emissions of long-lived GHGs reach Net Zero (assuming that short-lived GHG emissions are not rising). Of the long-lived GHGs, CO2 contributes most to warming and therefore the date of Net Zero CO2 is closely linked with when the contribution to rising temperatures ends. † ‘High-high’ refers to AR5 GWPs with climate-carbon feedbacks and a higher estimate of emissions from peatlands. ‘Low-low’ refers AR5 GWPs without climate-carbon feedbacks and a lower estimate of emission from peatlands. The UK Net Zero target in 2050 mean an earlier Net Zero date. 409 Sixth Carbon Budget – The path to Net Zero • Developing supply chains, business models and markets. Even for known technologies, it takes time to develop whole supply chains, build skills, manufacture and construct the required capacity, build confidence amongst business and the public and develop effective new business models. Our assessment is that this is likely to take close to a decade for the buildings and transport sectors, even with a strong policy framework to • Infrastructure development. The transition to Net Zero will require expansion of existing infrastructure (e.g. electricity grids and electric vehicle charging networks), development of new ones (e.g. for CO2 transport and storage) and potential repurposing of fossil infrastructure to be low-carbon (i.e. conversion of gas networks to hydrogen). These developments generally have significant lead-times. Uptake of new technologies such as electric vehicles, hydrogen and CCS will be limited or non-existent until supporting infrastructure is sufficiently developed. • The need for pilots and demonstrations prior to mass deployment. As set out in section 3, it is important to trial potential large-scale solutions to reduce emissions before committing to them to the exclusion of other options. While this can push back the timeline for widespread deployment slightly, it is likely to be worthwhile to avoid the risk that unforeseen issues arise that Given these challenges, there are risks of trying to go too fast that could backfire and undermine a more ambitious target. • Requiring an extremely rapid transition to Net Zero could have unintended consequences, as feasible options to reduce emissions are limited. This could lead to a dash for options to fill the gap, which could include large- scale use of biomass (e.g. with CCS to provide greenhouse gas removals). This may imply a high reliance on imported biomass, potentially beyond what can be supplied sustainably and driving unwelcome land-use • Going beyond the natural rate of stock turnover would lead to premature scrappage of assets (e.g. vehicles, boilers), which could be costly and risk undermining popular support for transition and increasing embedded • A smooth transition is likely to be a just transition, avoiding stop-start programmes for the jobs market and investment. An attempt to make the transition too quickly would make a just transition more difficult to achieve as it would imply stop-go replacement profiles. • Emissions reduction targets that are too ambitious to be credibly delivered could undermine the international influence of strengthened UK targets. A significant aspect of the UK’s international influence comes from the expectation that once set these targets will be met or exceeded. Our Balanced Net Zero Pathway has been designed to be ambitious on emissions reductions over the next 15 years, subject to the real-world considerations and given uncertainty on how supportive people will be of the transition in their choices and behaviours and how quickly technologies will develop. We note that some groups have proposed even faster transitions, for example reaching Net Zero emissions by 2030, or even 2025. The Committee consider such dates to be implausible to deliver against, and potentially self-defeating as a goal. It is important to be ambitious but without requiring steps that

Chapter 9: The shape of the emissions path to Net Zero 410 • Even under the very extreme changes in behaviour during the national lockdown earlier this year, emissions were only reduced by around a third, demonstrating that technological changes would also be needed. We have not seen evidence to demonstrate that these can be developed, manufactured and rolled out in full over the next five to ten years. We also note that over three-quarters of our emissions reduction from nature-based solutions would not be able to deliver on this timeline given the lags from planting to sequestering of carbon. • Targeting such an early date for Net Zero would bring a host of perverse outcomes, which could undermine the global effort to cut emissions and would be out of line with the findings of the Climate – While in-use emissions might be cut, embedded emissions would increase as products were scrapped before the end of their lives. Risks of carbon leakage could increase, with emissions overseas increasing – Public (and business) support for the transition could be lost. It seems highly unlikely that the needs of a just transition could still be met – wholesale job losses would be expected in some locations with little lead-time for example for retraining. Without sufficient time to shift to low-carbon heating systems, consumer heating demands could not – The sorts of draconian measures required to get close to such radical targets, along with the inevitable failure in meeting them could make adoption of stretching targets by other countries less likely, rather than more likely.
The UK has offered a positive example of emissions reduction alongside economic growth, and the goal should be to – An accelerated transition would go against some of the key principles of the Climate Assembly.21 This includes preferences for long-term planning towards a phased transition and the need for a joined-up approach across the system and all levels of society. However, as we set out in Chapter 7, there are legitimate analyses based on different approaches to equity considerations that point to larger contributions from the UK and other rich countries with a large historical contribution to global warming. We conclude in Chapter 7 that increased contributions beyond the ambitious goals for the UK’s domestic emissions that we propose in this report would be best delivered through increased support for global efforts (e.g. through climate finance), rather than by setting implausible goals for the UK’s domestic further support global action in

411 Sixth Carbon Budget – The path to Net Zero 1 See, for example, Cambridge Econometrics (2020) Assessment of Green Recovery plans after COVID-19 (a report for the We Mean Business Coalition). 2 BEIS (2020) Public Attitudes Tracker 3 CBI (2019) The Low-Carbon 2020s – a decade of delivery 4 See CCC (2020) The role of business in delivering the UK's Net Zero ambition 5 See CCC (2020) Local Authorities and the Sixth Carbon Budget 6 BEIS (2020) Public Attitudes Tracker; Energy Systems Catapult (2020) Net A Consumer 7 Gross et al. (2018) How long does innovation and commercialisation in the energy sectors take? 9 Wilson et al. (2020) Granular technologies to accelerate decarbonization; Rubin et al. (2015) A review of learning rates for electricity supply technologies 10 Lang (2017) Nuclear Power Learning and Deployment Rates; Disruption and Global Benefits 12 Developer estimate from EdF. World Nuclear News (2018) EDF Energy expects 20% cost saving 13 POST (2018) POSTnote 580 - Small Modular Nuclear Reactors 14 BEIS (2019) Energy Innovation Needs Assessments 16 See, for example, The Future of Flight UKRI (2020) Future of mobility 17 CCC (2020) Insights Sharing the UK approach to addressing climate change 18 See Advisory Group report on The Road to Net Zero Finance, available at 19 BECCS = Bioenergy with carbon capture and storage; DACCS = direct air capture with carbon 20 See for example Agora Energiewende (2019) EU-wide innovation support is key to the success of 21 Climate Assembly UK (2020) The path to net zero

Chapter 10: Recommendations on the Sixth Carbon Budget 412 1. The Sixth Carbon Budget level and emissions accounting 416 2. Nationally Determined Contribution for 2030 428 3. Increasing effort during existing carbon budgets 430 4. Traded-sector emissions and UK emission trading system cap 436 5. Next A Net Zero plan and monitoring of progress 440

Chapter 10: Recommendations on the Sixth Carbon Budget 414 This Chapter sets out the Committee’s recommendations, as required by the Climate Change Act, based on the analysis set out in the rest of this report. • Budget level. We recommend that the Sixth Carbon Budget for 2033-2037 is set at 965 MtCO2e, implying a reduction in emissions to 2035 of 78% from • Budget scope. Our recommended budget includes emissions from the UK’s share of international aviation and international shipping (IAS). It also allows for forthcoming changes to the UK’s emissions inventory to fully incorporate the emissions from peatlands and the IPCC’s latest estimates for the global warming potential of different greenhouse gases. – The Committee do not consider the previous approach of allowing ‘headroom’ for aviation and shipping emissions to be sufficient, given the importance of these emissions and the risk of different treatments in UK legislation being seen as unfair. – While there remains some uncertainty on the non-CO2 effects of aviation, it is clear that these have a warming effect on top of that from its CO2 emissions. While it is not scientifically valid to account for these impacts on a ‘CO2-equivalent’ basis, action to limit these impacts will be needed – just dealing with aviation CO2 is not enough. • Judging performance. We recommend that the Government plan to meet the Sixth Carbon Budget through reductions in actual UK emissions and UK – UK-based engineered greenhouse gas removals should be allowed to meet the carbon budgets and the Net Zero target. – International carbon credits should not be used to meet the budget, though they may be useful policy tools and appropriate ways to go beyond the carbon budgets to support global decarbonisation efforts. – Should the UK’s participation in the EU Emissions Trading System (EU ETS) be replaced with a UK ETS linked with the EU system, we will provide further advice on how to account for cross-border trading • The UK’s Nationally Determined Contribution. We recommend that the UK NDC is set to require at least a 68% reduction from 1990 to 2030 on a basis that excludes emissions from international aviation and international shipping, in line with UN convention. – The headline reduction of at least 68% should be accompanied with a clear statement of intent to tackle IAS emissions. For example, that could include a commitment to include them in the UK’s Sixth Carbon Budget, a 2030 target for IAS emissions and new strategies for reducing emissions from both shipping and aviation to Net Zero. – This ambition should be within a transparent NDC that also signals the UK’s contributions on climate finance, technology development and capacity building, and plans on adaptation. – The Government could choose to use credits to go beyond the 68% reduction as a greater international contribution. reduction in emissions vs. 2019. A full scope of greenhouse gas emissions should be included. 415 Sixth Carbon Budget – The path to Net Zero • The Fifth Carbon Budget. Emissions must fall more quickly to 2030 than required by the currently legislated Fifth Carbon Budget, and policy must be strengthened further than previously planned to deliver greater action.
It is for the Government to decide whether the currently legislated budgets should be amended to bring them in line with the Net Zero 2050 target, however the Committee does not consider it necessary to change the budget level in law – the focus should be on developing policy to deliver the new Sixth Carbon Budget and the UK’s NDC for 2030. • UK Emissions Trading System. We recommend that the cap for the UK ETS should be set in line with the Balanced Net Zero Pathway developed in this report, implying a 53% reduction in emissions from 2019 to 2030 for the sectors currently covered by the EU ETS. In the case that a UK ETS is not established, the same level of emissions reductions should be targeted in • Net Zero Plan. We recommend that the Government accept the advice in this report as soon as possible and set out their policies to deliver against it in the first half of 2021. The expected impact of policies, including those in early planning, should be clearly quantified and in sum be enough to meet • Consumption emissions. While territorial emissions remain the best basis for UK carbon budgets, the Committee will continue to scrutinise progress on consumption emissions as well, and to recommend policies that reduce both. We will monitor consumption emissions against a Paris-aligned trajectory in our future annual Progress Reports to Parliament. If UK territorial emissions are reduced to Net Zero and UK trading partners reduce their emissions in line with the Paris Agreement we estimate (in Chapter 7) that UK consumption emissions would be around 90% below 1990 levels in 2050. This chapter is set out in six 1. The Sixth Carbon Budget level and emissions accounting 2. Nationally Determined Contribution for 2030 3. Increasing effort during existing carbon budgets 4. Traded-sector emissions and UK emission trading system cap 5. Next A Net Zero plan and monitoring of progress best basis for UK targets, but

Chapter 10: Recommendations on the Sixth Carbon Budget 416 1. The Sixth Carbon Budget level and emissions accounting This section sets out our recommended level for the Sixth Carbon Budget and the basis on which it should be measured. It is in seven a) The level of the Sixth Carbon Budget b) Judging performance based on actual emissions c) Inclusion of international aviation & shipping in carbon budgets d) Non-CO2 impacts of aviation and shipping e) The contribution of greenhouse gas removals f) The use of international carbon offsets or credits g) Accounting for all UK greenhouse gas emissions in full a) The level of the Sixth Carbon Budget The Committee recommends a Sixth Carbon Budget of 965 MtCO2e, including emissions from the UK’s share of international aviation and shipping (IAS). The reduction of emissions on this scope to 191 MtCO2e per year in 2035 represents a 78% reduction in emissions on 1990 levels, a 63% reduction against 2019 levels This recommended budget aligns to the Balanced Net Zero Pathway set out in Chapters 2 and 3, which was built on multiple lines of evidence and takes into account what is feasible and what is necessary to get on track to Net Zero by 2050. Delivering the budget will require progress on all emissions sources and scaling up investment and supply chains so that almost all new purchases and investments are zero-carbon by around 2030, together with development and deployment of greenhouse gas removal options, and adoption of low-carbon behaviours. We assess it to be a fair pathway that is compatible with global efforts to limit warming to 1.5°C. It would reduce per-capita emissions in the UK by 2035 to the global average level of per-capita emissions from the median of the IPCC’s pathways for limiting warming to 1.5°C with a 50% probability. reduction in emissions vs. 2019. contribution to the aims of the

417 Sixth Carbon Budget – The path to Net Zero BEIS (2020) Provisional UK greenhouse gas emissions national statistics 2019; CCC analysis Emissions shown include emissions from international aviation and shipping (IAS) and on an AR5 basis, including peatlands. Adjustments for IAS emissions to carbon budgets 1-3 based on historical IAS emissions data; adjustments to carbon budgets 4-5 based on IAS emissions under the Balanced Net Zero Pathway. b) Judging performance based on actual emissions Our recommended Sixth Carbon Budget applies to actual emissions (and removals), rather than the measure of emissions adjusted for trading in the EU ETS The first five carbon budgets were set based on a measure of emissions (the ‘net carbon account’) that adjusts the UK’s actual emissions to reflect trading between UK sites and those in other countries under the EU Emissions Trading System (EU ETS). In effect this means that the budget for the ‘traded sector’ of the economy (i.e. those sectors for which emissions are covered by the EU ETS) has been set and evaluated based on the UK’s share of the EU ETS cap for those sectors, rather than on their actual emissions from UK installations covered by the EU ETS. Accounting for actual UK emissions under the carbon budgets has several advantages over the approach used to • Transparency. It is important in designing emissions targets that they provide a clear signal to policymakers, investors and the wider public about the extent of the emissions reductions that are required. The most transparent method is to account for actual emissions in all sectors. The Sixth Carbon Budget Headroom for IAS emissions Past carbon budgets Active legislated carbon budgets Historical emissions The Balanced Net Zero Pathway

Chapter 10: Recommendations on the Sixth Carbon Budget 418 • Recognition of efforts. Long-term decarbonisation of the economy will require contributions from all sectors. Emissions accounting approaches that treat some sectors differently may distort decarbonisation strategies (e.g. leading to use of finite bioenergy resources in sectors where emissions reductions ‘count’ rather than where they are most cost-effective). • Policy focus. The carbon budgets framework is designed to drive policy action to reduce emissions.
It is essential that the emissions accounting system requires appropriate UK policy actions across all sectors. • Recognising the dynamics of trading systems. – The ‘net carbon account’ measure assumes that a trading system cap will be binding once set. That has not been the experience through the EU ETS – parallel climate policies, particularly support for renewable energy, together with weaker than expected economic performance following the financial crisis, led to emissions being below the cap on a – That has allowed caps for future phases to be set at a lower level, while mechanisms like the Market Stability Reserve have removed emissions allowances in the current phase. This has resulted in the UK’s share of the EU ETS emissions cap being lower than expected, meaning that the UK carbon budgets have ended up being too loose. Moreover, the UK’s departure from the EU ETS means that the measure adjusted for trading with participants in other countries may no longer be meaningful for the Sixth Carbon Budget, or indeed any carbon budgets from now on (see section 4). At the time of writing, it is unclear whether the UK will replace its participation in the EU ETS with a UK ETS that is linked to the EU ETS, or whether there will be a UK-only solution (e.g. a tax or a UK ETS that is not linked to the EU ETS). We recommend that the Government makes plans to meet the Sixth Carbon Budget on the basis of actual UK emissions and removals. Should the replacement scheme involve cross-border emissions trading, the Committee will advise on ensuring that this is treated appropriately under carbon budget accounting. c) Inclusion of international aviation & shipping in carbon budgets The Climate Change Act allows the Government to decide to include the UK’s share of international aviation and international shipping (IAS) emissions in carbon budgets and the 2050 (Net Zero) target. Under section 35 of the Act, when recommending a carbon budget the Committee must also advise on whether IAS should be included with its scope. We advise that IAS emissions should be included To date, IAS emissions have been accounted for, but not formally included in the • Carbon budgets have been set excluding IAS emissions, but with lower emissions allowed for the other sectors to leave headroom for IAS emissions. • The Government has recognised the need to include IAS emissions within its planning for meeting the 2050 target, both for the previous 80% target and again for the Net Zero target.1 This recognition is consistent with the approach of the Committee when recommending these targets. Having left the EU, the previous shipping (IAS) emissions, but

419 Sixth Carbon Budget – The path to Net Zero However, it is important to include these emissions formally in the legislated targets, rather than only being considered as a planning assumption, to guide long-term policy approaches and infrastructure investment • Complete scope of emissions. It is important that all sources of greenhouse gas emissions should be tackled, and that the scope of targets should reflect this. This is particularly relevant for aviation, which is likely to be the second-largest emitting sector in the UK by 2050, even with strong progress on technology and limiting demand growth. Continued exclusion from carbon budgets gives an impression of special treatment and raises questions over fairness for other sectors. • UK influence and supplementary levers. While the primary policy approaches to tackling IAS emissions should be international, the UK is a key player in driving strong international mechanisms. Some supplementary UK policy levers are also available that would not impact on the competitiveness of the IAS sectors. It is important that the UK Government prioritises both of these avenues (see our accompanying Policy Report). • Flexibility. Including IAS emissions within the formal scope of the Climate Change Act targets provides extra flexibility in meeting them. Whereas their exclusion would mean that allowance has to be made outside the target for these emissions, inclusion opens up the possibility for the IAS sectors to achieve more and contribute more to meeting the UK’s emissions targets. • Need for integration with wider Net Zero strategy. The UK’s overall emissions reduction strategy should be integrated across the economy. This includes requirements for fuelling infrastructure and supply of alternative fuels (e.g. hydrogen, ammonia, synthetic fuels) and the overall scale of greenhouse gas removals to balance remaining emissions to reach Net Zero. • Inclusion of IAS is manageable. While the United Nations Framework Convention on Climate Change (UNFCCC) treats emissions from international aviation and international shipping separately from emissions solely within country borders, allocating these emissions to countries presents no fundamentally greater challenges than for other sectors already included in UK emissions – Emissions are already estimated and reported to the UN and can be included in UK emissions targets on the same basis. The uncertainty attached to estimates of IAS emissions is no higher than for other sectors covered by carbon budgets (Box 10.1). – While careful policy design is necessary to avoid simply pushing emissions abroad, such considerations also apply to sectors already covered by carbon budgets (e.g. manufacturing and agriculture). – Inclusion in the UK carbon budgets does not preclude exclusion in communications to the UN, as we recommend for the UK’s 2030 NDC. It is important and feasible to include IAS emissions formally

Chapter 10: Recommendations on the Sixth Carbon Budget 420 Uncertainty in estimating IAS emissions compared to other UK sectors The Climate Change Act requires that inclusion of international aviation and shipping in targets be on the basis of international carbon reporting practice. Bu nker fuel sales are the currently agreed methodology by which countries report IAS emissions to the U N. While a range of alternative methodologies have been proposed, uncertainty in IAS • Domestic aviation and shipping emissions are already formally included within th e Net Zero target on the basis of bunker fuel sales.
• For international aviation, bunker fuel sales accurately reflect activity as airlines do not tend to carry more fuel than needed for a given flight (UK departing -flight emissions modelled by DfT are with in 4% of the bunker fuel sales estimate). • For international shipping, bunker fuels may not accurately reflect country -level shipping activity and emissions, given t he potential for ships to refuel at multiple ports on routes. Differences between this bunke r fuel approach and alternative methodologies could be more material (e.g. an activity -basis allocation could double the UK’s share of IS emissions), but w ill diminish as the sector decarbonises. • Were alternative methodologies for measuring IAS emissions t o be developed and agreed internationally for annual reporting (e.g. by the International Civil Aviation Authority (ICAO) and the International Maritime Or ganisation (IMO) or the UN Framework Convention on Climate Change), the higher emissions are likely s ufficiently small as to be manageable within carbon budgets (see section 2 of Chapter 2). compared to wider uncertainties in Letter from Lord Deben to the Secretary of State for Transport about Net Zero and the approach to international aviation and shipping (IAS) emissions. Uncertainty in IAS emissions is

421 Sixth Carbon Budget – The path to Net Zero Inclusion of IAS emissions in UK climate targets does not equate to the adoption of a unilateral policy approach to tackling these emissions, which could be argued to undermine existing multilateral processes under the respective UN bodies (the International Civil Aviation Authority (ICAO) and the International Maritime Organisation (IMO)). Rather, it ensures that the UK takes full responsibility for these emissions and that, where necessary, effort in other sectors can be altered to ensure overall emissions are within the necessary limits. The time has come for the UK to include IAS emissions formally in the Net Zero target and also in the Sixth Carbon Budget, which finishes only 13 years before We therefore conclude that IAS emissions should be included in carbon budgets as early as possible (see section 3), and certainly formally within the scope of the Sixth Carbon Budget and 2050 target. Alongside this, the UK should push for suitably strong international targets and mechanisms to deliver reductions in IAS emissions. Should the international processes through the IMO and ICAO fail to set suitable ambition, the UK could take subsequent action to decarbonise these sectors. Ultimately, whether via a global scheme or a domestic/more limited international mechanism, any remaining UK IAS emissions in 2050 will need to be balanced by greenhouse gas removals in order for the sectors to achieve Net Zero. The Climate Change Act requires that inclusion be on the basis of international carbon reporting practice. Bunker fuel sales are the currently agreed methodology by which countries report IAS emissions to the UN, and are therefore the recommended method of inclusion. Uncertainties over future emissions accounting methods are similar in size to those in other areas of the carbon budget and are manageable within the overall envelope of emissions (see section 2 of Chapter 2). The Committee does not consider the Government’s previous approach of allowing ‘headroom’ for IAS emissions to be sustainable. Under this approach since 2008, progress has been • The processes under the IMO and ICAO have objectives for emissions reduction that are less ambitious than the UK has adopted under its Net Zero target and less ambitious than required to meet the goals of the Paris • Updated UK aviation and shipping strategies to date have been delayed (in part due to COVID-19), while previous plans have had limited ambition. The Clean Maritime Plan considered options for decarbonising the shipping sector, but did not formally commit to a 2050 target or trajectory. The previous Aviation Strategy focused more on noise, air traffic modernisation and expansion than on CO2 emissions and climate change. • Aviation continues to be under-taxed relative to other emitting activities, undermining efforts to limit demand for aviation. Excluding emissions from international aviation and shipping from carbon budgets and leaving headroom based on their appropriate contribution is therefore not a If IAS emissions follow a ‘near-BAU’ path rather than reducing as in our Balanced Net Zero Pathway, then emissions would be around 13 MtCO2e higher in 2035. Were that to be the case, then emissions from other sectors would need to be comparably lower to compensate – but the headroom approach would not Inclusion of IAS emissions in UK climate targets does not imply ‘headroom’ for IAS emissions is

Chapter 10: Recommendations on the Sixth Carbon Budget 422 d) Non-CO2 impacts of aviation and shipping As well as CO2 emissions resulting from combustion of hydrocarbon fuels, aviation and shipping result in a number of non-CO2 effects that are not currently within the legal scope of carbon budgets or the basket of greenhouse gases used internationally (i.e. CO2, methane, nitrous oxide and various F-gases). We set out the implications of our scenarios for these aviation non-CO2 effects in Chapter 8. • Aviation produces a range of different pollutants that affect the climate in different ways. The most significant effect is from creation of contrails and high cirrus clouds, although the impacts of these are short-lived. Measuring these effects on an annual basis is challenging, given their short-term nature and dependence on localised conditions. Some policies are already in place to limit some of these non-CO2 effects, such as NOx due to its impact on local air quality. • Shipping has non-CO2 effects that come from the emission of sulphur dioxide, which has an overall cooling effect on the climate but causes local air pollution. However, improved fuel quality standards with significantly lower sulphur contents came in to force in 2020, which will In both aviation and shipping these non-CO2 effects are mainly short-lived, meaning that if they were stopped their effects on the climate would rapidly disappear. In magnitude these have likely had a larger effect on the climate than aviation CO2 emissions (see section 4 of Chapter 8). Not all ways of reducing aviation CO2 emissions have equal implications for these non-CO2 effects, with distance flown and total fuel burnt (regardless of whether this is fossil jet fuel) important • Reduced demand for aviation.
A reduction in flights that is sustained over time would reduce the level of warming from aviation non-CO2 effects. • Improved aircraft efficiency. Improvements in efficiency lead to less fuel burnt per flight, and lower CO2 emissions. This would also lead to some reduction in non-CO2 effects, but fractionally less than for the reduction in CO2 emissions, as some aviation non-CO2 effects (e.g. contrail cirrus) are driven primarily by the distance flown rather than the fuel burnt. • Use of hydrocarbon sustainable aviation fuel (SAF). Using truly sustainable aviation fuels would reduce fossil CO2 emissions from aviation, but would not eliminate aviation non-CO2 effects. While there is early evidence emerging that some SAF fuel types might generate less soot, and so generate fewer cirrus clouds, this is yet to be validated at commercial When considering how to limit emissions from aviation, it is therefore important to recognise these non-CO2 effects are significant, and that constraining the total distance flown each year has a greater relative benefit to the climate than measures that reduce the carbon-intensity of flying. While there remains uncertainty on the non-CO2 effects of aviation, and further research is necessary, current best estimates show that aviation has a significant warming effect on top of that from its CO2 emissions. Action to limit these non-CO2 climate effects will be necessary, although not at the expense of reducing CO2 emissions, which have a longer-lasting impact on the climate. Aviation produces shorter-lived flown is the most effective way

423 Sixth Carbon Budget – The path to Net Zero Comparing aviation’s non-CO2 and CO2 effects and their relevant impacts on the climate over different timescales is complex, and will be highly dependent on the future demand and emissions trajectory for the sector. Attempting to consolidate these non-CO2 effects down into a single metric (e.g. a multiplier to apply to CO2 emissions) for inclusion in UK targets would not be robust. The Committee therefore do not currently recommend inclusion of non-CO2 effects of aviation or shipping within the budgets. However, action to limit these effects is necessary – just dealing with aviation CO2 is not enough. We therefore recommend a minimum goal that there should be no additional aviation non-CO2 warming beyond 2050. We will monitor developments on aviation (and shipping) non-CO2 effects, and the evidence of their impacts, in e) The contribution of greenhouse gas removals Under section 29 of the Climate Change Act, greenhouse gas removals are defined as ‘removals of that gas from the atmosphere due to land use, land-use change or forestry activities’. While such ‘natural removals’ are vitally important in achieving Net Zero, our assessment is that it currently appears unlikely that Net Zero could be achieved cost-effectively without also a significant contribution from ‘engineered’ removals of CO2 (e.g. use of bioenergy with carbon capture and storage (BECCS) or direct air capture of CO2 with storage (DACCS) – see section 11 of Chapter 3). For CO2 removal to contribute effectively to the carbon budgets it must be genuine and permanent removal. Strong, effective sustainability standards and verification processes will be vital for including the contribution of CO2 removal. We recommend that engineered CO2 removal is allowed to contribute to meeting UK carbon targets under the Climate Change Act. This need not require amendment of the Climate Change Act. For example, a UK removals credit (or ‘carbon unit’ under the Climate Change Act) could be defined, such that these UK-located removals can contribute to meeting carbon budgets and the Net Zero target. This would enable the 23 Mt of CO2 removals in our 2035 scenario to be funded through UK carbon credits paid for by sectors like aviation or fossil fuel extraction that are expected to still have positive emissions in the UK – the outcome of such a policy would match our pathway in terms of actual emissions. vital for Net Zero and the Sixth It would not be scientifically robust to include aviation non- effects are important and m ust

Chapter 10: Recommendations on the Sixth Carbon Budget 424 f) The use of international carbon offsets or credits Use of international credits under carbon budgets Under section 34 of the Climate Change Act, the Committee’s recommendation on a carbon budget must also advise on the extent to which it should be met through emissions reductions as against use of ‘carbon units’ (e.g. international In alignment with our 2019 Net Zero advice, the recommendations provided in this advice relate to action to reduce emissions within the UK, as part of UK leadership on climate change and as an appropriate contribution to reducing emissions globally. The Balanced Net Zero Pathway achieves the budget fully through domestic actions utilising the UK’s range of low-carbon resources, including for CO2 removal, for which the UK is well placed given its strong CO2 storage capacity, strong offshore engineering expertise and governance structures. As we set out in Chapter 7, use of international carbon credits in place of domestic action poses a number of risks including that use of credits would detract from UK leadership and reduce clarity on the steps required in the UK to meet Net Zero. Uncertainties also remain over how international carbon trading will work under the Paris Agreement to ensure genuine additionality of effort. Our recommendation is that the Government should not expect or plan to use international credits to meet the Sixth Carbon Budget – the recommended budget should be considered a minimum UK contribution through domestic action. It is important to be clear that this recommendation applies to the use of international carbon credits (i.e. paying for emissions reductions elsewhere in the world to avoid making the required reductions in the UK). It does not preclude the use of carbon credits within the UK as part of the policy mix for achieving outcomes aligned to our Balanced Pathway. It is also the case that the purchase of international carbon credits provides an additional lever to support wider climate mitigation action internationally.
Credit purchase could be a useful part of the UK’s international climate policy as a measure in addition to domestic delivery of the legislated carbon budgets (see Chapter 7). There is also significant corporate interest in credit purchase, including from firms acting strongly to tackle their own emissions. Any use of international credits (whether purchased by the Government or UK companies) should be additional to the domestic effort of the Sixth Carbon Budget, to support the global effort to reduce emissions. We do not identify a particular level of credit purchase should the Government choose to go beyond the recommended budget, which should be considered in the round of wider UK support for international ambition (see section 2). We recognise that international credit markets and the UK’s role in them could develop in unexpected ways, particularly as the final rules for Article 6 of the Paris Agreement are agreed, and as new technologies, including for CO2 removal from the atmosphere, develop. In particular, if in future credits can be applied to sustainable, verified, permanent CO2 removal in a clearly additional way, there would be a stronger case to allow them to contribute to UK targets. without international credits. 425 Sixth Carbon Budget – The path to Net Zero Sections 26-28 of the Climate Change Act allow for changes in the treatment of international carbon units and require further advice from the Committee before any could be used to contribute to UK carbon budgets. Interaction with the CORSIA scheme for international aviation For international aviation, the international Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) scheme already seeks to offset a portion of aviation emissions. Under the scheme, larger airlines flying on routes between countries covered by it are required to offset growth in emissions above 2019 levels by paying for emissions reduction or removal in other sectors. The scheme starts in 2021 and is mandatory from 2027. The policy currently stops in The current level of ambition under CORSIA is an insufficient contribution to the goals of the Paris Agreement. A more ambitious, long-term global goal for international aviation emissions consistent with the Paris Agreement would provide a strong and early signal to incentivise the investment in new, cleaner, technologies that will be required for the sector to play its role in meeting long-term targets. This is particularly important in aviation given the long lifetimes of assets. In order for operation of CORSIA to be compatible with the UK’s Net Zero commitment, there would need to be appropriate governance for offset credits and sustainable fuels, as well as an appropriate • Credits. The credits used to offset emissions would need to lead to genuine and verifiable emissions reductions or removals that are additional to what would have occurred otherwise. Ultimately, given that all countries will need to reduce emissions strongly under the Paris Agreement, offsets will need to be based on verified greenhouse gas removals. Appropriate governance will be necessary to ensure that these removals are genuine • Sustainable fuels. Use of biofuels, and any other alternative fuels credited with emissions reductions under CORSIA, will also need to have suitable governance arrangements to ensure that they are from sustainable sources and achieve sufficiently high lifecycle greenhouse gas emissions savings. • Emissions cap. By 2050, the cap under the CORSIA scheme would need to be reduced from 2019 emissions to zero. Ideally the CORSIA rules would develop in line with these requirements. If not, carriers operating in the UK would still be able to procure greenhouse gas removal (GGR) offsets that do meet the necessary standards, which would also qualify for CORSIA. Should the CORSIA cap be above Net Zero, carriers operating in the UK should be obliged to procure additional greenhouse gas removals to offset their remaining emissions (or an alternative mechanism should be used to achieve an For now, the Committee’s recommendation on credits within CORSIA is the same as for other credits – they should not be used to meet UK carbon budgets. It is possible that rules under CORSIA could develop to a point that its offsets could be an acceptable contribution to UK carbon budgets. In line with section 28 of the Climate Change Act, the Committee would provide further advice before CORSIA credits could be used to contribute to UK carbon budgets. Chapter 10: Recommendations on the Sixth Carbon Budget 426 g) Accounting for all UK greenhouse gas emissions in full As well as emissions from international aviation and shipping, our proposed budget includes full estimates for emissions from UK peatlands and uses the latest estimates from the IPCC for the global warming potentials of methane and other non-CO2 gases. These changes are not currently reflected in the UK emissions inventory, but are due to be included over the next few years. However, some uncertainty remains over exactly how these changes will be incorporated in the UK inventory (reflecting uncertainty over which possible approach best captures the true level of these emissions – see section 2 of Chapter 2). If, prior to the Sixth Carbon Budget being legislated, the Government has more clarity on the approach that will be taken, our proposed budget could be • Our recommendation on the carbon budget level assumes a current-worst- case basis for estimating emissions (i.e. we assume the forthcoming changes add 26 MtCO2e in 2035, which is at the high end of the potential • This approach ensures that forthcoming methodological decisions about how to estimate UK emissions would not stop this carbon budget from being achievable, but it risks that those decisions leave the budget looser appropriate budget level and emissions reduction under the different choices that could be made in the forthcoming changes to the inventory • Should these methodological decisions come after the relevant point when the level of the budget could be changed, this is would potentially leave some contingency within the budget (see Chapter 2, section 3).
While the Committee recommends that the Sixth Carbon Budget formally includes the UK’s share of IAS emissions (see section 3) and the forthcoming inventory emissions reduction by 2035 on a basis that excludes IAS emissions. As required by the Climate Change Act and by the standard international accounting approach agreed by the UNFCCC, UK carbon budgets are set on a territorial basis (i.e. based on emissions arising from UK sources, not emissions embedded in goods and services consumed in the UK). However, the Committee is clear that progress must also be made in addressing emissions measured on a consumption basis (also known as the UK’s carbon footprint), and indeed on the wider impacts of UK activity (e.g. including finance and aid). We discuss these issues further in Chapter 7. While territorial emissions remain the best basis for UK carbon budgets, the Committee will continue also to scrutinise progress on consumption emissions and recommend policies that reduce both. We will monitor consumption emissions against a Paris-aligned trajectory in our future annual Progress Reports to Parliament. If UK territorial emissions are reduced to Net Zero and UK trading partners reduce their emissions in line with the Paris Agreement we estimate (in Chapter 7) that UK consumption emissions would be around 90% below 1990 levels best basis for UK targets, but

427 Sixth Carbon Budget – The path to Net Zero Emissions reduction by 2035 on different bases Including IAS, higher inventory changes (the basis for our recommended Sixth Carbon Budget) 78% 72% 63% Including IAS, lower inventory changes 80% 74% 65% Including IAS, no inventory changes 81% 76% 68% Excluding IAS, higher inventory changes 82% 76% 67% Excluding IAS, lower inventory changes 84% 78% 69% Excluding IAS, no inventory changes 85% 80% 72%

Chapter 10: Recommendations on the Sixth Carbon Budget 428 2. Nationally Determined Contribution for 2030 On 12 December 2020, three days after this report is published, the UK Government will co-host an event with the United Nations to mark the fifth anniversary of the Paris Agreement. This has been billed as an opportunity for world leaders to announce new and enhanced Nationally Determined Contributions (NDCs), which are due by the end of 2020 under the UN process. Now that the UK has left the EU it must submit its own NDC, which takes on particular significance as president of COP26 in Glasgow in November 2021. As set out in Chapter 7, the pathways to Net Zero developed for this report would be an appropriate basis for a UK NDC. They imply a progression from current targets, are designed to reflect the UK’s highest possible ambition based on current evidence, and represent an appropriate contribution to the temperature goal of the Paris Agreement that reflects the UK’s responsibilities and capabilities. The Balanced Net Zero Pathway that underpins our advice on the level of the Sixth Carbon Budget reaches 316 MtCO2e in 2030 including the UK’s share of international aviation and shipping (IAS) emissions, and 277 MtCO2e without IAS. These imply reductions of 64% and 68% respectively on 1990 levels. * While IAS emissions must be tackled (and we recommend that they are included in the Sixth Carbon Budget) we recognise the value in the UK aligning to the conventional UN approach by separating these out in its NDC. • The UN process treats IAS emissions separately, with these reported as a separate category and excluded from totals in national territorial emissions • IAS emissions are covered by the respective UN bodies – the International Civil Aviation Authority (ICAO) and the International Maritime Organisation (IMO) – rather than by the UN Framework Convention on Climate Change. • IAS emissions are not explicitly covered by the Paris Agreement, but they must be addressed to meet the Paris temperature goal. • Existing NDCs generally have been proposed on a basis that excludes IAS We recommend that the UK NDC is set to require at least a 68% reduction in emissions from 1990 to 2030 on a basis that excludes emissions from international aviation and international shipping, in line with UN convention. A clear commitment should also be made to tackle IAS • The UK’s NDC for 2030 should be for a reduction of at least 68% in UK emissions compared to 1990 levels, excluding the UK’s share of international aviation and international shipping emissions and without any contribution of emissions credits. This equates to a 57% reduction on 2010 emissions on * As for the carbon budget, these reductions anticipate forthcoming inventory changes at the high end of the range. 429 Sixth Carbon Budget – The path to Net Zero • The NDC should also commit to further action on IAS in the period before 2030. For example, the UK could commit to reducing emissions from international aviation and shipping by a combined 11% from 2019 to 2030 in line with the Balanced Pathway in this report, and set a trajectory to achieving Net Zero by 2050, requiring supporting strategies for both aviation and shipping. This would be equivalent to an overall reduction of 64% by 2030 in UK territorial emissions including IAS, relative to 1990. • The Government could choose to use credits to go beyond the 68% reduction as a greater contribution to supporting global emission reduction The Paris Agreement emphasises the importance of clarity and transparency in emissions on various different bases.
The UK’s publication should also demonstrate how the NDC meets the requirements of the Paris Agreement in terms of supporting the global effort, reflecting equity and being the UK’s highest possible ambition on the path to its long-term target for Net Zero greenhouse gas emissions The NDC should also refer to the UK’s efforts on climate adaptation (to be set out further in an Adaptation Communication) and refer to how the UK is supporting increased ambition overseas, for example through capacity building, technology development and climate finance (to be set out further in the UK’s Article 9.5 We set out in Chapter 7 actions that the UK should consider in supporting increases in global effort and ambition, including approaches for tackling consumption emissions, use of trade policy and climate finance. Emissions reduction by 2030 on different bases Including IAS, higher inventory changes (the basis for our recommended Sixth Carbon Budget) 64% 54% 39% Including IAS, lower inventory changes 66% 56% 41% Including IAS, no inventory changes 66% 56% 41% Excluding IAS, higher inventory changes (the basis for our recommended NDC) 68% 57% 42% Excluding IAS, lower inventory changes 70% 59% 43% Excluding IAS, no inventory changes 70% 60% 45%

Chapter 10: Recommendations on the Sixth Carbon Budget 430 3. Increasing effort during existing carbon budgets Over the formation and execution of the Climate Change Act, the UK has moved from a 2050 target to reduce CO2 emissions by at least 60%, to a target to reduce emissions of all greenhouse gases by at least 80% to the new Net Zero target requiring a 100% reduction, all relative to 1990. Each new carbon budget must be directed by the new goal – the Sixth Carbon Budget will be the first set on the path to the more ambitious Net Zero goal. This section discusses the implications of having adopted increased ambition for 2050, and other changes, on the carbon budgets already in law. Delivering our Balanced Net Zero Pathway would imply considerably greater action than expected when the Fourth and Fifth Carbon Budgets were set (covering 2023-2027 and 2028-2032 respectively). That will require outperformance of the fifth budget if the UK is to be on track to the sixth budget. That outperformance should not be used to water down the Sixth Carbon Budget. We set out the analysis in three b) Implications for the existing carbon budgets c) ‘Carrying forward’ outperformance of carbon budgets The existing five carbon budgets out to 2032 were set on the path to the old 80% target for 2050. However, inclusion of emissions from international aviation and shipping (IAS) in carbon budgets and forthcoming revisions to the baseline emissions estimates will make previously legislated carbon budgets harder to Net Zero by 2050, and the shift to judge budgets on actual emissions rather than the UK carbon account, this implies a much steeper trajectory for UK emissions reduction than was previously projected, but from a higher starting point. The overall impact of the steeper trajectory and the accounting changes roughly • Fourth Carbon Budget (2023-27). The legislated level of the fourth budget remains broadly appropriate, if IAS emissions remain excluded and judged on an ‘actual emissions’ basis, given the current evidence. There is limited potential for the steeper path towards Net Zero to lead to extra emissions reductions by the mid-2020s, and this is offset by the forthcoming changes to the emissions inventory. However, depending on lasting economic impacts from the COVID-19 pandemic, it is possible that this budget will be outperformed if the Government deliver all the actions in our Balanced • Fifth Carbon Budget (2028-32). The legislated Fifth Carbon Budget allows for emissions of 345 MtCO2e per year over the five-year period. This budget is looser than our Balanced Pathway, even if IAS emissions are included within offset by increases in emissions existing fifth budget is out of

431 Sixth Carbon Budget – The path to Net Zero – Excluding IAS emissions. On that scope of emissions, under the Balanced Pathway on the path to the sixth budget and Net Zero by 2050 emissions would be 278 Mt per year on average – Including IAS emissions. Even if IAS were included in the scope of the Fifth Carbon Budget, the legislated level would still be looser than the 317 Mt per year for 2028 to 2032 under our Balanced Pathway when including IAS emissions. compared to the Fifth Carbon Budget Adjus tments for IAS emissions based on IAS emissions under the Balanced Net Zero Pathway, unadjusted for Emissions measurement and accounting issues affecting the Fifth Carbon Budget Alongside the steeper reductions in emissions re quired for Net Zero, there is a range of other changes to consider that make consideration of the existing carbon budgets more complicated. The forthcoming changes to the methodology for estimating emissions under the greenhouse gas inventory (see subsecti on (g) of section 1) increase estimated emissions for 2030, while the inclusion of the UK’s share of IAS emissions (see section 3)

Chapter 10: Recommendations on the Sixth Carbon Budget 432 • Steeper rates of emissions reduction required. Over the 2020s, the new pathway implies a reduct ion of 18 MtCO2e per annum, compared to 12 Mt per annum under the pathway set out in the advice on the Fifth Carbon Budget. This means that an additional 66 Mt of emissions reductions are needed by 2030. • Accounting for actual rather than ‘net’ emissions. The Fifth Carbon Budget was set on the basis of the Committee’s advice that anticipated that the UK would continue to participate in the EU Emissions Trading System, and that it would be a net seller of allowances in 2030. Under the Committee’s pathway for actual emissions, total emissions would have been lower by 31 Mt per annum in 2030 than implied by the • Peatland and global warming potentials (GWPs).
Estimates of UK emissions, all the way back to 1990, will increase over the next few years due to improvements to estimates of the climate impacts of non -CO2 greenhouse gases and the widened scope of the set of land use emissions included in the inventory. This will increase estimated UK emissions by between 13 and 29 MtCO 2e per year, dependin g on forthcoming methodological decisions on how they are estimated (see Box 2.1in Chapter 2). • Inclusion of international aviation and shipping (IAS) emissions would add a further 40 MtCO2e per annum in 2030, based on the Balanced Net Zero Pathway for IAS Overall, this means that even higher assumed GWPs and with the wider scope of emissions from pea tland, aviation and shipping, the legislated Fifth Carbon Budget would be too loose by at least 28 MtCO 2e per annum in 2030. Without inclusi on of IAS emissions, this gap between emissions allowed by the Fifth Carbon Budget and that implied by the Balanced Pathway would increase to at least 68 Mt per annum in 2030. to the Balanced Net Zero Pathway Emissions shown on an AR5 basis, including peatlands. 433 Sixth Carbon Budget – The path to Net Zero b) Implications for the existing carbon budgets Ideally, all future carbon budgets would be aligned with the pathway to achieve Net Zero by 2050. This would fulfil the intention of the Climate Change Act for these nearer-term budgets to ensure that action is on track for the long-term target. It is our assessment that the Fourth Carbon Budget is on track with the Balanced Net Zero Pathway, but that the Fifth Carbon Budget is not. Nor, therefore, is it aligned to our recommended NDC for 2030. It is for the Government to decide whether the currently legislated budgets are amended to bring them in line with the revised 2050 target or the 2030 NDC, but the Committee does not consider it to be necessary. Forthcoming revisions to the UK’s emissions inventory will make existing carbon budgets more challenging. The setting of the Sixth Carbon Budget for 2033-37 in accordance with the Committee’s advice will also require that the UK cuts emissions in line with the 2030 NDC to remain on track. Once the sixth budget is legislated, the trajectory towards it will have legal force given the requirement in the Climate Change Act that the Government prepare policies to meet the 2050 target and all legislated carbon If the Government wish to align the fifth budget to our recommended NDC, it would need to change to 1,585 MtCO2e (assuming the Government enacts the power in sections 30-31 of the Climate Change Act to include emissions from international aviation and shipping). That revision would be permissible under the Climate Change Act - since the adoption of the UK Net Zero target is clearly a significant change affecting the basis for the Fifth Carbon Budget – and under the Paris Agreement – since the revised budget would respect the ‘ratchet principle’ as a clear progression in ambition on the current commitment. The Committee will track progress against the Balanced Pathway set out in this report and the UK’s NDC for 2030 (implying emissions of 1,585 MtCO2e, including IAS emissions, over the Fifth Carbon Budget period), as our best indication of what is required to stay on track to our recommended Sixth Carbon Budget and the UK’s The Government has also recognised the need to go further and increased its ambition in several areas compared to previous plans set out in the 2017 Clean Growth Strategy. For example, moving the phase-out date earlier for new sales of petrol and diesel cars and vans, and increasing ambition on offshore wind to 2030. Our pathways in this report demonstrate the need to go further across the budgets in the right places, it is Carbon Budget, its level should We will track progress against in this report and the UK’s NDC

Chapter 10: Recommendations on the Sixth Carbon Budget 434 Actions in our scenarios that were not included in the Fifth Carbon Budge t scenarios by 2030 How are the actions different in the 2020s? • BEVs make up the vast majority of new car and van sales by 2030 (reaching 100% by 2032), instead • Slightly higher assumed levels of demand reduction for cars, avoi ding 6% of car-kilometres by 2030. Buildings • Hydrogen trials occur on the gas grid in the 2020s, with regional conversion of the gas grid near industrial clusters from 2030. Hydrogen is used in boilers, hyb rid heat pumps and to service some • Greater levels of household flexibility are included in our scenarios, facilitated by behaviour change in the form of pre -heating, as well as by technologies such as thermal storage and hybrid heating configurations. We also consider the impacts of multiz one controls in homes and new business models such as heat -as-a-service. • Heat pumps in public and commercial buildings make up around a quarter rather than a fifth of heat demand by 2030 and a l arge portion are air to water heat pumps (not previously inclu ded). Fuel supply • Measures to abate emissions from fossil fuel supply are accounted for, including electrification of oil and gas platforms, reduced venting and flaring and reductions in methan e leaks from the gas grid. • Our new scenarios include low -carbon hydrogen production (and associated emissions). • Wider variety of bioenergy supply routes, with biomass, biogas and bio -wastes used in biojet, biodiesel, heating biofuels, biomethane and biohy drogen production, either building on today’s commercial produ ction (e.g. biomethane expansion) or new routes starting in the late 2020s or • Low-carbon ammonia production for shipping by 2030. Aviation • Aviation emissions were flat in the 2020s in ord er to meet the 37.5 MtCO 2 planning assumption used in the fifth carbon budget.
Our scenarios now have larger improvements in fuel efficiency and uptake of biofuels in the 2020s, and lower demand post -COVID. Shipping • Widespread roll-out of low-carbon ammonia as a fuel starts in 2030. • Our ana lysis includes all peatland emissions, and our scenarios include new sources of emissions savings from behaviour change (e.g. diet change), energy crops and peat restoration. • Bioenergy with CCS (BECCS) starts deployment in the late 2020s, rather than the mid -2030s. • Direct air capture of CO 2 with storage (DACCS) also included. • Carbon intensity of generation reaches under 50 gCO 2/kWh in 2030, compared to below 100 gCO2/kWh in the Fifth Carbon Budget scenarios. • That reflects, for example, deployment of 40 GW of offshore wind capacity by 2030 compared to 25 GW previously. Our new scenarios also include some use of low -carbon hydrogen starting in the second half of the 2020s, which was not included in the previous analysis. • Resource efficiency measures are included in the analysis. • Energy efficiency is included outside of the eight most energy -intense ma nufacturing sectors. • Fuel switching is applied more widely. The CB5 scenarios had n o fuel sw itching of process heat outside of the eight most energy intense sectors. Hydrogen was also not included in CB5 scenarios. Waste • Biodegradable wastes are still ban ned from landfill in 2025, although there is now greater action on waste prevention as well as recycling in the 2020s (reaching 70% by 2030 and earlier in the DAs), phasing out waste exports by 2030, and increasing landfill methane capture rates. • Our scenarios now also have actions taken in wastewater (installing advanced anaerobic digestion) and composting (installing aeration). 435 Sixth Carbon Budget – The path to Net Zero c) ‘Carrying forward’ outperformance of carbon budgets The Climate Change Act allows for the ‘carry forward’ of outperformance of carbon budgets to help meet the subsequent budget, subject to the advice of the Our recommended Sixth Carbon Budget is predicated on it being achieved without any such carry forward of outperformance from preceding carbon budgets. The level of this budget has been designed to get the UK on track to Net Zero by 2050 – using earlier outperformance to reduce the amount of effort would not achieve this. If the Government were to carry forward outperformance from earlier budgets, the Sixth Carbon Budget would need to be tighter. More generally, carry forward of outperformance should be avoided, as it would lead to worse climate outcomes and risks the meeting of later targets given the stretching nature of the Net Zero • Carrying forward outperformance to subsequent budget periods would allow an increased level of emissions in that later period. • Given the importance of cumulative emissions in determining climate outcomes (see Chapter 7), increasing allowed emissions in later periods should be avoided. This would also be contrary to the principle of ‘highest possible ambition’ under the Paris Agreement. • As well as increasing cumulative emissions, any loosening of later carbon budgets that enables effort to be reduced is likely to increase risks in meeting subsequent carbon budgets and Net Zero, given the stretching We therefore recommend that, as a rule, outperformance of carbon budgets is not carried forward to subsequent periods. More generally, given the extremely large outperformance for the Third Carbon Budget now expected, for reasons other than policy (i.e. changes in the EU ETS and the impact of COVID-19 on emissions), it is especially important that ‘surplus’ emissions are not carried forward. Existing budgets are already on track or too loose for a path to Net Zero, so there could be no justification to carry forward outperformance of the third or subsequent carbon budgets. The Act potentially allows for

Chapter 10: Recommendations on the Sixth Carbon Budget 436 4. Traded-sector emissions and UK emission trading system cap This section sets out the Committee’s advice on the contributions from different sectors of the economy and on emissions covered by emissions trading, as required under section 34 of the Climate Change Act. It is in three a) Emissions accounting and the role for emissions trading b) The path for ‘traded sector’ emissions c) Sectoral contributions to emissions reduction a) Emissions accounting and the role for emissions trading As set out in section 1, the Committee is recommending a carbon budget based on actual emissions, including UK greenhouse gas removals but without adjusting for potential cross-border trading of carbon emissions. That is practical given that the UK will leave the EU Emissions Trading System (EU ETS) at the end of this year and will help improve transparency. However, emissions trading, and carbon pricing more generally, remains an important tool in delivering the transition to Net Zero. The Government has proposed a UK Emissions Trading System (UK ETS) and committed to consulting on aligning its cap with Net Zero.2 The pathways set out in this report provide a basis for setting a Net Zero-aligned cap. For now, we assume that the scope of emissions covered by emissions trading (the ‘traded sector’) remains as currently under the EU ETS, with the potential addition of engineered greenhouse gas removals (GGR) given their potential in the sectors already covered by the EU ETS (e.g. power generation, industry and hydrogen If a UK ETS is set up following the UK’s departure from the EU ETS, the rules are likely to default to those currently in place under the EU system. Such a mirroring should not be retained indefinitely. It will be important for the UK system to evolve from the current EU ETS rules, specifically to include engineered removals as being able to contribute to meeting the emissions cap. The EU ETS is also likely to need to do so at some point, in order to meet the EU’s Net Zero goal.
We note that, should the UK set up its own ETS to follow on from the EU ETS, the Government has committed to setting the cap from 2023, following the Committee’s advice on a suitable trajectory. It has also committed to review the scope of the trading system in 2023 with a view to potentially including additional sources of emissions shortly thereafter. The Committee will review the arrangements to follow the UK’s exit from the EU ETS

437 Sixth Carbon Budget – The path to Net Zero b) The path for ‘traded sector’ emissions The path to Net Zero entails further sharp reductions in power sector emissions by 2030, strong reductions in point-source industry emissions and the deployment at scale of low-carbon hydrogen production, while engineered removals start to be • Power sector emissions continue to fall sharply to 2030 under the Balanced Net Zero Pathway, reaching a carbon-intensity of just under 50 gCO2/kWh by that date due to large-scale deployment of renewables and nuclear and the emergence of decarbonised back-up generation on the path to phasing out unabated fossil generation entirely by 2035. • Traded-sector industry emissions fall significantly between 2020-2030, reducing by 49% compared to those in 2019 due to the potential for solutions such as carbon capture and storage and hydrogen to be deployed at large sites and industrial clusters. • Aviation emissions from domestic and intra-EU flights are currently traded in the EU ETS. After recovery from COVID-19, passenger numbers stay relatively flat during the 2020s. Emissions gradually fall between 2023-2030 to around 9 MtCO2/year by 2030, due to efficiency improvements and initial uptake of • Fossil fuelled hydrogen production facilities are currently part of the EU ETS, so we would expect the new methane reformation facilities in our scenarios to submit emissions allowances for any CO2 not captured by CCS. In our scenarios these facilities produce 8 TWh of low-carbon hydrogen in 2030, releasing 0.1 MtCO2/year at 95% CO2 capture rate. • Removals. Deployment of bioenergy with CCS (BECCS) starts in 2027 and rises to 5 MtCO2 per year by 2030. On this basis, we recommend the level of traded sector emissions consistent with our Balanced Pathway is used as the basis for a UK emissions trading system cap from 2023 to 2030,* with the cap on emissions falling to 61 MtCO2 per year by 2030 if excluding greenhouse gas removals or 57 MtCO2 per year if they are included Traded sector emissions in 2023 -30, based on current scope plus potential inclusion of engineered removals MtCO2e 2023 2024 2025 2026 2027 2028 2029 2030 Electricity supply 39 39 36 26 21 18 16 14 Industry (manufacturing, construction & Domestic and intra -EU aviation 10 10 10 10 10 10 9 9 Proposed ETS cap (for currently traded Engineered removals 0 0 0 0 -1 -1 -4 -5 * The Government has committed to aligning the cap of the scheme to the CCC’s proposed pathway from as early as January 2023. See HMG (2020) The future of carbon pricing. Chapter 10: Recommendations on the Sixth Carbon Budget 438 As set out in our previous advice on the UK ETS, carbon trading and the resulting carbon price should be used as one policy lever within a wider policy package to drive emissions down. Chapter 10 considers the broader policy requirements across We will return in future advice to the question of whether the scope of the UK ETS should be widened. If other sectors are added, the cap should be adjusted in line with their emissions trajectories set out in our Balanced Pathway. c) Sectoral contributions to emissions reduction The Climate Change Act requires the Committee to advise on the contribution to meeting carbon budgets from sectors not covered by emissions trading. Currently that covers emissions from transport, buildings, agriculture, land, waste, F-gases and less-energy-intensive industry. Our expectation for those sectors is also that they contribute in line with the Balanced Pathway. Overall, we expect them to deliver proportionately smaller reductions than the traded sector by 2035, by when we expect their share of UK emissions to have increased to over 85%, from 75% in 2019 (Figures 10.4 and 10.5). BEIS (2020) Provisional UK greenhouse gas emissions national statistics 2019; CCC analysis. Traded sector abatement for manufacturing, construction and supply is calculated by a split of non- However, it is currently unclear

439 Sixth Carbon Budget – The path to Net Zero the Fifth Carbon Budget and Sixth Carbon Budget BEIS (2020) Provisional UK greenhouse gas emissions national statistics 2019; CCC analysis. 5CB pathways have been adjusted to account for inventory changes in the non-traded sector. 6CB pathways are for the Balanced Net Zero Pathway. Non-traded emissions are initially lower in the Fifth Carbon Budget pathway in 2020 as traded emissions from aviation are not included, as well as a lack of policy action in

Chapter 10: Recommendations on the Sixth Carbon Budget 440 5. Next A Net Zero plan and monitoring of progress Following this advice, the Government must set the Sixth Carbon Budget in law by the end of June 2021. This must be followed, as soon as is practicable, by a set of policies and proposals to meet the budget. We recommend that both these steps are taken without delay, in the first half of 2021. That would demonstrate the UK’s climate credentials as president of COP26 and is necessary given the limited time available to accelerate emissions reductions as needed to meet the budget. We expect to report on the Government’s strategies in our next annual Progress Report in June 2021. This section sets out our expectations for the Government response, and the evolving role of the CCC after this advice. a) The Government respon se to this advice The Climate Change Act (sections 13 and 14) requires that the Government develop policies and proposals that would ‘enable’ the carbon budgets and 2050 target to be met.
It is inevitable that not all proposals will be fully developed and implemented by early next year. However, the Committee’s interpretation of the requirements of the Act (and of good policymaking) is that the Government should clearly and quantitatively demonstrate how its proposals will deliver the That should be the goal of the Government’s response to this advice, which should set out a quantified set of policy proposals to deliver the Sixth Carbon Budget and • The Government’s Energy and Emissions Projections ‘Reference Scenario’ sets out expectations for emissions through the carbon budget periods under ‘implemented, adopted and agreed’ policies, where the impact of these policies has been quantified. The latest publication projects a 57%* reduction in emissions from 1990 to 2035 – a long way short of the 72% reduction required by our recommended Sixth Carbon Budget on the same • Many other policies have been announced or are being developed. These include, for example, the Buildings and Heat Strategy, the Transport Decarbonisation Plan, the energy White Paper, a hydrogen strategy and the National Infrastructure Strategy. For the purposes of section 14 of the Climate Change Act, the Government should set out the intended effect of these policies and ‘the time-scales over which those proposals and policies are expected to take effect’. They should progress as soon as possible to full implementation. • If these proposals in sum are insufficient to deliver the Sixth Carbon Budget the Government should set out the areas where it will develop further and stronger policies to deliver deeper emissions reductions, and quantify the * Estimate on an AR4 basis, excluding inventory revisions for peatland and emissions from international aviation and international shipping. BEIS (2020) Updated Energy & Emissions Projections 2019. 441 Sixth Carbon Budget – The path to Net Zero • If as individual policies progress, their expected impact is reduced, then they must be compensated by increasing the impact from other policies or by introduction of new policies to fill the gap. The Government’s response should therefore also set out an approach to its own tracking of policy development and progress to ensure that it stays on track to the Sixth Carbon Budget as circumstances and expectations change. We are publishing a separate ‘Policy report’ alongside this ‘Advice report’ where we set out the policy priorities that the Committee has identified to get on track to the recommended Sixth Carbon Budget and Balanced Net Zero Pathway. We are also publishing the advice from our Expert Advisory Group on Policy,3 whose advice is summarised in our Policy report. These are intended to demonstrate broadly how the required changes might be delivered. They are not intended to be prescriptive where other means could

Chapter 10: Recommendations on the Sixth Carbon Budget 442 b) Summary of policy recommendations Delivering the actions required in the 2020s to meet the Sixth Carbon Budget requires policies to be strengthened now. Matching strong ambition with action is vital for the UK’s credibility, with business and with the international community. Action in early years underpins the transition by developing options and driving learning-by-doing in key technologies. It keeps open the possibility that if faster progress proves possible, it can be taken in further support of the global 1.5°C goal. A vital challenge is to ensure that the transition is fair, and perceived to be fair. That was a key theme from the recent UK Climate Assembly, and it is clear that engaging and involving the public in the transition and in policy design will be vital. The Treasury Net Zero Review must identify fair ways to share the costs and benefits of the transition and the Government must develop effective plans for a just transition while embedding the principle of fairness throughout policy. Plans should recognise interactions with other transformations, such as digitalisation. Place and skills will be key dimensions to consider, so it is vital that UK Government policy joins up well with local, regional and devolved policy on the just transition. We identify priorities for every sector of the economy, building on our detailed recommendations in our Progress Report in June. • Surface transport. A comprehensive policy package will be needed to deliver on the Government’s new commitment to phase out new sales of petrol and diesel cars and vans by 2030, including ensuring that plug-in hybrids play no more than a niche role by then. A further commitment should be made to phase out sales of diesel HGVs by no later than 2040, supported by large-scale trials in the near term. Recharging and refuelling infrastructure will need to develop to meet the range of emerging needs. Effective demand-side policy is also essential – we identify significant opportunities, and advantages, to reducing travel demand, but this will not • Industry. For the manufacturing, construction and fuel supply industries, the Government must move from the current piecemeal approach to a comprehensive transition support framework. Taxpayer funding will be key in early years to ensure industries stay internationally competitive while reducing emissions. The development of longer-term policies, such as border tariff adjustments or carbon standards, should begin immediately, for example through development of improved measurement of carbon- intensity. Policy must tackle both the demand-side and supply-side for low- carbon products and ensure relevant infrastructure is available when • Buildings. Government must produce a robust and ambitious Heat and Buildings strategy which sets the direction for the next decade, with clear signals on the phase-out of fossil heating, rebalancing of policy costs between electricity and gas, commitments to funding and delivery plans which include regional and local actors. Our Balanced Pathway is underpinned by a clear timetable for standards to make all buildings energy efficient and ultimately low-carbon. The other priorities are rapidly to scale up supply chains for heat pumps and heat networks and to develop the option of hydrogen for heat. Proper enforcement of standards and an effective approach to skills are essential. • Electricity generation.
Low-risk instruments like the auctions of renewable contracts should continue to support the scale-up of low-carbon Only a just transition will be

443 Sixth Carbon Budget – The path to Net Zero Policy should address barriers to the major scale-up required, for example by supporting the coordination of connections from offshore windfarms into the onshore network and greatly strengthening the UK’s power grid. Following on from the 2024 coal phase-out, gas-fired power without CCS should be phased out by 2035. Work to improve markets for the provision of flexibility must accelerate to accommodate the increasing shares of • Low-carbon hydrogen. The Government’s Hydrogen Strategy is due to be published in spring 2021. It will need to set out a vision for hydrogen’s role in meeting Net Zero in the longer term, together with the actions, regulations and incentives across end-use applications and hydrogen supply to develop hydrogen’s role over the next decade. • Agriculture and land. We set out detailed recommendations on policy for land and agriculture in January 2020. These must be implemented in a way that is fair to farmers. The priorities a strengthened regulatory baseline to ensure low-regret measures are adopted; incentive schemes such as auctioned contracts to drive afforestation; and enabling measures to address issues such as skills, supply chains and barriers for tenant farmers. Policy design must account for the challenges of the changing climate and reflect wider environmental priorities, including for biodiversity, to harness potential synergies and avoid unnecessary trade-offs. Demand-side policies are also needed to cut food waste and encourage a reduction in consumption of meat and dairy. • Aviation and shipping. The UK will need strategies to reduce its emissions from aviation and shipping to Net Zero. It should help drive international processes through the International Civil Aviation Organisation and the International Maritime Organisation to strengthen ambition in line with Net Zero. Policy should also provide early-stage development support for engineered CO2 removals, sustainable fuels and more efficient, including electrified, craft. Demand-side measures should aim to limit aviation growth • Waste policy should include a ban on landfilling biodegradable waste by 2025, with recycling increasing to 70% by 2030. More policies are needed to reduce waste arisings, through the chain from manufacturing to the consumer. All remaining energy-from-waste plants should fit CCS by 2050. • F-gases. F-gas regulation already requires reduction of some sources; plans will need to extend to all sources. • CO2 removal. A full strategy is needed for CO2 removal, covering both nature-based and engineered options. It should cover initial development and demonstration, governance arrangements to ensure sustainability and that removals are permanent, and market pricing mechanisms and other routes to market development to support the scale-up required from the Net Zero and the Sixth Carbon Budget present a major coordination and delivery challenge. The Government must organise itself and its agencies to meet that challenge. The two Cabinet Committees for Climate Action – the Strategy Committee chaired by the Prime Minister and the Implementation Committee chaired by the BEIS Secretary of State – are an important element of that, but stronger governance and coordination will be needed, with delivery processes reaching out across all levels and localities of Government, across borders, and across UK businesses and people. delivery challenge of Net Zero. Chapter 10: Recommendations on the Sixth Carbon Budget 444 The Committee will continue to offer its support to developing the Government’s policy programme, and those of Scotland, Wales and Northern Ireland, and will scrutinise proposals carefully and transparently. c) The evolving role of the CCC Following this advice, the Committee’s main role will switch from advising on climate targets (as we have in this report and the Net Zero report in 2019) to monitoring progress towards Net Zero and the targets set on the path to it. That will begin with the Committee’s annual Progress Report to Parliament in June 2021. i) Monitoring progress towards Net Zero As in previous Progress Reports, we expect to monitor with a forward-looking perspective, aiming to identify potential shortcomings before they occur. To do that we will develop a new set of progress indicators based on the Balanced Net Zero Pathway set out in this report and against which we will track progress in each sector of the economy. There may be some areas where progress is faster, and some where it is slower, but those must balance out across the economy if the budget is to be delivered. Currently expected progress is well below what is For progress to be on track, effective policies must be implemented on a timely basis. In monitoring development of policy in each sector we will consider the • Is there a clear long-term direction? • Are there investable incentives for low-carbon options? • Are barriers to action being tackled? • Is policy preparing for future challenges as well as current ones? • Is policy addressing the particular issues for that sector, for example fuel More broadly we will also assess the Government’s progress on tackling the overall Net Zero challenge. That will involve a particular focus on fairness and the just transition (including the results of the Treasury’s Net Zero Review into how the costs and the benefits should be share), success in engaging and involving people across the UK, regional implementation and the Government’s approach to Given the increasing importance of climate commitments and action by businesses, including the financial sector, and local Government we will seek to extend our assessment into action by players beyond central and devolved Government. And as the UK hosts COP26, we will seek to support efforts to increase ambition globally and increase our international engagement. 445 Sixth Carbon Budget – The path to Net Zero ii) Monitoring consumption emissions In Chapter 7 we set out a range of scenarios for the UK’s consumption emissions based on the Balanced Net Zero Pathway for territorial emissions and different levels of emissions reduction in the rest of the world.
As set out in Chapter 7, there are levers available to the UK to influence these emissions and we noted that around 75% of the UK’s consumption emissions are, or soon will be, covered by Net Zero targets, while 45% of imported emissions are in the supply chains of UK firms. We do not recommend that the UK set a legal target for consumption emissions comparable to carbon budgets at this • Territorial emissions remain the agreed international approach to setting emissions targets and map most closely to UK levers of influence. • Estimates of consumption emissions are considerably more uncertain and only available with a significant lag (the latest current estimates are for 2017). Estimates are more prone to changing with changes in assumptions or as a result of changes that do not reflect UK policy. However, there are strong arguments in favour of monitoring consumption emissions and considering policies to address imported as well as territorial • The UK’s consumption emissions are estimated to be around 50% higher than its territorial emissions. • Poor policy could lead to imported emissions increasing while territorial emissions fall, especially as the UK strengthens policy targeting sectors producing traded goods (e.g. manufacturing and agriculture). The carbon budgets should not be met by exporting our emissions and shutting down • The UK does have levers to affect imported emissions as well as territorial emissions (see Chapter 7). Some of these and other levers could even extend beyond the UK’s consumption emissions and help to encourage reductions in emissions outside the UK that are not imported to the UK. • Consumption emissions are recognised internationally. Demonstrating that the UK is considering them and taking action to reduce them can strengthen the UK’s credibility internationally and ability to encourage others to adopt high ambition. We therefore propose to track consumption emissions as a regular part of our progress monitoring in future. We set out an illustrative Paris-aligned trajectory in Chapter 7. If UK territorial emissions are reduced to Net Zero and UK trading partners reduce their emissions in line with the Paris Agreement, we estimate that UK consumption emissions would be around 90% below 1990 levels in 2050. We will further develop our analysis of consumption emissions with a view to developing indicators to provide more timely assessments of progress and to consider policies to address imported emissions (e.g. in trade agreements and

Chapter 10: Recommendations on the Sixth Carbon Budget 446 1 House of Commons Hansard (12 June 2019) Net Zero Emissions Target, Volume 661, Columns 673 2 HMG (2020) The future of carbon pricing 3 CCC Expert Advisory Group report on cross-cutting Sensitive Intervention Points to achieve net-zero emissions published on the CCC website

447 Sixth Carbon Budget – The path to Net Zero This page is left intentionally blank. 151 Buckingham Palace Road London