Department for Business, Energy and Industrial Strategy

Department for Business, Energy and Industrial Strategy Amendments to the version laid before The following corrections have been p122, The unit label for the metric “Biodegradable waste sent to landfill” has been corrected to read “Million Tonnes”. The text “(in real 2016 prices)” has been A few other minor typographic errors have also

Department for Business, Energy and Industrial Strategy This Government is determined to leave our natural environment in a better condition than we found it. Clean growth is not an option, generation, and economic growth greater protection for our forests and beaches, clean air and places of outstanding natural beauty. There is no conflict between this aspiration and our plan to create an economy that works for everyone. But to do this we need a clear strategy that brings Government, business and society together. This Strategy sets out the action we will take to cut emissions, increase efficiency, and help lower the amount consumers and businesses spend on energy The United Kingdom has a proud record in this field. Britain was one of the first countries to recognise the challenge posed by climate change and we have led the world in taking action to reduce carbon emissions. Our investment in green energy has seen Britain produce record amounts of renewably- generated electricity. On the world stage, we were instrumental in driving through the Protecting our environment for the next generation also benefits our wider economic prosperity. The UK has helped new green industries to develop which have brought jobs and growth, even as we have taken decisive action to protect the world around us. In this document, we set out the actions we are taking to put clean growth at the centre of our modern Industrial changing the way we heat our homes, power our cars, and run our electricity grid. But we cannot achieve this through Government action alone. We must harness the ingenuity and determination of all our people and businesses across the country if we are to build a better, greener Britain. The Government will help British businesses and entrepreneurs to seize the opportunities which the global low carbon economy presents, from electric vehicles to Success in this mission will improve our quality of life and increase our economic prosperity. It will mean cleaner air, lower energy bills, greater economic security and a natural environment protected and enhanced

industrial opportunities of our time. This Strategy will ensure Britain is ready to seize that Our modern Industrial Strategy is about increasing the earning power of people in every part of the country. We need to do that while not just protecting, but improving the environment on which our economic success depends. In short, we need higher growth with lower carbon emissions. This approach is at the heart of our Strategy for clean growth. The opportunity for people and business across the country is huge. The low carbon economy could grow 11 per cent per year between 2015 and 2030, four times faster than the projected growth of the economy This is spread across a large number of from low cost, low carbon power generators to more efficient farms; from innovators creating better batteries to the factories putting them in less polluting cars; from builders improving our homes so they are cheaper to run to helping businesses This growth will not just be seen in the UK. Following the success of the Paris Agreement, where Britain played such an important role in securing the landmark deal, the transition to a global low carbon economy is gathering momentum. We want the UK to capture every economic opportunity it can from this global shift in Our approach to clean growth is an important element of our modern Industrial building on the UK’s strengths; improving productivity across the country; and ensuring we are the best place for innovators and new businesses to start up A good example of this is offshore wind, where costs have halved in just a few years. A combination of sustained commitment – across different Governments – and targeted public sector innovation support, harnessing the expertise of UK engineers working in offshore conditions and private sector ingenuity, has created the conditions for a new industry to flourish, while cutting emissions. We need to replicate this success in sectors across our economy. This Strategy delivers on the challenge that Britain embraced when Parliament passed the Climate Change Act. If we get it right, we will not just deliver reduced emissions, but also cleaner air, lower energy bills for households and businesses, an enhanced natural environment, good jobs and industrial opportunity. It is an opportunity

Department for Business, Energy and Industrial Strategy

our national income while cutting consumers, is at the heart of the UK’s Industrial Strategy. It will increase our productivity, create good jobs, boost earning power for people right across the country, and help protect the climate and Our Strategy for clean growth starts from a The UK was one of the first countries to recognise and act on the economic and security threats of climate change. The Climate Change Act, passed in 2008, committed the UK to reducing greenhouse gas emissions by at least 80 per cent by 2050 when compared to 1990 levels, through a process of setting five year caps on greenhouse gas emissions termed ‘Carbon Budgets’. This approach has now been used as a model for action across the world, and is mirrored by the United Nations’ We have been among the most successful countries in the developed world in growing our economy while reducing emissions. Since 1990, we have cut emissions by 42 per cent 2 while our economy has grown by two thirds 3.
This means that we have reduced emissions faster than any other G7 nation, while leading the G7 group of countries in growth in national This progress has meant that we have outperformed the target emissions reductions of our first carbon budget (2008 to 2012) by one per cent5 and we project that we will outperform against our second and third budgets, covering the years 2013 to 2022, by almost five per cent and four per cent respectively 6. Our economy is expected to grow by 12 per cent over that time7. This will be a significant achievement. We have made progress across every sector of 1 There are several greenhouse gases (GHGs) that contribute to climate change, the most abundant of which is carbon dioxide. Because of this, we measure emissions of GHGs in terms of millions of tonnes of carbon dioxide equivalent (Mt). One tonne of carbon dioxide fills roughly the same space as a small house. 2 BEIS (2017) BEIS provisional UK emissions statistics 1990-2016 3 ONS (2016) Quarterly National Accounts Statistical bulletins (Series ABMI. Seasonally adjusted chained volume measures) grossdomesticproductgdp/timeseries/abmi 4 Figures on per capita basis. OECD (retrieved September 2017) World Resources Institute (2017) CAIT Climate Data 5 DECC (2014) 6 BEIS (2017) Energy and Emissions Projections 2016 7 OBR (March 2017) Economic and Fiscal Outlook OBR (January 2017) Fiscal Sustainability Report

UNFCCC; World Bank; BEIS1990 Department for Business, Energy and Industrial Strategy • In 2016, 47 per cent of our electricity came from low carbon sources, around double the level in 20109, and we now have the largest installed offshore wind capacity in the world. Our homes and commercial buildings have become more efficient in the way they use energy which helps to reduce emissions and also cut energy bills, for example average household energy consumption has fallen by 17 per cent since 1990 10. Automotive engine technology has helped drive down emissions per kilometre driven by up to 16 per cent and driving a new car bought in 2015 will save car owners up to £200 on their annual fuel bill, compared to a car bought new in 2000 11. England also recycles nearly four times more than it did 8 UNFCCC Data Interface (retrieved September 2017) World Bank, World Development Indicators (retrieved September 2017) .GDP .MKTP .PP .KD; BEIS (2017) Final GHG Emissions Inventory Statistics final-uk-greenhouse-gas-emissions-national-statistics-1990-2015 9 BEIS (2017): Digest of UK Energy Statistics 2017 10 BEIS (2017) Energy Consumption in the UK Change in average consumption per 11 Annual average household saving from driving a car purchased new in 2015 (the latest year for which data is available) compared to driving a car purchased new in 2000. Fuel savings valued using 2015 prices. DfT (2017) National Travel Survey; DfT (2017) Vehicles Statistics; ICCT (2015) From Laboratory to Road; BEIS (2016) Green Book supplementary appraisal guidance 12 Defra (2016) ENV18 - Local authority collected annual results env18-local-authority-collected-waste-annual-results-tables

• This progress has been aided by the falling costs of many low carbon renewable power sources like solar and wind are comparable in cost to coal and gas in many countries 13; energy efficient light bulbs are over 80 per cent cheaper today than in 201014; and the cost of electric vehicle battery packs has tumbled by over • As a result of this technological innovation, new high value jobs, industries and companies have been created. And this is driving a new, technologically innovative, high growth and high value “low carbon” sector of the UK economy. Not only are we rapidly decarbonising parts of the domestic economy, but thanks to our world leading expertise in technologies such as offshore wind, power electronics for low carbon vehicles and electric motors, and global leadership in green finance, we are successfully exporting goods and services around the world – for example, one in every five electric vehicles driven in Europe is made in the UK 16. This progress now means there are more than 430,000 jobs in low carbon businesses and their supply chains, employing people in locations right This progress has altered the way that we see many of the trade-offs between investing in low carbon technologies that help secure our future but that might incur costs today. It is clear that actions to cut our emissions can be a win- cutting consumer bills, driving economic growth, creating high value jobs and helping to Of course, greenhouse gas emissions are a global problem and action is needed from all countries. The UK has played a key role in demonstrating international leadership on tackling climate change through its domestic action, climate diplomacy and financial support. The UK was among the first to recognise climate change as an economic and political issue as opposed to solely an environmental one and has used its world leading economic, science and technical skills to shape the global debate around climate change, for instance making the economic case for climate action in the landmark Stern Report in 200618. The UK has also used its influence and resources to help developing countries with their own clean growth – and our actions to date are expected to save almost 500 million tonnes of carbon dioxide over the lifetime of the projects19, more than the entire annual emissions of France 20.
While we do not count these results against our domestic targets, we can be proud of the impact of the UK’s commitment to global 13 New Climate Economy (2014) Better Growth, Better Climate 14 International Energy Agency (2016) Energy Efficiency Market Report 15 Bloomberg New Energy Finance (2016) 2016 lithium-ion battery price survey 16 European Alternative Fuels Observatory (2017) Top 5 selling BEV 17 ONS (2016) UK Environmental Low Carbon and Renewable Energy Economy Survey, Final 2015 environmentalaccounts/bulletins/finalestimates/2015results 18 HM Treasury (2006) Stern Review on the Economics of Climate Change 19 DfID (2017) 2017 UK Climate Finance Results 20 UNFCCC 2015 data (retrieved September 2017)

Department for Business, Energy and Industrial Strategy The Opportunities and Challenges The UK played a central role in securing the 2015 Paris Agreement in which, for the first time, 195 countries (representing over 90 per cent of global economic activity 21) agreed stretching national targets to keep the global temperature rise below two degrees. The actions and investments that will be needed to meet the Paris commitments will ensure the shift to clean growth will be at the forefront of policy and economic decisions made by governments and businesses in the coming decades. This creates enormous potential economic opportunity –– an estimated $13.5 trillion of public and private investment in the global energy sector alone will be required between 2015 and 2030 if the signatories to the Paris Agreement are to meet their national targets22. The decision by the US to withdraw from the Paris Agreement served to bring together and bolster action internationally on climate change with many countries underlining their commitment to the Paris Agreement in the The UK is well placed to take advantage of this economic opportunity. Our early action on clean growth means that we have nurtured a broad range of low carbon industries, including some sectors in which we have world leading positions. This success is built upon wider strengths – our scientific research base 23, expertise in high-value service and financial industries24, and a regulatory framework that provides long-term direction and support for innovation and excellence in the design and manufacturing of leading edge technology. Capturing part of the global opportunity while continuing to drive down carbon emissions from our own activities could provide a real national economic boost. The UK low carbon economy could grow by an estimated 11 per cent per year between 2015 and 2030 – four times faster than the rest of the economy 25 – and could deliver between £60 billion and £170 billion of export sales of goods and services by 203026. This means that clean growth can play a central part in our Industrial Strategy – building on our strengths to drive economic growth and boost earning power across the country. Action to deliver clean growth can also have wider benefits. For example, the co-benefit of cutting transport emissions is cleaner air, which has an important effect on public health, the But hitting our carbon budgets and expanding the low carbon economy will not be easy. We have achieved significant results in the power and waste sectors and now need to replicate this success across the economy, particularly in the transport, business and industrial sectors. We also need to reduce the emissions created by heating our homes and businesses, which account for almost a third of UK emissions. If done in the right way, cutting emissions in these areas can benefit us all through reduced energy bills, which will help improve the UK’s productivity, and improved air quality, while the innovation and investment required to drive these emissions down can create more jobs and more export opportunities. 21 World Bank (retrieved September 2017) .GDP .MKTP .CD 22 International Energy Agency (2015) Climate pledges for COP21 slow energy sector emissions growth dramatically october/climate-pledges-for-cop21-slow-energy-sector-emissions-growth-dramatically.html 23 BIS (2013) International Comparative Performance of the UK Research Base – 2013 performance-of-the-uk-research-base-international-comparison-2013 24 GreenAlliance (2016) Will the UK economy succeed in a low carbon world? 25 Ricardo Energy and Environment for the Committee on Climate Change (2017) UK business opportunities of moving to a low carbon economy org.uk/publication/uk-energy-prices-and-bills-2017-report-supporting-research/ 26 Ricardo Energy and Environment for the Committee on Climate Change (2017) UK business opportunities of moving to a low-carbon economy (supporting data tables)

In order to meet the fourth and fifth carbon budgets (covering the periods 2023-2027 and 2028-2032) we will need to drive a significant acceleration in the pace of decarbonisation and in this Strategy we have set out stretching domestic policies that keep us on track to meet our carbon budgets. However, we are prepared to use the flexibilities available to us to meet carbon budgets, subject to the requirements set out in the Climate Change Act, if this presents better value for UK taxpayers, businesses and 27 BEIS (2017) UK Greenhouse Gas Inventory Statistics (1990-2015)

Department for Business, Energy and Industrial Strategy Every action that we take to cut emissions must be done while ensuring our economy remains competitive. As we set out in our Industrial Strategy Green Paper, we attach great importance to making sure our energy is affordable28. This is why the Government has commissioned an independent review into the cost of energy led by Professor Dieter Helm CBE. This review will recommend ways to deliver the Government’s carbon targets and ensure security of supply at minimum cost to both industry and domestic consumers. Once Ministers have had the opportunity to consider the review’s proposals, the Government will incorporate its recommendations into the further development of the Clean Growth Another imminent challenge is to manage any impact of leaving the European Union as the Government fulfils its commitment to the British people. Leaving the EU will not affect our statutory commitments under our own domestic Climate Change Act and indeed our domestic binding emissions reduction targets are more ambitious than those set by EU legislation.
The exact nature of the UK’s future relationship with the EU and the long-term shape of our involvement in areas like the EU Emissions Trading System are still to be determined. There are also emerging opportunities to drive more action – for example by putting emission reductions and land stewardship at the heart of a post EU agricultural support policy. We will therefore carefully examine each area of common interest with our EU partners and work to deliver policies and programmes that are at least as beneficial as the current arrangements. This Strategy sets out a comprehensive set of policies and proposals that aim to accelerate the pace of “clean growth”, i.e. deliver increased economic growth and decreased emissions. In the context of the UK’s legal requirements under the Climate Change Act, the UK’s approach to reducing emissions has two 1. To meet our domestic commitments at the lowest possible net cost to UK taxpayers, consumers and businesses; and, 2. To maximise the social and economic benefits for the UK from this transition. In order to meet these objectives, the UK will need to nurture low carbon technologies, processes and systems that are as cheap We need to do this for several reasons. First, we need to protect our businesses and households from high energy costs. Second, if we can develop low cost, low carbon technologies in the UK, we can secure the most industrial and economic advantage from the global transition to a low carbon economy. Third, if we want to see other countries, particularly developing countries, follow our example, we need low carbon technologies to be cheaper and to offer more value than high carbon ones. We cannot predict every technological breakthrough that will help us meet our targets. Instead, we must create the best possible 28 BEIS (2017) Building our Industrial Strategy

environment for the private sector to innovate and invest. Our approach will maintain that of our Industrial building on the UK’s strengths, improving productivity across the UK and ensuring we are the best place for innovators and new business to start-up and grow. We are clear about the need to design competitive markets and smart regulation to support entrepreneurs and investors who will develop the new technologies at the scale we need. This will help our wider aim of improving It is only through innovation – nurturing better products, processes and systems – that we will see the cost of clean technologies come down. That is why this Strategy sets out for the first time how over £2.5 billion will be invested by the Government to support low carbon innovation from 2015 to 2021. More broadly, the National Productivity Investment Fund will provide an additional £4.7 billion, with an extra £2 billion a year by 2020-21, representing the largest increase in public spending on UK science, research and innovation since 197929. The UK is also working collaboratively as a core member of “Mission Innovation” 30, a group of leading countries which aims to drive forward clean energy innovation on a global scale. In addition to supporting innovation, we are focused on policies that deliver social and economic benefits beyond the imperative to reduce emissions. Higher quality, more energy efficient buildings are healthier places to live and work. Reducing the amount of heat we waste will reduce bills. Accelerating the rollout of low emission vehicles contains a triple win for the UK in terms of industrial opportunity, cleaner air and lower greenhouse gas emissions. And crucially, many of the actions in the Clean Growth Strategy will enhance the UK’s energy security by delivering a more diverse and reliable Actions taken by the Government on clean growth will be consistent with broader Government priorities, such as delivering clean air. All parts of the UK have a major role to play in delivering our ambitions on clean growth, and the Devolved Administrations have a range of plans and policies in place to deliver emission reductions. We will work closely with them, and with local leaders across the UK, as we develop the policies and proposals set out in The changes to our infrastructure and the pace of innovation will require significant investment from the private sector. The first steps to support the growth of the green finance sector in the UK are set out in this Strategy. We are building on a position of global leadership in finance and investment. These steps will be followed by ambitious policy proposals to further accelerate investments to deliver our Clean Growth Strategy. To help develop this longer-term work, the Government has set up a new Green Finance Taskforce, comprising senior representatives from the finance industry The key actions that this Government will take as part of our Strategy are set out below. While these policies and proposals will drive emissions down throughout the next decade, our focus is on the areas where we need to do more to achieve the fifth carbon budget through Through preparing this Strategy, we have identified areas where we will need to see the greatest progress, both through technological breakthroughs and large-scale deployment, if we are to meet the fifth carbon budget through 29 HM Treasury (2016) Autumn Statement 2016 30 Mission Innovation

Department for Business, Energy and Industrial Strategy Key Policies and Proposals in the Strategy 1. Develop world leading Green Finance capabilities, including • Setting up a Green Finance Taskforce to provide recommendations for delivery of the public and private investment we need to meet our carbon budgets and maximise the UK’s share of the global green finance market • Working with the British Standards Institution to develop a set of voluntary green and sustainable finance management standards • Providing up to £20 million to support a new clean technology early stage investment • Working with mortgage lenders to develop green mortgage products that take account of the lower lending risk and enhanced repayment associated with more energy efficient Improving Business and Industry Efficiency – 25% of UK Emissions 2.
Develop a package of measures to support businesses to improve their energy productivity, by at least 20 per cent by 2030, including • Following the outcome of the independent review of Building Regulations and fire safety, and subject to its conclusions, we intend to consult on improving the energy efficiency of new and existing commercial buildings • Consulting on raising minimum standards of energy efficiency for rented commercial • Exploring how voluntary building standards can support improvements in the energy efficiency performance of business buildings, and how we can improve the provision of information and advice on energy efficiency to SMEs • Simplifying the requirements for businesses to measure and report on energy use, to help them identify where they can cut bills 3. Establish an Industrial Energy Efficiency scheme to help large companies install measures to cut their energy use and bills 4. Publish joint industrial decarbonisation and energy efficiency action plans with seven of the most energy intensive industrial sectors 5. Demonstrate international leadership in carbon capture usage and storage (CCUS), by collaborating with our global partners and investing up to £100 million in leading edge CCUS and industrial innovation to drive down costs 6. Work in partnership with industry, through a new CCUS Council, to put us on a path to meet our ambition of having the option of deploying CCUS at scale in the UK, and to maximise

7. Develop our strategic approach to greenhouse gas removal technologies, building on the Government’s programme of research and development and addressing the barriers to their 8. Phase out the installation of high carbon forms of fossil fuel heating in new and existing businesses off the gas grid during the 2020s, starting with new build 9. Support the recycling of heat produced in industrial processes, to reduce business energy bills and benefit local communities • Invest around £162 million of public funds in research and innovation in Energy, Resource and Process efficiency, including up to £20 million to encourage switching to lower carbon • Support innovative energy technologies and processes with £14 million of further investment through the Energy Entrepreneurs Fund Improving Our Homes – 13% of UK Emissions Improving the energy efficiency of our homes 11. Support around £3.6 billion of investment to upgrade around a million homes through the Energy Company Obligation (ECO), and extend support for home energy efficiency improvements until 2028 at the current level of ECO funding 12. We want all fuel poor homes to be upgraded to Energy Performance Certificate (EPC) Band C by 2030 and our aspiration is for as many homes as possible to be EPC Band C by 2035 where practical, cost-effective and affordable 13. Develop a long term trajectory to improve the energy performance standards of privately- rented homes, with the aim of upgrading as many as possible to EPC Band C by 2030 where practical, cost-effective and affordable 14. Consult on how social housing can meet similar standards over this period 15. Following the outcome of the independent review of Building Regulations and fire safety, and subject to its conclusions, we intend to consult on strengthening energy performance standards for new and existing homes under Building Regulations, including futureproofing new homes for low carbon heating systems 16. Offer all households the opportunity to have a smart meter to help them save energy by the Rolling out low carbon heating 17. Build and extend heat networks across the country, underpinned with public funding (allocated in the Spending Review 2015) out to 2021 18. Phase out the installation of high carbon fossil fuel heating in new and existing homes currently off the gas grid during the 2020s, starting with new homes

Department for Business, Energy and Industrial Strategy Rolling out low carbon heating (continued) 19. Improve standards on the 1.2 million new boilers installed every year in England and require installations of control devices to help people save energy 20. Invest in low carbon heating by reforming the Renewable Heat Incentive, spending £4.5 billion to support innovative low carbon heat technologies in homes and businesses between 21. Invest around £184 million of public funds, including two new £10 million innovation programmes to develop new energy efficiency and heating technologies to enable Accelerating the Shift to Low Carbon Transport – 24% of UK Emissions 22. End the sale of new conventional petrol and diesel cars and vans by 2040 23. Spend £1 billion supporting the take-up of ultra low emission vehicles (ULEV) , including helping consumers to overcome the upfront cost of an electric car 24. Develop one of the best electric vehicle charging networks in the world • Investing an additional £80 million, alongside £15 million from Highways England, to support charging infrastructure deployment • Taking new powers under the Automated and Electric Vehicles Bill , allowing the Government to set requirements for the provision of charging points 25. Accelerate the uptake of low emission taxis and buses • Providing £50 million for the Plug-in Taxi programme, which gives taxi drivers up to £7,500 off the purchase price of a new ULEV taxi, alongside £14 million to support 10 local areas to deliver dedicated charge points for taxis • Providing £100 million for a national programme of support for retrofitting and new low emission buses in England and Wales 26. Work with industry as they develop an Automotive Sector Deal to accelerate the transition 27. Announce plans for the public sector to lead the way in transitioning to zero emissions 28. Invest £1.2 billion to make cycling and walking the natural choice for shorter journeys 29. Work to enable cost-effective options for shifting more freight from road to rail , including using low emission rail freight for deliveries into urban areas, with zero emission last mile 30. Position the UK at the forefront of research, development and demonstration of Connected and Autonomous Vehicle technologies, including through the establishment of the Centre for Connected and Autonomous Vehicles and investment of over £250 million, matched by

31.
Invest around £841 million of public funds in innovation in low carbon transport technology and fuels • Ensuring the UK builds on its strengths and leads the world in the design, development and manufacture of electric batteries through investment of up to £246 million in the • Delivering trials of Heavy Goods Vehicle (HGV) platoons, which could deliver significant Delivering Clean, Smart, Flexible Power – 21% of UK Emissions 32. Reduce power costs for households and businesses • Implementing the smart systems plan , which will help consumers to use energy more flexibly and could unlock savings of up to £40 billion to 2050 • Working with Ofgem and National Grid to create a more independent system operator to keep bills low through greater competition, coordination and innovation across the system • Responding to the forthcoming independent review into the cost of energy led by • Publishing a draft bill to require Ofgem to impose a cap on standard variable and default tariffs across the whole market 33. Phase out the use of unabated coal to produce electricity by 2025 34. Deliver new nuclear power through Hinkley Point C and progress discussions with developers to secure a competitive price for future projects in the pipeline 35. Improve the route to market for renewable technologies such as offshore wind • Up to £557 million for further Pot 2 Contract for Difference auctions, with the next one • Working with industry as they develop an ambitious Sector Deal for offshore wind, which could result in 10 gigawatts of new capacity, with the opportunity for additional deployment if this is cost effective, built in the 2020s 36. Target a total carbon price in the power sector which will give businesses greater clarity on the total price they will pay for each tonne of emissions. Further details on carbon prices for the 2020s will be set out in the Autumn 2017 Budget 37. Invest around £900 million of public funds, including • £265 million in smart systems to reduce the cost of electricity storage, advance innovative demand response technologies and develop new ways of balancing the grid • £460 million in nuclear to support work in areas including future nuclear fuels, new nuclear manufacturing techniques, recycling and reprocessing, and advanced reactor design • £177 million to further reduce the cost of renewables, including innovation in offshore wind turbine blade technology and foundations

Department for Business, Energy and Industrial Strategy Enhancing the Benefits and Value of Our Natural Resources – 15% of UK Emissions 38. As we leave the EU, design a new system of future agricultural support to focus on delivering better environmental outcomes, including addressing climate change more directly 39. Establish a new network of forests in England including new woodland on farmland, and fund larger-scale woodland and forest creation, in support of our commitment to plant 11 million trees, and increase the amount of UK timber used in construction 40. Work towards our ambition for zero avoidable waste by 2050, maximising the value we extract from our resources, and minimising the negative environmental and carbon impacts associated with their extraction, use and disposal 41. Publish a new Resources and Waste Strategy to make the UK a world leader in terms of competitiveness, resource productivity and resource efficiency 42. Explore new and innovative ways to manage emissions from landfill 43. Support peatland through a £10 million capital grant scheme for peat restoration 44. Invest £99 million in innovative technology and research for agri-tech, land use, greenhouse gas removal technologies, waste and resource efficiency Leading in the Public Sector – 2% of UK Emissions 45. Agree tighter targets for 2020 for central government and actions to further reduce greenhouse gas emissions beyond this date 46. Introduce a voluntary public sector target of a 30 per cent reduction in carbon emissions by 2020-21 for the wider public sector 47. Provide £255 million of funding for energy efficiency improvements in England and help public bodies access sources of funding Government Leadership in Driving Clean Growth 48. Work with businesses and civil society to introduce a “Green Great Britain” week to promote 49. Reinstate a regular Clean Growth Inter-Ministerial Group responsible for monitoring the implementation of this Strategy and driving ambitious clean growth policies 50. Report annually on our performance in delivering GDP growth and reduced emissions through an “Emissions Intensity Ratio”

To achieve the clean growth we want, the UK will need to nurture low carbon technologies, processes and systems that are as cheap as possible. It is only through innovation that we will see new technologies developed and the cost of clean Investment will be made at all stages of technology from basic research Innovation creates jobs and helps The Energy Entrepreneurs Fund is a competitive funding scheme to support the development and demonstration of state of the art technologies, Government has significantly increased its investment in low carbon innovation This strategy sets out, for the first time, where Government funding is targeted

Department for Business, Energy and Industrial Strategy We want to deliver increased economic growth and reduced emissions. We have developed an Emissions Intensity Ratio (EIR) to measure our clean growth performance which we will publish each year so we can track progress. To reach our 2032 targets we will need to drive the emissions intensity of the economy down by an average of five per cent per year to 2032, an acceleration in the four per cent annual fall The Emissions Intensity Ratio (EIR) This measures the amount of greenhouse gases (tonnes of carbon dioxide equivalent) produced for each unit of Gross Domestic Product (GDP) created. Currently the EIR is 270 tonnes/£ million and it was 720 tonnes/£ million in 1990. By 2032, we expect the EIR will need to be nearly as low as 100 tonnes/£ million to meet our ambitions. This Strategy is not the end of the process.
While this is an important milestone in our work to decarbonise the UK while growing our economy, our approach will develop and adapt to changing circumstances. We will update key elements of the Strategy in line with our annual statutory responses to the Committee on Climate Change’s reports on progress, ahead of setting the sixth carbon budget by 30 June We will also launch the following Government consultations during 2017 and 2018 • The design of a new industrial heat recovery • Making the private rented sector energy efficiency regulations more effective, and setting longer term energy performance standards across both the domestic private • A streamlined and more effective energy and carbon reporting framework for UK businesses to help them identify where they • A package of measures to support businesses to improve how productively • Our strategic approach to the aviation sector in a series of consultations over the A full list of the actions and milestones arising from this Strategy is set out at Annex B. Many of the future actions the Government will be taking, expanding on the proposals above, will be set out in the 25 Year Environment Plan, which will be designed to be a sister document to this Strategy, and in a long term strategy for the UK’s transition to zero road vehicle emissions. Taken together, these set out the Government’s approach to fulfilling its commitment to leave the environment in a better state than it inherited. Along with the Industrial Strategy White Paper, to be published later in 2017, these will form a critical part of 31 BEIS analysis; ONS (2016) Quarterly National Accounts; BEIS (2017) UK Greenhouse Gas Inventory Statistics (1990-2015); OBR (March 2017) Economic and Fiscal Outlook; OBR (January 2017) Fiscal Sustainability Report

The Government cannot achieve the changes needed to our economy by itself. Outside action on public sector emissions, the Government’s key role is to set the framework for action across the economy. Beyond that, clean growth has to be a shared endeavour between Government, business, civil society and the British people. Creating this supportive environment will help attract the domestic and international investment the UK wants. Therefore from 2018 we will work with private partners and NGOs to introduce a Green Great Britain Week. We welcome views and comments on our approach and these should be sent to CleanGrowthStrategy@beis.gov.uk by 31 December 2017. Views received in response to both this Strategy and the detailed policy proposals which will follow it, will be considered as we update key elements of our Strategy before setting the sixth carbon budget by 30 • Focus on climate and air quality issues across • Demonstrate our progress and successes on • Share the latest climate science • Highlight and promote economic opportunities arising from clean growth especially to

What the Climate Change Act Requires The Climate Change Act requires the UK to reduce its emissions by at least 80 per cent by 2050 35. This means greenhouse gas emissions falling from around 14 tonnes per person in 1990 to around 2 tonnes per person in 2050. To ensure steady progress towards our 2050 goal, the Climate Change Act requires the Government to set intermediate targets – ‘carbon budgets’. These are caps on the greenhouse gas emissions that can be emitted across the UK during a five-year period. Five carbon budgets have been set to date, putting in place caps on greenhouse gas emissions from 2008 out to 2032. In July 2016, we set the fifth carbon budget, which requires a 57 per cent average reduction in emissions over 2028-32 across the UK compared to a Our strategy for clean growth starts from a position of strength. The UK was one of the first countries to recognise and act on the threat of climate change and continues to play an important leadership In 2008, we became the first country to set a legally binding emissions reduction target through the Climate Change Act. This has driven significant progress in cutting emissions. In 2016 alone UK emissions fell by six per cent compared to the year before 32. Overall, between 1990 and 2016, the UK reduced emissions by 42 per cent33. Today, the Climate Action Network ranks the UK third in the world for action on climate change34. 33 BEIS (2017) Provisional UK greenhouse gas emissions national statistics 2016 provisional-uk-greenhouse-gas-emissions-national-statistics-2016 34 Climate Action Network (2017) Climate Change Performance Index Results 2017 climate-energy-targets/3015-climate-change-performance-index-2017/file 36 1990 base year emissions 803 Mt, equivalent to 4,013 Mt over a 5-year period, BEIS (2017) UK Greenhouse Gas Inventory Statistics (1990-2015) government/collections/final-uk-greenhouse-gas-emissions-national-statistics

Sector 1990 base year47 2015 Percentage change Business and industry 231 123 -47% There have also been significant falls in emissions from waste and industry – driven partly by a change in the UK’s economic structure from manufacturing to services but also by a large reduction in waste being sent to landfill. This has been driven by initiatives like the Landfill Tax which helped reduce the amount of taxable waste sent to landfill by 76 per cent between 1997 and 201649. We have made progress in other sectors, including transport, where tighter regulations have helped drive down the average car’s carbon emissions per kilometre by up to 16 per cent since 2000 50 while hybrid and ultra low emission vehicles (ULEVs), such as electric and hydrogen fuel cell cars, accounted for a record 5.5 per cent of sales in July 201751. In our homes, average household energy consumption has fallen by over 17 per cent since 1990, in part due to tighter standards and obligations on energy suppliers to improve energy efficiency52.
Falling Costs and Rapid Technology Uptake This progress has been aided by the falling costs of many low carbon technologies globally, coupled with accelerating momentum in the deployment of the technologies we need to reduce emissions, as a result of early policy action by the UK, other governments and substantial public and private 46 BEIS (2017) UK Greenhouse Gas Inventory Provisional Statistics (1990-2016) provisional-uk-greenhouse-gas-emissions-national-statistics-2016 47 In line with the Climate Change Act the base year is comprised of 1990 for carbon dioxide, methane and nitrous oxide, and 1995 for fluorinated compounds 48 Provisional 2016 -42 change 1990-2016. BEIS (2017) UK Greenhouse Gas Inventory Statistics (1990-2015) final-uk-greenhouse-gas-emissions-national-statistics 49 HMRC Landfill Tax bulletin 50 Fuel efficiencies are from DfT modelling using DfT (2017) Vehicle statistics; ICCT (2015) From Laboratory to A 2015 update 51 SMMT (2017) EV & AFV Registrations, July 2017 and Year-to-Date 52 BEIS (2017) Energy Consumption in the UK Change in average consumption per

Onshore wind Offshore wind Solar PV Gas (2016 range) Bloomberg New Energy Finance Department for Business, Energy and Industrial Strategy For example, the power sector has seen dramatic falls in the price of renewable energy due to government policies, with global investment estimated at $2.8 trillion since 200753. This has driven down the cost of solar cells by 80 per cent since 2008 54, meaning we are now beginning to see solar deploying in the UK without government support, and onshore wind power by 50 per cent since 2009 55. The cost of offshore wind is falling even faster; in the UK, government investment has helped to deliver a 50 per cent drop in costs over just the last two years56. This means that wind and solar energy are increasingly cost competitive with coal and gas in many countries57. 53 Bloomberg New Energy Finance (2017) Clean Energy Investment Trends 2Q 2017 54 Bloomberg New Energy Finance (2016) Summit keynote presentation 56 Gov.uk (2017) New clean energy projects set to power 36 million homes new-clean-energy-projects-set-to-power-36-million-homes 57 New Climate Economy (2014) Better Growth, Better Climate 58 Bloomberg New Energy Finance (2016), H2 2016 Global Levelised Cost of Electricity Update h2-2016-lcoe-giant-fall-generating-costs-offshore-wind/

Global investment in energy efficiency is also growing, having already reached $221 billion in 2015, an increase of six per cent on the year before59. This included $12 billion of investment in improving the efficiency of appliances and has led to an improvement in the average efficiency of major appliance categories 60 of more than 16 per cent between 2005 and 201561. The transport sector is seeing the beginnings of a rapid shift to clean technology. Between 2011 and 2016, the number of electric vehicles on the road globally increased thirtyfold62. This has been aided by the falling costs of the battery packs that power electric vehicles, which have come down by nearly 80 per cent since 201063. In the future, the cost of electric vehicles is now forecast to fall below that of conventional vehicles in the early to mid-2020s64. A High Growth Low Carbon Economy As a result of this technological innovation and investment, new high value jobs, industries and companies have been created. The UK low carbon economy – encompassing activities such as the design and building of low carbon power and heat projects, the manufacture of electric vehicles, the development of energy efficient products and systems for buildings, and green finance – already supports over 430,000 jobs directly and through supply chains65. We have developed world leading expertise in technologies such as offshore wind and power electronics for low carbon vehicles and electric motors, and we are a global leader This progress has altered the way that we see many of the trade-offs between investing in low carbon technologies that help secure our future but that might incur costs today. Actions to cut our emissions can be a cutting consumer bills, driving economic growth, creating high value jobs and helping to improve 59 International Energy Agency (2016) Energy Efficiency Market Report 60 Refrigerators, freezers, washing machines, dishwashers, heating equipment, cooling equipment, water heating equipment and lighting (luminaires and lamps) and 61 International Energy Agency (2016) Energy Efficiency Market Report 62 International Energy Agency (2016) Global EV Outlook 2017 63 McKinsey & Co (2017) Electrifying How automakers can drive electrified vehicle sales and profitability automotive-and-assembly/our-insights/electrifying-insights-how-automakers-can-drive-electrified-vehicle-sales-and-profitability 64 OLEV analysis. This is based on the whole-life cost of electric vehicles. The up-front cost of these vehicles is expected to fall below that of conventional vehicles in the 65 ONS (2017) Low Carbon and Renewable Energy Economy Survey, final 2015

Department for Business, Energy and Industrial Strategy The UK’s Low Carbon Driving The growth in the UK’s low carbon economy has taken place across the country, with centres of excellence in many parts of the UK. generation of clean energy, and developed local supply chains, all of which has helped drive regeneration low carbon vehicles, with more Scotland, Wales, Northern ONS (2016): Low Carbon and Renewable Energy Economy Survey. Direct activity only - excludes supply chains. North DECC published news story (2014) Siemens to build major offshore wind manufacturing site in the UK South Low Carbon Oxford and the Environmental Change Institute at the University of Oxford (2014) Joining the Growing a new economy for South Bristol City Council (2015) State of Bristol - Key Facts DIT (2017) Aldersgate Group Report (2016) Setting the Northern England’s Low Carbon Economy

The UK’s International Leadership and Actions to Reduce Emissions Overseas Climate change is a global challenge requiring action from all countries. The UK has played a key role in demonstrating international leadership on reducing emissions and supporting other countries to do the same. The UK was the first country in the world to introduce legally binding emissions reduction targets under the Climate Change Act, which has been used as a model around the world, including in France, Denmark, Sweden and Mexico.
The UK was among the first to recognize that climate change is an economic and political issue not just an environmental one, and to put serious climate expertise in our embassies to influence and help countries We have used our world leading economic, science and technical skills to shape the debate around climate change and have been at the forefront of the debate through our world leading scientists at the Met Office, the landmark 2006 Stern Report 66 and the more recent New Climate Economy project67, having one of the first Foreign Secretary Special Representatives on climate and arranging the first discussion of climate change in the UN Security Council. We also played a critical role in securing the 2015 Paris Agreement, the first ever international climate change agreement where 195 countries (representing over 90 per cent of global economic activity 68) made a commitment to reduce emissions with the long-term goal of limiting global temperature increases to “well below 2 degrees”, and to review progress every five years, mirroring the UK’s ground-breaking processes.
The Agreement puts pressure on all countries to bring forward long-term emissions reduction strategies by 2020. The Clean Growth Strategy, as the UK’s long-term emissions reduction strategy, shows the UK is leading the world in response to this important step.
The UK also led the way in pledging to phase down the use of hydrofluorocarbons (HFCs) by 79 per cent by 2030, and following this lead 197 countries agreed a global phase down of HFCs – delivering an 85 per cent phase down by 2036 - under the United Nations Montreal 66 HM Treasury (2006) Stern Review on the Economics of Climate Change 67 New Climate Economy (2014) 68 World Bank (retrieved September 2017) .GDP .MKTP .CD

Department for Business, Energy and Industrial Strategy The UK’s International Leadership and Actions to Reduce Emissions Overseas (continued) The UK is among the largest contributors of climate finance, committing to provide at least £5.8 billion from 2016 to 2020, to help developing countries mitigate and adapt to the impacts of climate change, reduce deforestation and support cleaner economic growth. From 2011 we have used our International Climate Finance to install more than 400 megawatts of clean energy capacity, mobilised £2.7 billion of additional public and private finance, supported more than 34 million people in adapting to the impacts of climate change and helped resilient economic development in over 70 countries69. This support takes many forms, for instance investment in the Climate Investment Funds, through which the UK has helped support renewable energy, climate resilience and forestry projects in 72 countries 70. The UK has also been at the forefront of global action to halt deforestation – helping negotiate international frameworks and mobilising partnerships to deliver on them – to meet shared goals such as ending forest loss by 2030, and eliminating deforestation from the production of key agricultural commodities by 2020. Together with Germany and Norway, we have collectively pledged $5 billion between 2015 and 2020 to incentivise ambitious governments, companies and communities to protect our largest natural global carbon sinks. This includes supporting a 30 per cent reduction in deforestation in Colombia’s Amazon, improving livelihoods in conflict- Our actions to date are expected to save nearly 500 Mt over the lifetime of the projects72, more than the entire annual emissions of France 73. And while we do not count these results against our domestic budgets, we can be proud of the impact of the UK’s commitment 69 DfID (2017) 2017 UK Climate Finance Results 70 The Climate Invest Funds (CIFs) 72 DfID (2017) 2017 UK Climate Finance Results 73 UNFCCC (retrieved September 2017) data

The Renewable Energy Performance Platform supports small to medium-sized renewable energy projects throughout sub-Saharan Africa. In West Kenya, two mini-hydro power plants will provide electrification to local rural communities, helping to stimulate rural economic growth. Importantly, after 20 years of operation the project will be fully transferred to the local community. The Opportunities and Challenges

The Size of the Clean Growth Opportunity The commitments made in the Paris Agreement – shifting to cleaner, low carbon technologies in power, transport, heating and cooling, industrial processes and agriculture – will require enormous investment of public and private capital. An estimated $13.5 trillion of public and private investment will be required in We have a high degree of confidence that these investments will be made given the scale of political support and the transformational impact of investment to date – indeed decarbonisation is cited as one of the ‘megatrends’ that will reshape the global economy over the years to come75. We are determined to ensure that this trend works to the advantage of the UK economy and that we embed it at the core of our Industrial Strategy. Looking across sectors, to assess the size of the opportunity, highlights several key areas. The power sector has seen some of the most significant early action on climate change, given its status as the largest source of emissions in most countries. Annual new global investment in renewable electricity grew more than threefold since 2005, reaching over $240 billion in 2016 76. This trend is happening everywhere. In Europe, over 80 per cent of new power generating capacity built in 2016 was from renewables77. Globally, clean energy technologies are estimated to account for over 85 per cent of the $10.2 trillion investment in power generation projected between now 74 IEA (2015) Climate pledges for COP21 slow energy sector emissions growth dramatically cop21-slow-energy-sector-emissions-growth-dramatically.html 75 World Economic Forum, OECD, World Bank, PwC, Ernst & Young 76 FS-UNEP Collaborating Centre (2017) Global Trends in Renewable Energy Investment 2017 globaltrendsinrenewableenergyinvestment2017.pdf 77 REN21 (2017) Renewables 2017 Global Status Report 78 Bloomberg New Energy Finance (2017) New Energy Outlook 2017 79 Bloomberg New Energy Finance (2017) New Energy Outlook 2017 2017-20 2021-25 2026-30 2031-35 2036-40 Bloomberg New Energy Finance

97 Bloomberg New Energy Finance (2017) Comparison of Long-Term EV Adoption Forecasts 98 Bloomberg New Energy Finance (2017) Annual long-term forecast of the world’s electric vehicle market. 99 IBISWorld (2017) Global Car & Automobile Market Research Report manufacturing/car-automobile-manufacturing.html 100 International Finance Corporation (2016) Climate Investment Opportunities in Emerging Markets 101 Climate Bonds Initiative Globally, sales of EVs are expected to be five times higher in 2020 compared to 2015 98 and to take a rapidly increasing share of the market in an industry whose revenue in 2016 was more The global construction sector will also be boosted by investment in sustainable infrastructure to meet decarbonisation goals. Global markets for energy efficient buildings, and for low carbon heating and cooling, are already growing and the market for investment in buildings that reduce emissions and are resilient to climate change in just six key emerging economies in Asia has been estimated at more than $15 trillion up to 2030100. There is also a significant expansion in the use of innovative green finance to support the investment needed to realise these opportunities with the global markets for green bonds growing rapidly from $7.2 billion in 2012 to over $80 billion in 2016 and expected to break these records in 2017101.
2017 projection 2016 projection Bloomberg New Energy Finance projections

• Low carbon financial and professional London is emerging as a leader in low carbon finance, the centre of global carbon trading, and with 50 green bonds listed on the London Stock Exchange, raising a combined $14.8 billion 111 across seven currencies. It has been estimated that UK legal and finance advice was behind a third of new clean energy projects globally between 2007 and 2012112. The UK is home to the largest speciality insurance market in the world 113, and is a leading provider of insurance cover for climate- related risks and for large-scale low carbon 111 London Stock Exchange 2017 112 Green Alliance (2016) Will the UK economy succeed in a low carbon world? Bloomberg New Energy Finance (2017) Clean energy and energy smart technologies league tables, 2007-2012 113 Boston Consulting Group (2017) London The competitive position of the London Insurance market 114 IRENA (retrieved September 2017) Total installed capacity 2016 (MW) International Renewable Energy Agency BelgiumSweden Japan S Korea Finland

Department for Business, Energy and Industrial Strategy Analysis for the Committee on Climate Change has suggested that if we continue to develop and build on our strengths we can capture significant economic benefits from these decarbonising trends. The UK’s low carbon economy could grow at around 11 per cent a year between 2015 and 2030, some four times faster than the average growth rate for the UK economy overall which would mean the low carbon economy would increase from around two per cent of the UK’s total output at present to around eight per cent by 2030114. The same study estimates that UK exports of low carbon goods and services could be worth between £60 billion and £170 billion by 2030. 115 Ricardo Energy and Environment for the Committee on Climate Change (2017) UK business opportunities of moving to a low carbon economy org.uk/publication/uk-energy-prices-and-bills-2017-report-supporting-research/ 116 Ricardo Energy and Environment for the Committee on Climate Change (2017) supporting-research/; OECD Long-term GDP forecast Ricardo-AEA for the CCC; OECD

As we form our Industrial Strategy, we will aim to maximise the UK industrial advantages from the global shift to a low carbon economy. We will build and link together the strengths we already have, while nurturing new ones, so that our whole economy can seize the opportunities presented by this global economic trend. We have already committed to the largest increase in public spending for investment in science, research and innovation in almost 40 years117. We will ensure that this is invested to catalyse low carbon innovation across multiple sectors of the economy. We have also committed to upgrading our digital, energy, transport, housing, water and flood defence infrastructure , including through investment in the National Productivity Investment Fund, with annual central government infrastructure investment rising each year from around £2 billion in 2016/17 to over £5 billion in 2020/21 118. We will ensure that these investments strengthen market demand for the innovative new clean energy technologies and services that our businesses We have announced significant reforms to technical education , with the creation of new qualifications (T-levels), high-quality work placements, and Institutes of Technology to deliver higher education in STEM subjects. We will ensure that these reforms help train our innovators of the future and provide businesses with the skilled professionals they need to thrive in the clean energy economy119. We have welcomed early work on sector deals in nuclear, auto manufacturing and industrial digitalisation, all of which are central to productivity in the low carbon economy, and we will challenge businesses in all sectors to increase their competitiveness in relation to the In return, and to maximise the domestic and international opportunities for the UK, we will strengthen our support for businesses as part of the transition to the low carbon economy. We have added billions of pounds in potential support for UK exporters, doubling the capacity of UK Export Finance and increasing available cover for individual markets by up to 100 per cent120, and will dedicate resources within the Department for International Trade to promote investment into the UK renewable energy landscape, develop this supply chain further and support UK exports. So far this has helped to secure investments across the into a turbine blade manufacturing plant in Hull121, a transition pieces yard in Teesside122 and an MHI Vestas investment into the Isle of Wight123, which collectively support over 1,400 new jobs. 117 HM Treasury (2016) Autumn Statement 2016 119 HM Government (2016) Post-16 skills plan and independent report on technical education post-16-skills-plan-and-independent-report-on-technical-education 120 HM Government (2016) Autumn Statement 2016 121 Siemens 122 4C Offshore (2015) Offshore Structures (Britain) opens its doors 123 MHI Vestas Offshore Wind commences hiring for over 200 jobs on the Isle of Wight, UK

Department for Business, Energy and Industrial Strategy We are committed to making the most of the diverse strengths of all of Britain’s cities and regions, to grasp the opportunities that could drive faster growth and increased earning power in each of them. To support this, we have allocated an additional £1.8 billion from the Local Growth Fund for a new set of Growth Deals between Government and Local Enterprise Partnerships (LEPs) 124. Each region of the UK differs in its local energy resources, its industrial and domestic energy needs, and its expertise. We will ensure that local communities and LEPs are empowered to make the best use of their local skills and resources, so that through the clean energy economy they can drive productivity, job creation and growth. And we will set out our plans to build on this progress in the Industrial Strategy White Paper, to be published later in 2017, positioning the UK as a leader in the low carbon economy, investing in the foundations required for economic success and ensuring our industries succeed in an economic transition that we are 124 HM Government (2016) Autumn Statement 2016

The Challenges to Delivering Clean Growth We have high aspirations and are committed to delivering clean growth.
But we face three significant challenges that we must overcome if we are to continue ensuring we deliver affordable energy for households and businesses; decarbonising “harder to reach” parts of the UK economy; and establishing a post-EU emissions and environmental framework that is at least as beneficial as Decarbonising Harder to Reach Sectors As a result of our actions so far we have already driven emissions per head down by nearly half since 1990. This progress meant that we exceeded the target emissions reductions of our first carbon budget (2008 to 2012) by one per cent125 and we project that we will outperform against our second and third budgets covering the years 2013 to 2022 by almost five per cent and four per cent respectively 126. This will be a Our achievements to date have been substantially driven by significant decarbonisation of the power and waste sectors and we now need to replicate this success across the economy, particularly in the transport, business and industry sectors which account for almost half of current emissions. And we need further action on heating across key sectors, which is responsible for around a These are the “harder to reach” parts of the economy requiring more investment, concerted joined up working between government, industry and consumers, or big technological breakthroughs to drive substantial shifts down in carbon emissions. This Strategy sets out how we plan to address some of these difficulties, including how we will target our innovation investment. Cutting emissions in these areas can benefit us all through cleaner air and reduced energy bills which will help improve the UK’s productivity. In addition, the innovation and investment required to drive these emissions down can create more jobs and more export opportunities. 125 DECC (2014) Final statement for the first carbon budget period 126 BEIS (2017) Energy and Emissions Projections 2016

Department for Business, Energy and Industrial Strategy Our approach is pragmatic. Given how much uncertainty underlies projections, we need an approach that is flexible in response to shifting evidence, not least about the impact of policies. It is also right, in our economic circumstances, to be rigorous in examining the costs and benefits of action to reduce emissions, and the right pace of change. The Climate Change Act permits us to use “flexibilities”, such as surplus from previous carbon budgets or the purchase of good quality international carbon credits128, to meet carbon budgets. We are prepared to use the flexibilities available to us to meet carbon budgets, subject to the requirements set out in the Climate Change Act, if this presents better value for UK taxpayers, businesses and Our current estimated projection for the fourth and fifth carbon budgets suggests that we could deliver 94 per cent and 93 per cent of our required performance against 1990 levels – for carbon budgets which will end in ten and fifteen years’ time respectively 129. While we have the option to use flexibilities to fully meet our carbon budgets, the ambitious policies and proposals set out in this Strategy, and the rapid progress and accelerating pace of changes in low carbon technologies so far, suggest that we may not need to use this option. We will decide whether to use flexibilities following consultation with the Devolved Administrations, and having obtained and taken into account advice from the Committee on Climate Change. 127 BEIS (2017) UK Greenhouse Gas Inventory Statistics (1990-2015) 128 A good quality carbon credit is one with its emission reduction and sustainability credentials assured. 129 This includes an initial estimate of 30 Mt and 80 Mt of additional savings in the fourth and fifth carbon budgets respectively from the more advanced policies and proposals in the Clean Growth Strategy. As we move forward and develop the full range of policies and proposals, we will publish individual impact assessments as appropriate with updated analysis. 130 BEIS (2017) Energy and Emissions Projections 2016 131 BEIS initial estimates of a subset of new early stage policies and proposals show an additional potential reduction of up to 30 Mt and 80 Mt over the fourth and fifth carbon budget periods respectively; these and other policies will be developed building on the proposals outlined in the Strategy. 132 The Act sets out specific requirements to follow before deciding to use a particular flexibility (such as seeking advice from the Committee on Climate Change before banking) or when creating a framework for a decision to be taken within (such as setting a limit on the amount of carbon units which can be used to meet carbon budgets). Any use of flexibilities needs to be consistent with keeping the UK on track to meet its long term target in 2050 having regard to domestic action. 133 Government will take a decision on whether to bank any surplus from the second to third carbon budget by May 2019 and from the third to the fourth carbon budgets in May 2024. The decision will be made after taking into account advice from the Committee on Climate Change and consulting with the Devolved Administrations. The Act allows Government some flexibility on when and how to reduce UK emissions on route to 2050 but before doing so the Government must obtain and take into account the advice of the Committee on Climate Change and consult the Devolved Administrations. There 1. Carry forward over-achievement from earlier The Act allows for Government to carry forward over- achievement from one carbon budget to the next, so that early action to reduce emissions increases the following budget133. 2. Carry back from later carbon The Act allows for the Government to increase the carbon budget in one period with a corresponding tightening of the next carbon budget. This ‘borrowing’ is limited to one per cent of the later carbon 3.
Use international carbon The Act allows for the purchase of good quality international carbon credits to contribute to meeting carbon budgets but with a limit on the use of these credits set 18 months in advance of the relevant carbon budget. Budget, cumulative emissions, Mt 3,018 2,782 2,544 1,950 1,725 Average reduction vs 1990 emissions, % -25% -31% -37% -51% -57% Result vs. Budget,% -1.2% -4.7% -3.6% +7.5% +14.3% cumulative emissions, Mt -36 -132 -91 +116 +167 Result vs. Budget,% -1.2% -4.7% -3.6% +6.0% +9.7% Cumulative surplus (+) or deficit (-), Mt +132 +223 +107 -60

Department for Business, Energy and Industrial Strategy Actions taken to tackle emissions have helped to reduce average energy bills for households as efficiency savings have more than offset the cost of financial support provided for developing low carbon technologies. The cost of policies delivering cleaner energy, support for vulnerable households and investing in upgrading our buildings accounts for around 12 per cent of an average gas and electricity bill. However, these costs are on average more than offset by savings from improvements to the energy efficiency of people’s homes, delivering a saving Policy 2012 Policy 2016

Going forward, our efforts to decarbonise will require increased investment across the energy system. However, our focus on innovation will ensure we minimise the costs of this investment as much as possible and further improvements in energy efficiency will continue to drive down bills. We have already seen the costs of offshore wind projects fall 50 per cent since 2015 and we are now seeing investment in solar without government support. We will also make sure that those least able to pay are protected through our work on fuel poverty, and are publishing a draft bill to require Ofgem to impose a cap on standard variable and default tariffs across the whole market. On industrial energy, there is more to be done. The UK has some of the lowest gas prices in the EU, including for industry. However, our electricity prices are less competitive for large Every action to cut emissions must be taken while ensuring our economy remains competitive. As we have set out in our Industrial Strategy Green Paper, we attach great importance to making sure our energy is affordable. The Government has already supported UK businesses to help them with energy costs through various programmes. For instance the Government has taken steps to reduce the cumulative impact of energy and climate change policies on industrial electricity prices for key Energy Intensive Industries (EIIs) in sectors such as steel, plastics, cement and chemicals. This includes a package of relief for EIIs worth £260 million in 2016 and over £500 135 BEIS (2017) Quarterly Energy Prices Large gas consumers are those consuming 27,778 - 277,777 MWh per annum; large electricity consumers are those consuming 20,000 - 69,999 MWh per annum. 0 0.5 1 1.5 2.5 3 3.5 0 2 4 6 8 10 122

Department for Business, Energy and Industrial Strategy But we want to continue to do everything we can to ensure our energy prices are competitive. This is why the Government has commissioned an independent review into the cost of energy led by Professor Dieter Helm CBE which will recommend ways to deliver the Government’s carbon targets and ensure security of supply at minimum cost to both industry and domestic consumers. The review will report on the full supply chain of electricity generation, transmission, distribution and supply, and consider the opportunities to reduce costs in each part. It will set out options for a long term roadmap for the power sector. Once Ministers have considered the review’s proposals, the Government will incorporate its recommendations into the further development of the Clean Growth Strategy as appropriate. The British people have voted to leave the European Union and the Government is working to get the best deal for the UK. Leaving the EU offers a unique opportunity to shape our environment and economy for the benefit of all – to have the freedom to make our own decisions on a whole host of matters. And whatever our future relationship with the EU, the UK’s commitment and leadership role in tackling climate change remains undimmed and working closely with the EU on this global challenge will remain important. Leaving the EU will not change any of our statutory commitments to reduce our emissions according to our Climate Change Act – indeed those targets are more ambitious and challenging than those set by EU legislation. There is also no need t o change our domestic targets under the Act as a result of leaving the EU, as these targets are rooted in climate science. The UK remains strongly committed to the Paris Agreement and whatever the form of our future partnership with the EU we will satisfy our international obligations under the Agreement. But there are extremely important current arrangements between the UK and the EU that bring material benefits for all the countries involved and it is critical that we get the detail of There are four main areas where the UK’s current emissions policies rely on EU • The EU Emissions Trading System (EU ETS) covering the “traded sector” (power, heavy industry and intra EEA aviation) which collectively account for around 40 per cent of UK emissions under carbon budgets. We remain committed to reducing emissions in these sectors and the UK already has a range of domestic policies in place to support this. We will seek to ensure that our future approach is at least as ambitious as the existing scheme and provide a smooth transition for the relevant sectors. • For sectors not covered by the EU ETS, two sector policies operate at EU rather than UK level and are particularly important for driving emissions reductions – new car and van CO2 regulations, and EU fluorinated gas quotas. We remain committed to reducing emissions in these areas and will offer certainty to industry as soon as possible on our future relationship with the EU.
We will seek to ensure our future approach is at least as ambitious as the current arrangements. • EU products policy which sets minimum standards for a range of products such as white goods and lighting, which improve energy efficiency. We continue to support these policy measures, which cut energy bills, increase energy security, reduce emissions and help customers make informed choices, and we will keep step with equivalent standards wherever possible and appropriate, or even exceed them where it is in the UK’s interest to do so. This may include products not yet covered by European legislation, such as smart appliances. Carbon Pricing and Emissions Trading Pricing emissions provides a cost-effective and technology neutral way of reducing carbon emissions and mobilising the private sector and in the UK pricing policies like Carbon Price Support (CPS), and the EU Emissions Trading System (EU ETS) have already helped to drive a switch from coal to gas generation in the power sector. The UK is a pioneer in developing carbon pricing. In 2002 the UK launched the UK ETS, which served as a pilot for the EU ETS, giving businesses early experience of emissions trading and establishing London The EU ETS is the largest cap-and-trade system for carbon emissions in the world. Each year, every participant must surrender one allowance for each tonne of carbon dioxide (or equivalent) emitted, and allowances are auctioned or allocated between participants. The cap on allowances is reduced annually in line with the EU’s climate ambition. However, a surplus of allowances in the EU ETS has caused the price to fall and it currently provides little incentive for low carbon investment. As a result the UK introduced CPS in April 2013 which acts as a top up to the EU ETS price in the power sector. The UK also supports measures to strengthen the EU ETS, with notable success in recent negotiations. We will continue to drive for ambitious reform for the next phase of the system. The Government is considering the UK’s future participation in the EU ETS after our exit from the EU and we remain firmly committed to carbon pricing as an emissions reduction tool whilst ensuring energy and trade intensive businesses are appropriately protected from any detrimental impacts on competitiveness. Specifically in relation to the power sector and CPS, starting in 2021/2022, the Government will target a total carbon price which will give businesses greater clarity on the total price they will pay for each tonne of emissions, and we will set out more detail on carbon prices for the 2020s in the 2017 Autumn Budget. • Non-energy and climate EU frameworks and policies which affect the UK, such as the Common Agricultural Policy. For instance, we will take the opportunity of leaving the Common Agricultural Policy to address climate change more directly by designing a new system to support the future of farming and the countryside, with a strong focus on delivering better environmental outcomes, including tackling climate change. Detailed future policies will emerge as we negotiate the exact form of the UK’s exit from the EU but while the UK is a member of the European Union, existing rules still apply and we will continue to engage constructively on new and existing EU legislation. Our Clean Growth Strategy therefore uses existing policy as the basis for the UK’s emissions projections. In the context of the UK’s legal requirements under the Climate Change Act, our approach to reducing emissions has two guiding 1. To meet our domestic commitments at the lowest possible net cost to UK taxpayers, 2. To maximise the social and economic benefits for the UK from this transition. In order to meet these objectives, the UK will need to nurture low carbon technologies, processes and systems that are as cheap as possible. We need to do this for several reasons. First, we need to protect our businesses and households from high energy costs. Second, if we can develop the low cost, low carbon technologies in the UK, we can secure the most industrial and economic advantage from the global transition to a low carbon economy. Third, if we want to see other countries, particularly developing countries, follow our example, we need low carbon technologies to be cheaper and to offer more value than high We cannot predict every technological breakthrough that will help us meet our targets. Instead, we must create the best possible environment for the private sector to innovate and invest. Our approach will mirror that of our Industrial building on the UK’s strengths (see Chapter 2 and below on green finance); improving productivity across the UK; and ensuring we are the best place for innovators and new business to start up and grow. We are clear about the need to design competitive markets and smart regulation to support entrepreneurs and investors who will develop the new technologies at the scale we need. It is only through innovation – nurturing better products, processes and systems – that we will see the cost of clean technologies come down. This Strategy sets out how more than £2.5 billion will be invested by the Government to support low carbon energy innovation from 2015-2021. These actions will help our wider aim of improving the UK’s earning power. In addition to supporting innovation, we are focused on policies that deliver social, environmental and economic benefits beyond the imperative to reduce emissions. Better buildings are healthier places to live and work. Reducing the amount of heat we waste will reduce bills. High ambition on electric cars and other low emission vehicles contains a triple win for the UK in terms of industrial opportunity, cleaner air and lower greenhouse gas emissions. Crucially, many of the actions included here will enhance the UK’s energy security.
Alongside these actions, we are laying the groundwork for major decisions in the areas where we face greatest uncertainty and in how we reduce the emissions that result from heating our homes and businesses; how we decarbonise our transport system; and how we work with industry to make carbon capture, usage and storage (CCUS) a viable future option. This has been shaped by our analysis of plausible pathways out to 2050, reflecting the huge uncertainties. In every section of the Strategy, we also explore the opportunity to shape new commercial opportunities for the UK that can help improve

Department for Business, Energy and Industrial Strategy Building on the UK’s Private sector investment in low carbon technology and infrastructure will be key to meeting our carbon budgets and realising the economic opportunities from the low carbon transition. Around £180 billion of investment is already in the pipeline to build the power stations needed in the UK to produce clean and secure supplies of electricity and the networks to deliver this to homes and businesses136. To meet our decarbonisation challenge we will need to mobilise more private capital in sustainable projects and develop more innovative risk sharing financial structures for investment in domestic and commercial low carbon technology. This is a major business and export opportunity for the UK and could cement the UK’s position as the leading hub for Pipeline 137 London Stock Exchange 2017 138 UKGBC (2017) Lenders core report UK Leadership in Green Finance We already demonstrate global leadership on green finance around the world through initiatives like the G20 Green Finance Study Group, which we co-chair; the Green Finance Initiative, a partnership between the financial and professional services sector, academics and civil society, which promotes the UK as a leading global centre for green finance; and through participation in senior global multilateral fora such as the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), which recently published its final recommendations. The first offshore green bond issued by an Indian entity and the first green bond issued by a Chinese bank were listed on the London Stock Exchange and 50 green bonds denominated in seven currencies with a value of $14.8 billion are now listed in the UK 137. On 31st July 2017, Anglian Water released the first ever public utility Sterling Green Bond on Improving the energy performance of homes is vital in decarbonising our economy. Mortgage lenders have a significant financial stake in these properties, their future value, and their customers’ ability to make their repayments. This is why the Government supported the LENDERS 138 project with funding from Innovate UK. We want to see the project recommendations implemented, including improving mortgage affordability assessments on energy bills, and lenders to develop a range of innovative new “green mortgage” products to encourage consumers to purchase more efficient homes, or improve

To capture and exploit this opportunity we need to go further. This is why we have set out in this Strategy a series of policies and proposals to develop our expertise in, as well as the opportunity from, new green finance solutions. • Setting up a Green Finance Taskforce 139, comprising senior representatives from the finance industry and Government, to develop ambitious policy proposals which could further accelerate private sector investments to deliver our Clean Growth • Endorsing the recommendations put forward by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures and encouraging publicly-listed companies to implement these recommendations. • Working with the British Standards Institution (BSI) to develop a set of voluntary green and sustainable finance management standards to promote responsible investment practices globally. The BSI will have completed the necessary standards scoping exercises and have the first standard in production by the • Providing up to £20 million of new investment to support clean technology early stage funding, alongside creating an online platform to showcase UK businesses which have received innovation support from the Government. This will make this information easily accessible for early stage investors to help increase the flow of investment into innovative businesses in the UK. • Working with mortgage lenders to develop green mortgage products that take account of the lower lending risk associated with more efficient properties and the reduced outgoings for customers living in more Ensuring the UK is the Best Place for Low Our Industrial Strategy Green Paper made clear that, for the UK economy to flourish, it must do things other advanced economies cannot do, or do them in better ways. This is the essence of innovation. This is a core part of our approach to decarbonising the UK’s economy where investment in innovation will help us • Drive down the cost of key technologies, systems and processes and increase the value they deliver to consumers (such as with batteries and electric vehicles); • Lay the groundwork for decisions where the right technology choices are currently less clear (such as how we will heat our homes and businesses in the future); and • Nurture technologies and businesses where the UK is a global leader, leveraging private sector investment and building international partnerships to create export opportunities. Innovation involves incremental improvements, cross-sector knowledge sharing, and “breakthroughs”. It results from competition within the private sector and from collaboration between the private sector and Government, as well as other organisations; each has a role in producing, spreading and adopting novel technologies and approaches. The Government is often more active at earlier stages of innovation, through investment in research, education and skills. Later on, private firms play a bigger role, bringing new technologies to market. However, there is no single, linear route for innovations to progress from concept to commercialisation and often innovation in one area has applications in others.
We want to use the power of Government to support innovation in a low carbon economy using all the tools available to us, including market design, taxation and regulation, as well as investment in our education system, our 139 The list of members can be found at

Department for Business, Energy and Industrial Strategy science base and innovative companies. Our aim is to become one of the best places in the world for low carbon innovation.
We understand the need for Government funding that is accessible to private, public and community sector organisations with all playing key roles in supporting and harnessing innovation. Government funding can be key to stimulating private sector investment from the UK and overseas, both through direct leverage and by creating confidence in the potential to attract follow-on investment for particular innovations. Public investment brings in around 30 per cent additional private funding over the short term, with this increasing in the longer term140. The Government has significantly increased its investment in low carbon innovation. Between 2015 and 2021 we expect to invest more than £2.5 billion in research, development and demonstration of low carbon energy, transport, agriculture and waste. This • Up to £505 million from BEIS’s Energy Innovation Programme141, which aims to accelerate the commercialisation of innovative clean energy technologies and processes. • Up to £1.2 billion of funding from the combination of UK Research Councils and Innovate UK – now being brought into one organisation with the creation of UK Research and Innovation. These investments include funding for the Energy Systems Catapult and the Offshore Renewable Energy Catapult. • Up to £246 million for the Faraday Challenge, which will ensure the UK builds on its strengths and leads the world in the design, development and manufacture of electric batteries142. • Up to £620 million from a range of Departments, including BEIS, DfT, DfID and Defra and additional Industrial Strategy Challenge Fund (ISCF) support. In addition to this Government funding, Ofgem is making up to £720 million of regulated expenditure available to gas and electricity network companies in Great Britain, to support smarter, more flexible, efficient, and resilient networks. The Government is also stimulating industry-academia collaboration, for example through the Agri-tech catalyst, which will help improve agricultural productivity and contribute to more environmentally sustainable 140 BIS (2014) Analysis Paper 04 Estimating the effect of UK direct public support for innovation innovation-effect-of-public-support 141 The £505 million BEIS Energy Innovation Programme will invest around £70 million in smart systems, around £90 million in the built environment (energy efficiency and heating), £100 million in industrial decarbonisation and carbon capture, usage and storage (CCUS), around £180 million in nuclear innovation, around £15 million in renewables innovation, and around £50 million in support for energy entrepreneurs and green financing. 142 BEIS press release (2017) BEIS Energy Innovation Programme New projects announced as part of the BEIS Energy Innovation Programme in the Clean • Up to £10 million for innovations that provide low carbon heat in domestic and • Up to £10 million for innovations that improve the energy efficiency of existing buildings • An extra £14 million for the Energy Entrepreneurs Fund, including a new sixth fund • Up to £20 million in a carbon capture and utilisation demonstration programme • Up to £20 million to demonstrate the viability of switching to low carbon fuels for industry • Up to £7 million to develop further the capability of nuclear regulators who support and assess advanced nuclear technologies • Up to £20 million to support clean technology

Last November, the Prime Minister announced £4.7 billion of additional research and development funding 143 – a bigger increase than in any Parliament since 1979. This funding aims to kick start the development of disruptive technologies, including low carbon technologies, that have the potential to transform the UK economy 144. It includes the Faraday Challenge and £93 million for Robotics and Autonomous Systems, and we are exploring the scope to fund further clean Internationally, governments around the world are investing around $15 billion a year in low rise significantly 145. A key component of our innovation strategy is identifying opportunities for global partnership. In particular, the UK is committed to clean energy innovation as a member of ‘Mission Innovation’. This initiative aims to reinvigorate and accelerate global clean energy innovation and to make clean energy widely affordable. As part of our commitment within Mission Innovation, the UK will invest at least £100 million in 2020-21 on projects that will help to address the clean energy needs of How we spend money is just as important as how much we spend. To ensure a strategic approach, a new Energy Innovation Board was launched in 2016147, to bring together senior representatives from across the Government, Innovate UK, Research Councils, and Ofgem, to align public investments in low carbon innovation. The Board aims to co-ordinate the UK’s domestic and international clean energy and low carbon innovation activities to maximise their impact, and to ensure that those investments leverage increased private sector investment. The Government is also launching a sixth round of the Energy Entrepreneurs Fund, which has been running since 2012, and aims to support, through capital grants, the development and demonstration of innovative energy technologies and processes, with a particular focus on assisting small and medium sized enterprises. This sixth round will offer up to £10 million in funding. Alongside this, a further £4 million has been offered to companies who applied for the fifth funding round, bringing the total to £14 million across Over phases one to five of the Energy Entrepreneurs Fund, we have invested £47.2 million in 102 companies, which leveraged a further £35 million from the private sector. For those companies that have completed their projects, over £63 million in follow-on private For instance Vantage Power in West London retrofit buses to a low carbon standard. This is done at a fraction of the cost of purchasing new hybrid buses, and means that operators can reduce their fuel consumption and emissions. Vantage Power were beneficiaries of the Energy Entrepreneurs Fund, and the buses they have retrofitted have reported up to 40 per cent lower fuel consumption and 92 per cent lower emissions of nitrogen oxides. 143 HM Treasury (2016) Autumn Statement 2016: Section 4.1 144 BEIS press release (2017) Investment subject to business case approval.
145 Mission Innovation website, Baseline and Doubling 146 DECC press release (2015) UK joins international clean energy 147 Further information on the Energy Innovation Board available 148 The Energy Entrepreneurs Fund is funded through the £505 million BEIS Energy Innovation Programme

Department for Business, Energy and Industrial Strategy 149 Final spending commitments are subject to competitive bidding processes across sectors and value for money tests. Excludes £720 million of regulated expenditure being made available by Ofgem to support innovation in gas and electricity networks. Forecast Clean Technology Innovation Spend £ million (across Innovate UK, Research Councils, BEIS, DfT, DfID, Defra) Total (£ million) 1,140 902 534 2,576 NB All figures are indicative and are subject to competitive bidding processes across sectors and value for money tests. Clean Growth Innovation Challenges To get the clean growth we want, we need breakthroughs in clean technologies. Government funding and innovations in universities are crucial, but such breakthroughs also need the creativity and energy of the private sector. We have identified the key challenges we believe need to be overcome if we are to meet future carbon Clean fuels such as hydrogen and bioenergy could be used for transport, industry, and to heat our homes and businesses. We need to test how they work in the existing gas network, whether they can fire industrial processes, and how they could be used in domestic appliances. These options need to work as well and as cheaply as current technologies. We need energy efficiency and heat technologies that are less costly and easier to install, and commercial innovation to ensure retrofits are attractive for homeowners. To build lower cost, lower carbon homes, we need to use innovative construction methods including factory production and off-site To rapidly decarbonise transport, including rail and EVs, we need innovation in to extend their range and lifetime, bring down their cost, and ensure they can be disposed of sustainably. New methods for charging are needed to make electric vehicles easier to use, including super-fast charge points, wireless charging and dynamic charging. Clean technologies such as electric vehicles, batteries, fuel cells and renewable energy are all falling in cost. We need to ensure these technologies can integrate smoothly in the energy system, including finding local solutions, so that consumers benefit from lower energy and transport costs. We need to bring down the costs of nuclear power through developing new materials and manufacturing processes, and exploring the opportunities of new fuels and reactor designs. To further reduce the cost of offshore wind, we need to deliver larger turbines, extend existing asset life, optimise performance and reduce operational maintenance. We need to find alternatives to industrial fuels which are energy intensive to produce, without increasing cost or reducing performance. The cost of CCUS technologies will need to fall. We need to minimise the impacts of anaerobic digestion, particularly in relation to air quality. This includes developing improved digestion and ammonia and phosphate extraction technologies and reducing methane emissions. Innovative techniques are also needed to reduce the impact of landfills at the To support greater productivity of agricultural land, we need increase carbon storage through fertilising crops more effectively, develop new animal and plant breeding technologies, use precision farming technologies on smaller scale farms, and develop robotics and new sensor technologies. We also need to reduce plant and tree disease and investigate methods to improve soil health and carbon stocks. Department for Business, Energy and Industrial Strategy We cannot predict the exact technological changes that will help us deliver on the fourth and fifth carbon budgets (and beyond). Some technologies will develop faster than expected, making it easier to reduce emissions in particular sectors. Some technologies may develop less To explore this uncertainty, we test different potential versions of the future based on current knowledge. These are not firm predictions of the future and should not be taken as sectoral targets. However, they allow us to identify areas where progress is most needed to meet our future carbon budgets, especially the fifth carbon budget, and where action now is unlikely to be wasted. The policies and proposals set out in this Strategy reflect that understanding. Our Clean Growth Strategy sets out in detail a possible pathway for meeting the fifth carbon budget through domestic action, including many of the policies and proposals set out here. The route we ultimately take to meeting our targets will depend on a range of factors, in particular ensuring we are mindful of any impact on energy costs for households and businesses, and changes in costs as a result The approach could • Emissions from business and the public sector falling by 30 per cent on today’s levels, through significant improvements in energy efficiency, reducing energy use per unit of output as well as reducing the carbon content of industrial energy use by at least 14 per cent through switching to cleaner fuels. Our proposals will contribute to this, for example improving business energy efficiency and standards for commercial buildings, and agreeing tighter targets to reduce central government emissions. • Emissions from homes falling by 19 per cent from today, with household energy use falling nine per cent, through a combination of switching low- carbon heating and greater energy efficiency which in turn will help to reduce bills. We will also need to bring down the cost of low carbon alternatives to the gas boiler. This is supported by the proposals set out in this Strategy, including investments in upgrading homes and proposals to improve energy performance standards • Emissions from transport falling by 29 per cent from today, largely achieved by accelerating the shift to electric and other low emission vehicles. This transition could involve reducing the energy and emissions intensity of road transport151 by 30 per cent and 44 per cent respectively. Our proposals, such as those to encourage uptake of ULEVs, will contribute to this.
• Emissions from power falling by 80 per cent on today’s levels, by increasing the share of clean electricity generation to over 80 per cent of demand and moving to a smarter, more flexible system and reducing demand by improving the efficiency of appliances. The proposals set out in this Strategy, for example providing further funding for Contract for Difference auctions for renewable technologies, will help to deliver this. • Emissions from land use and agriculture falling by 26 per cent on today’s levels. This could mean that woodland cover increases by up to 16 per cent and the emissions intensity of agricultural outputs could improve by 27 per cent. Emissions from waste and F-gases fall to around 14 Mt by 2032, 53 per cent lower than today. This could mean that the amount of biodegradable waste sent to landfill in 2032 is around 45 per cent lower than that seen in 2015. This is supported by the proposals in this Strategy, such as those to reduce emissions from waste and to establish 150 Total sector emissions reductions are compared against estimated 2017 levels. Supplementary metrics, where relevant, compared the 2032 pathway with 2015 official 151 Covering cars, van and freight

Innovation can deliver dramatic results, as we have seen with the rapid falls in the costs of some clean technologies over the past ten years, and this Strategy sets out ambitious proposals on funding innovation to further reduce costs. We take a cautious approach towards quantifying the contribution of current and future innovation to emissions savings. As we cannot say precisely how our investments today will impact on the UK’s emissions in the future, we have omitted any We estimate the combination of existing policies and new measures in this Strategy that can be quantified could deliver 93 per cent of the required level of emissions savings for the fifth carbon budget, against our 1990 baseline. As well as setting out policies within this Strategy, we identify areas where we will need to drive further progress through future consultations, innovation spend and policy design. This is set out in more Beyond the Fifth Carbon Budget, There is even greater uncertainty about which technologies will help us reduce emissions by at least 80 per cent by 2050152. It is even more challenging to predict what the UK economy will look like in 2050 than in 2032. However, exploring the plausible potential pathways to 2050 helps us to identify low-regrets steps we can take in the next few years common to many versions of the future, as well as key technologies and uncertainties. To demonstrate this, we present three illustrative long-term BBOXX was formed by students at Imperial College London in 2010. In addition to $2 million in private funding, since 2013 BBOXX received £1.2 million, including from the EPSRC and DfID, to tackle the challenges and opportunities arising from unreliable electrical supplies in rural Africa. By providing households with off-grid electric lighting, children can do their homework and families can run a business without incurring threats to their health from paraffin smoke. Since 2006, BBOXX has created a sustainable non- subsidised business model. Rapidly expanding from three founders to a global staff of 140, BBOXX products have already saved energy worth over $2 million and offset over 40,000 tonnes of CO2. BBOXX aims to provide up to 20 million people with electricity by 2020. Department for Business, Energy and Industrial Strategy • Electricity Under this pathway, electricity is the main source of energy in 2050. There are many more electric vehicles (EVs), we replace our gas boilers with electric heating and industry moves to cleaner fuels. Altogether this means we use around 80 per cent more electricity than today, and virtually all of it comes from clean sources (renewables and nuclear). In this pathway, CCUS is not used in the UK by 2050. • Hydrogen Under this pathway, we use hydrogen to heat our homes and buildings, as well as to fuel many of the vehicles we drive in 2050 and power the UK’s industry. We adapt existing gas infrastructure to deliver hydrogen for heating and a national network of hydrogen fuelling stations supports the use of hydrogen vehicles. A large new industry supports hydrogen production using natural gas and capturing the emissions with CCUS. • Emissions removal Under this pathway, sustainable biomass power stations are used in tandem with CCUS technology. Carbon is removed from the atmosphere by plants (biomass) as they grow and, when the biomass is used to generate electricity, emissions are captured and stored instead of returning to the atmosphere. There is still a significant clean transition in other sectors but successful innovation in emissions removal allows more time for some of these changes. These illustrative pathways should not be seen as predictions, as we are continuing to build our understanding of the best approach. The ultimate way forward might in fact be some combination of these, or another approach that builds on further innovation. This approach will also be consistent with Government’s commitments on clean air out to 2050. The purpose of these illustrations is to demonstrate a range of practical ways in which emission reduction aims can be delivered with technology known today, and to underline some of the steps common to all. These • making our homes and commercial buildings • shifting to low carbon sources of heating, such as through more district heating; • continuing to decarbonise electricity; • ensuring our electricity system is smart and flexible to respond to changes in demand and decarbonise at least cost; • increasing the number of ultra low emission • working with industry on how to improve efficiency and transition to clean fuels. Greenhouse Gas Removal Technologies As the UK approaches 2050, its remaining emissions will likely be in the sectors where it is the most difficult to cut them – in industry, agriculture, aviation and shipping.
Under the Paris Agreement, as well as seeking to limit warming to well below 2 degrees, and to pursue 1.5 degrees, the UK is committed to working with other countries to achieve global net zero emissions in the second half of the century 153. This will require a step change in action to tackle climate change and has strong links to how the Sustainable Development Goals will be 153 This means that global GHG emissions will not be greater than the amount of GHGs which are absorbed through natural processes or technology. As highlighted by the Committee on Climate Change154, greenhouse gas removal (GGR) technologies are likely to have an important role to play in offsetting difficult-to-cut emissions, by removing greenhouse gases from the air. As we learn more about how GGRs could be developed and deployed, we want the UK’s entrepreneurs, universities and engineering industries to be well placed to exploit the advantages of global demand for these new There is a diverse set of GGR technologies with varying potential scale and at varying stages of development. These include afforestation, bio-energy with carbon capture and storage (BECCS), direct air capture (capturing carbon dioxide from the air and storing it), enhanced weathering (crushing suitable rocks that react with carbon dioxide and spreading over land), and methods for storing carbon in the oceans, We are therefore taking active steps to strengthen our understanding of these technologies and, where appropriate, move forward with deployment. The Government’s strategic approach to GGR has two main • A Government programme of research and development, which aims to improve our understanding of GGR technologies, to help overcome the uncertainties around their costs, deployment potential, and impacts on the environment. We have been working with the Research Councils, who launched a new £8.6 million research programme looking at all GGR technologies in April 2017. We will also develop robust estimates of sustainable biomass resource available to the UK, reporting during 2018, and consider Royal Society scientific views • The Government will consider the scope for removing barriers and strengthening incentives to support the deployment of GGR, to position the UK at the leading edge of GGR development. This includes, for example, considering options for developing a carbon offset market and exploring how UK timber could be used in construction. We are also considering how best to take forward CCUS, as set out in ’Improving Business and Industry Efficiency and Supporting Clean Growth’. We will conduct a study on how GGR activity can be incentivised, in the UK and in other countries, which will help us develop policy and accounting frameworks fit for the future. And we will also consider how legal, financial and regulatory frameworks could support the rollout of We will develop our strategic approach for GGR technologies, including consideration of whether to reprioritise existing innovation spend, in light of these pieces of work. As well as seeking to limit warming to well below 2 degrees, and to pursue 1.5 degrees, the Paris Agreement includes an aim of achieving net zero global greenhouse gas emissions in the second half of the century. Our obligations under the Climate Change Act only take us to 2050, and the Government agrees with the Committee on Climate Change that now is not the right time to set a post-2050 net zero goal. We need to understand more about the global path to net zero emissions, and believe that our focus should be on meeting our existing targets. However, the Government believes the UK will need to legislate for a net zero emissions target at an appropriate point in the future, to provide legal certainty on where the UK is heading. 154 Committee on Climate Change (2016) UK climate action following the Paris

Department for Business, Energy and Industrial Strategy The Emissions Intensity Ratio (EIR) This will measure the amount of greenhouse gases (tonnes of carbon dioxide equivalent) produced for each unit of Gross Domestic Product (GDP) created. Currently the EIR is 270 tonnes/£ million and it was 720 tonnes/£ million in 1990. By 2032, we expect the EIR will need to be nearly as low as 100 tonnes/£ million to meet our ambitions. Measuring the Delivery of the Clean This Strategy sets out a comprehensive set of policies and proposals that will allow us to accelerate the pace of clean growth. We want to continue the UK’s strong economic growth while achieving that growth in a way that sees emissions fall. Between 1990 and 2016 emissions fell by 42 per cent whilst GDP grew by 67 per cent which meant that the “emissions intensity” of our economy – the amount of carbon emitted for each pound of national income generated - fell by four per cent per year on average. We want to build on this success and accelerate clean growth. To reach our targets, the emissions intensity will have to fall by an average five per cent per year to 2032. We will therefore introduce a new measure of progress, the Emissions Intensity Ratio (see below) and publish our performance against this intensity ratio on an annual basis. Emissions Intensity Ratio (tonnes per £ million)

To maintain cross-Government progress on clean growth, we will reinstate a regular Clean Growth Inter-Ministerial Group, which will be responsible for monitoring the implementation of this Strategy and driving ambitious clean The Government cannot achieve the changes needed to our economy by itself. Outside action on public sector emissions, the Government’s key role is to set the framework for action across the economy. Beyond that, clean growth has to be a shared endeavour between Government, business, civil society and the British people. Creating this supportive environment will help attract the domestic and international investment the UK wants. Therefore, from 2018, we will work with private partners and NGOs to introduce a Green Great Britain Week, to engage as many people as possible in the importance of tackling climate change and improving air quality.
A week of high profile activity, this will be an opportunity to both celebrate UK leadership on climate change and look ahead to explore how we can continue to drive ambitious action in the future. This annual event will be an important moment to bring together all parts of society, from business through to the general public, to better understand the different ways the UK can further harness clean growth to boost economic performance, reduce emissions and • Focus on climate and air quality issues across the UK, demonstrating how all parts of the country and sectors of the economy are working towards a cleaner future. • Demonstrate our progress and successes by showcasing how taking action on climate change and air quality can provide opportunities for UK businesses • Share the latest climate science, providing a platform for the latest research on the impacts of climate change and the importance of taking ambitious action. • Promote UK leadership on tackling climate change and air quality across our economy, and how we are driving forward innovation to create economic opportunities from reducing emissions, especially to international investors. Since 1990, emissions from business and industry have almost halved, mainly due to efficiency gains and a shift in manufacturing to cleaner fuels, as well as changes to the industrial structure of the UK economy. Much of this reduction has taken place in the most energy intensive industries. For instance, each tonne of steel produced in the UK requires 40 per cent less energy to produce than 40 years ago155. In addition, we have also improved the energy efficiency of non-domestic buildings since 1990 with emissions 18 per cent lower in 2015 156. The number of properties registering as having the lowest Energy Performance Certificates (EPC Bands F and G) has dropped from 19 per cent to 13 per cent between 2010 and 2016157. 155 WSP and Parsons Brinckerhoff & DNV GL (2015) Report prepared for DECC & Industrial Decarbonisation & Energy Efficiency Roadmaps to 2050 gov.uk/government/publications/industrial-decarbonisation-and-energy-efficiency-roadmaps-to-2050 156 BEIS (2017) Final UK greenhouse gas emissions national 1990-2015 final-uk-greenhouse-gas-emissions-national-statistics-1990-2015 157 DCLG (2017) Live tables on Energy Performance of Buildings Certificates live-tables-on-energy-performance-of-buildings-certificates 158 BEIS (2016) Business population estimates 2016 BEIS (2014) Non-domestic National Energy Efficiency Data-Framework (ND-NEED) Micro (<10 employees) Small (10-49) Medium (50-249) Large (250+) Derived from Business population estimates, Non-Domestic National Energy Ef/f_iciency Data-Framework and Business Energy Ef/f_iciency Survey

Department for Business, Energy and Industrial Strategy Overall, business and industry now account for approximately 25 per cent of the UK’s emissions (excluding fluorinated gases or F-gases) 159, with around two thirds of industrial emissions coming from a small number of energy intensive sectors (for example chemicals, iron and steel)160. Businesses and industry are also major users of electricity, accounting for over 50 per cent of We now have a much greater understanding of the potential for cost-effective energy efficiency in the commercial and industrial sector. Our analysis says that up to £6 billion162 could be saved in 2030 through investment in cost-effective energy efficiency technologies. Roughly half of these savings are available through improving the efficiency of buildings and processes, including by fitting better insulation and smarter energy controls. The other half can be realised through eliminating electricity waste in business for example using better lighting and energy management systems. This is consistent with research from EEF, the manufacturers’ trade association, which found that a 14 per cent reduction in electricity consumption could be made across the manufacturing sector, equivalent to over £1 159 BEIS (2017) Final UK greenhouse gas emissions national 1990-2015 final-uk-greenhouse-gas-emissions-national-statistics-1990-2015 160 BEIS (2017) Final UK greenhouse gas emissions national 1990-2015 final-uk-greenhouse-gas-emissions-national-statistics-1990-2015 161 BEIS (2017) Digest of UK Energy Statistics 2017 162 Total energy efficiency potential across business and Industry 163 EEF (2016) Upgrading Delivering a flexible electricity system 164 Excluding expenditure on energy used for raw material extraction or transformation to other fuels (e.g. oil extraction and refining) and excluding energy used for transportation Energy Consumption in the UK & Building Energy Ef/f_iciency Survey

The Government is determined to help businesses improve their productivity and competitiveness as part of our Industrial Strategy. This includes working together to unlock any potential energy savings to help keep bills as low as possible. Our goal is to enable businesses and industry to improve energy efficiency by at least 20 per cent by 2030. This will contribute to overall economic growth by reducing the amount of energy required per unit of output. We will take a final decision on the level of this goal and how best to measure progress toward it in 2018, taking into account the recommendations of the independent review into the cost of energy, led by Professor Dieter Helm CBE. CRESS Systems, based in Darlington, have developed a flywheel to reduce the energy required to drive cranes at shipping ports. They received Energy Entrepreneurs Fund grants of £800,000 to build and test the first system at the Port of Felixstowe. Since then, they have secured investment from Enterprise Ventures’ Northern Powerhouse Investment Fund and private investors to finalise the product and make first sales into the port

Department for Business, Energy and Industrial Strategy The Government will put in place a simpler, more ambitious and long-term policy and regulatory framework. This • Make it easier for businesses to identify where they can save energy by simplifying the energy and carbon reporting framework. • Ensure that those who lease premises to businesses, including in the service sector, continue to refurbish and improve the performance of their buildings. In parallel, all new commercial and industrial buildings should be more energy efficient. • Help to understand how we can encourage greater investment in energy efficiency measures and technologies, including establishing an Industrial Energy Efficiency scheme to help large companies install measures to cut their energy use, and working with the financial sector to identify how such measures can be taken forward. Energy intensive industries will require steps beyond energy efficiency.
Out to 2030, this will require industry to make progress in switching from fossil fuel use to low carbon fuels such as sustainable biomass, in line with broader Government priorities on delivering clean air, and clean electricity. Beyond 2030, this switching will need to substantially increase in scale and be coupled with the deployment of new technologies, for example carbon capture, usage and storage (CCUS). Over the course of this Parliament, we will therefore also develop a framework to support the decarbonisation of heavy industry. Overall, one possible pathway to 2032 could involve emissions from business and industry falling by around 30 per cent on today’s levels to as low as 83 Mt by 2032. Emissions from the business and industry sectors have decreased by 47% since 1990 account the clean growth pathway, 1990-2050

The UK energy efficiency sector already turns over £20.3 billion, employs 144,000 people and sells exports worth over £1 billion 166. We know the potential for further energy efficiency in businesses and industry is significant - up to £6 billion could be saved by 2030 through investment in cost-effective energy efficiency technologies in buildings and industrial processes. As well as reducing bills across the UK, building the energy efficiency market would place UK businesses and industry in a prime position to further increase the export of knowledge, skills and products to other countries. It would also involve greater flows of external finance, a sector where the UK is already a market leader. For example, the UK energy services market is estimated to have a potential annual size of €1 billion per year and would require significantly more third party finance than we see currently167. 165 BIS, DECC (2017) Industrial Decarbonisation and Energy Efficiency Roadmaps to 2050 and-energy-efficiency-roadmaps-to-2050 ‘Fuel switching’ includes a small amount of bioenergy used for feedstock 166 ONS (2017) Low Carbon and Renewable Energy Economy Survey, final 2015 167 EC (2014) The European ESCO Market Report 2013 european-esco-market-report-2013 2050 Roadmaps Cross-Sector Summary report (2015). This illustrates the technical potential for emissions savings in the report’s ‘MAX TECH’ pathway. Carbon reduction opportunity (Mt)

Department for Business, Energy and Industrial Strategy Unlocking Business Energy Efficiency 1. The Government will develop a package of measures to support businesses to improve how productively they use energy and will consult on this in 2018, with the aim of improving energy efficiency by at least 20 2. The Government will ensure incentives for investment in energy efficiency are regularly reviewed, for instance the list of products that qualify for enhanced capital allowances 3. We will continue with plans to close the CRC Energy Efficiency Scheme following the 2018-19 compliance year. We will drive energy efficiency by implementing the previously announced increase to the main rates of the Climate Change Levy 4. We will undertake an evaluation of the Climate Change Agreements to inform any 5. The Government will build on existing schemes such as the Energy Savings Opportunity Scheme (ESOS), undertaking a comprehensive assessment of its effectiveness and consider any future 6. The Government will work with stakeholders to improve the market for energy services, building confidence across commercial and 7. Alongside this Strategy, we are consulting on a new and streamlined energy and carbon reporting framework to replace some existing schemes, such as the reporting element of the CRC Energy Efficiency Scheme, and align with mandatory annual greenhouse gas reporting by UK quoted companies. This will improve the way in which businesses report their energy use, and provide businesses with the information needed to identify how they can reduce 8. The Government will establish an Industrial Energy Efficiency scheme to help large companies install measures to cut their 9. We are consulting on the design of a new industrial heat recovery programme. This £18 million fund will encourage investment by manufacturers to recover and reuse heat from industrial processes that would 10. The Government will explore with stakeholders how we can improve the provision of information and advice to SMEs to encourage the uptake of energy efficiency

More Energy Efficient Commercial and 11. The Government has commissioned an independent review of Building Regulations and fire safety, being led by Dame Judith Hackitt. The review will report in spring 2018. Subject to the conclusions of that review, the Government intends to consult on making improvements to Building Regulations requirements for new and existing commercial buildings where there are cost- effective and affordable opportunities, and it is safe and practical to do so. This will look to promote low carbon and higher energy efficiency heating, ventilation and air conditioning systems in new commercial 12. 42 per cent of business buildings’ energy use is in the private rented sector 168. We will consult in 2018 on how best to improve the energy performance of these buildings through tighter minimum energy standards. 13. The Government will explore how voluntary building standards can support future improvements in business building 14. As we work to understand different options for the long term decarbonisation of heat, we will need to tackle the challenge of those business properties off the gas grid, particularly those heated by oil boilers and facing volatile costs. Beyond support through the Renewable Heat Incentive (RHI), our ambition is to phase out the installation of high carbon fossil fuel heating in new and existing business buildings off the gas grid during the 2020s, starting with new buildings as these lend themselves more readily to other forms of low carbon heating. We will involve businesses and industry in developing our new policy, in line with broader Government priorities on delivering Anglian Water’s ‘Love Every Drop’ campaign aims to significantly reduce carbon emissions, including in their supply chain, and encourage customers to be more resource efficient and cut down their carbon emissions. Their manifesto, published in 2015, aims to raise awareness about how essential water is to life, to people and the environment, and to a vibrant and growing economy too. This helped to save £2.5 million in energy costs in 2016.
They have also issued the first ever public utility green bond this year, raising £250 million to finance a range of sustainable projects and support the company’s vision of sustainability, carbon reduction, water efficiency and environmental stewardship. 168 BEIS (2016) Building Energy Efficiency Survey (BEES)

Department for Business, Energy and Industrial Strategy 169 All figures are indicative and are subject to competitive bidding processes across sectors and value for money tests Transforming Manufacturing and 15. Alongside this Strategy, we have published joint industrial decarbonisation and energy efficiency action plans with seven of the most energy intensive industrial sectors, building on three years of joint industry-Government co-operation. These action plans identify steps by industry and Government that can be taken now to support long term low carbon growth, energy efficiency and emissions reductions on a sector by sector basis. These include the sharing of best practice and innovation opportunities, including through a new online portal, facilitating dialogue to improve access to finance and cross-sector consideration of the best uses of biomass across industry. 16. The Government remains committed to using carbon pricing as an emissions reduction tool and will ensure that a clear price signal continues to incentivise industrial 17. We will develop a framework to support the long term low carbon development of energy intensive industrial processes, such Government Innovation Investment The Government expects to invest around £162 million169 of innovation funding out to 2021, in research, development and demonstration of energy, resource and process efficiency alongside better low carbon fuels and CCUS. • Energy We need to drive down the cost of new technologies to integrate them into existing processes and improve performance without affecting reliability. The Government is providing £9.2 million for an Industrial Energy Efficiency Accelerator, to help reduce the emissions from UK industry by increasing the commercially viable • Processes, resource and material Over time we will need to replace materials which are energy intensive to produce with lower carbon ones at competitive prices, known as “advanced materials”. Government will work through Industrial Strategy sector deals and the Industrial Strategy Challenge Fund to stimulate innovation in advanced materials. We will also need to encourage more resource efficient business models, extend product life and reduce waste volumes. The Industrial Digitalisation Review will investigate how the design, development and deployment of digital technologies can drive increased

170 CCSA & TUC (2014) The economic benefits of carbon capture and storage in the UK 171 Large-scale CCS facilities Carbon Capture, Usage and Storage There is a broad international consensus that carbon capture, usage and storage (CCUS) has a vital future role in reducing emissions. This could be across a wide range of activities such as producing lower-emission power, decarbonising industry where fossil fuels are used and/or industrial processes as well as providing a decarbonised production method for hydrogen which can be used in heating and transport. This makes CCUS a potentially large global economic opportunity for the UK. The International Energy Agency estimates there will be a global CCUS market worth over £100 billion - with even a modest share of this global market, UK GVA could increase to between £5 billion and £9 billion per year However, the current technology is expensive and there are only 21 large-scale plants operating, or in construction, across the world – of which 16 rely on revenue from providing carbon dioxide for enhanced oil recovery171. Our Clean Growth Strategy is underpinned by three to reduce our emissions in the most cost-effective to maximise innovation to develop world leading technologies and to seek the maximum possible benefits from investment for improving the productivity of the UK economy. While we have explored ways to deploy CCUS at scale in the UK since 2007, the lack of a technological breakthrough to reduce the cost of CCUS and the cost structures and risk sharing that potential large-scale projects have demanded has been too high a price for consumers and taxpayers. It is clear from the relative lack of deployment of the technology that other governments have reached a However, we have continued to invest in innovation and technology development both in the UK and overseas. To date we have invested over £130 million in R&D and innovation support to develop CCUS in the UK, supporting the development of technologies including NET Power’s Allam cycle, Carbon Clean Solutions and C-Capture. We are also one of the leaders in providing aid support to CCUS internationally through our support to CCUS pilot projects in countries with a fossil fuel-intensive energy sector, such as Mexico, • Fuel Firing industrial processes with low carbon fuels (such as hydrogen) is currently viewed as prohibitively expensive and disruptive. Innovation can prove the viability of these fuels without impacting operations. Government will invest up to £20 million in competitions from 2018, initially for research followed by competitions for demonstrator projects across industry. Department for Business, Energy and Industrial Strategy Carbon Capture, Usage and Storage Investing in cutting edge technology to achieve global cost reductions in CCUS As a global leader in supporting the development of cutting edge technologies, the Government provided £7.5 million for the early development support to the UK invented Allam cycle technology used by NET Power. This technology has the potential to capture 100 per cent of the carbon dioxide emitted at a cost similar to that of an unabated Combined Cycle Gas Turbine This early support from the Government in a cutting edge technology has been critical to developing the technology and for the 8 Rivers NET Power project to reach demonstration scale. In March 2016, construction began on the NET Power pilot project, a 50 MWth first-of-its-kind natural gas-fired power plant located in Texas and the plant is expected to start operations in late 2017. The pilot project also includes significant UK content with two UK companies – Goodwins Steel Castings Ltd and Heatric involved in the project.
We now see a new opportunity for the UK to become the global technology leader for CCUS, working internationally with industry and governments to bring about global cost reductions. We will do this Re-affirming our commitment to deploying CCUS in the UK subject to cost We will build on the success of the Offshore Wind Cost Reduction Taskforce 172 and convene a CCUS Cost Challenge Taskforce to deliver a plan to reduce the cost of deploying CCUS. This will then underpin a deployment pathway for CCUS in 2018, setting out the steps needed to meet our ambition of deploying CCUS at scale during the 2030s, subject to costs coming down sufficiently. This will include looking at the options for permanent storage of carbon dioxide domestically as well as elsewhere via Following the advice from the Parliamentary Advisory Group on CCUS the Government will review the delivery and investment models for CCUS in the UK to understand how the barriers to deployment can be reduced, and how the private and public sectors can work together to deliver the Government’s ambition We will work with the ongoing initiatives in Teesside, Merseyside, South Wales and Grangemouth to test the potential for development of CCUS industrial decarbonisation clusters. We will set up a new Ministerial-led CCUS Council with industry to review our progress and priorities. Through the CCUS Council we will also monitor costs and deployment potential with the option of revising our 172 Offshore Wind Cost Reduction Taskforce

International The Government will convene and lead a new international working group to drive down the cost and accelerate deployment of CCUS, including • Participating in Mission Innovation and its Carbon Capture Challenge and working closely with private-sector led initiatives such as the Oil and Gas Climate Initiative; • Developing closer collaborative working with countries such as Norway, the United States, Canada and Australia including joint working on innovation and carbon dioxide transport and storage solutions and working multi-laterally through the Carbon Sequestration Leadership Forum and North Sea Basin Task Force; • Continuing to be a global leader in CCUS investments through the UK’s £60 million international CCS programme which has been running since 2012, by investing a further £10 million in the programme. This will further strengthen international action on CCUS and draw on UK technical and • Organising an international Global Carbon Capture Usage and Storage Conference in 2018 with international partners. The Government will spend up to £100 million from the BEIS Energy Innovation Programme to support Industry and CCUS innovation and deployment in the UK including £20 million of funding available for a carbon capture and utilisation demonstration programme to invest in new innovative technologies that capture and utilise carbon dioxide. The programme will also support next generation capture technologies, with an aim to lower the cost of capture compared to the current best performing technologies; and small-scale industrial capture demonstrations to reduce the risks associated with carbon capture on an industrial site. We also intend to support the application of CCUS in low carbon hydrogen production; develop our understanding of the role of GGR technologies, including bio-energy with carbon capture and storage; and support innovations that reduce the cost of transporting and storing carbon dioxide. The Government intends to set out Investing in supporting new UK CCUS The Government has provided over £4 million to support Carbon Clean Solutions Ltd, a UK headquartered company. This has supported the research, development and deployment of their novel carbon capture solvent technologies contributing to cost reductions in both the capital and operating costs of the In early 2017, building on this early support from the UK Government, Carbon Clean Solutions launched an innovative carbon capture and utilisation project in India. In March 2017 Carbon Clean Solutions signed a partnership agreement with the global resource management company, Veolia, for a large-scale rollout of Carbon Clean Solution’s carbon capture technology in a number of

Department for Business, Energy and Industrial Strategy Homes now account for 13 per cent 173 of the UK’s emissions (rising to 22 per cent once electricity use is taken into account 174). The average household’s energy consumption has fallen by over 17 per cent since 1990 175. This has been driven by a combination tighter building and products standards, in particular better boilers; the uptake of insulation and other energy efficiency measures, mainly delivered through obligations on energy suppliers; and greater awareness of potential energy savings. While there are now approximately a quarter more homes than in 1990, the overall total of emissions from the sector has reduced by about a fifth over this period176. 173 BEIS (2017) UK Greenhouse Gas Emissions 174 BEIS (2017) Annex 1990 – 2015 Final emissions by end user and fuel type Annex_1990-2015_Final_emissions_by_end_user_and_fuel_type.pdf A minor adjustment for fluorinated gases has been made, which are accounted with the Natural 175 BEIS (2017) Energy Consumption in the UK Change in average consumption per 176 BEIS (2017) UK Greenhouse Gas Emissions BEIS Energy Consumption in the UK, 20171990 Total /f_inal energy consumption Total emissions

Reducing emissions through the measures listed above not only creates better quality homes but cuts the costs of heating them. Almost 79 per cent of homes in England in 2015 had an Energy Performance Certificate (EPC) rating of Band D or better compared to 39 per cent in 2005 177. Upgrading energy efficiency from an EPC Band E to an EPC Band D reduces energy costs by £380 per year on average. For example, the annual running cost of a Band C rated home are £270 lower than the average Band D rated home and £650 less than the average Band E rated home178. Improved energy efficiency also offers substantial health benefits. There is a clear link between cold homes and ill-health, where existing conditions (such as respiratory illnesses or mental health conditions) are exacerbated. The Building Research Establishment (BRE) has estimated, conservatively, that the cost of cold and damp homes to the NHS is approximately £760 million per year 179.
Increasing resilience to rising temperatures is also a potentially significant climate change challenge and we are undertaking research into whether further measures on overheating are necessary for DCLG (2017) English Housing Survey 2015 to 2016 BEIS analysis based on English Housing Survey data Building Research Establishment (2011) The cost of poor housing to the NHS BEIS analysis based on English Housing Survey data

Department for Business, Energy and Industrial Strategy Obligations on energy suppliers such as the Energy Company Obligation (ECO) are estimated to have reduced dual fuel customers’ bills by over £800 million across the UK in 2016 181. Since 2013, ECO has driven the installation of 2.1 million energy efficiency measures in 1.7 million properties 182. Separately, the Domestic Renewable Heat Incentive has enabled householders to install over 55,000 low carbon heating technologies such as heat pumps, biomass boilers and In particular, progress has been made to upgrade the homes of those living in fuel the number of fuel poor households in England living in homes at energy efficiency rating E or below reduced from 1.8 million in In parallel, the roll-out of smart meters is helping to give households more control over their energy use, based on near real-time information. As of June 2017, 7.7 million smart and advanced meters were operating in homes and small business sites across the country185. 182 BEIS (August 2017) Household Energy Efficiency National Statistics 183 BEIS (July 2017) Renewable Heat Incentive Statistics 184 BEIS (2017) Fuel Poverty Trends 185 BEIS (Quarter 2 2017) Smart Metering Statistics Emissions from homes have decreased Emissions from homes could need

186 Conservatives (2017) 187 BEIS analysis based on English Housing Survey data We want to further reduce emissions from homes while ensuring that everyone has a home that is comfortable, heathy and affordable to run. Our objective is to ensure our policies will encourage people to improve their homes where it is cost effective and affordable for them to do so. One possible pathway to 2032 could involve emissions from homes falling by almost one fifth compared to today, to around To achieve this 2032 pathway, we will need to ensure existing buildings waste even less energy. This pathway could see a further six to nine million properties insulated, especially focusing on those in fuel poverty where we are aiming to have the 2.5 million fuel poor homes in England improved to energy efficiency rating C or better by 2030 186. More broadly, our aspiration is that as many homes as possible are improved to EPC Band C by 2035, where practical, cost-effective and affordable. Reducing demand for energy will not be enough on its own to meet our ambitions for homes. By 2050, we will also likely need to fully decarbonise how we heat our homes. There are a number of low carbon heating technologies with the potential to support the scale of change needed, including heat pumps, using low carbon gases (such as hydrogen) in our existing gas grid and district heat networks. However, at present it is not certain which approaches or combination of them will work best at scale and offers the most cost-effective long-term answer. Decarbonising heat is our most difficult policy and technology challenge We will therefore need to lay the groundwork this Parliament so we are ready to make decisions in the first half of the next decade about the long term future of how we heat our homes, including the future of the gas grid (please see box below on the Future of Heat Decarbonisation). This includes support for innovation to test and bring down the cost of low carbon heating technologies, many of which are currently too expensive. Ahead of these decisions, we can take further action to reduce emissions from heating the 850,000 homes 187 currently not connected to the gas grid in England and that use oil for heating. We also need to avoid new homes needing to be retrofitted later and ensure that they can all accommodate low carbon heating. This could involve all new homes off the gas grid from the mid-2020s being heated by a low carbon system, such as a heat pump. Department for Business, Energy and Industrial Strategy The energy efficiency industry already contributes substantially to the low carbon economy, supporting 144,000 direct employees187. In 2016, investment in energy efficiency globally grew by nine per cent with substantial levels of global investment in energy efficiency predicted to deliver on the Paris Agreement. This is coupled with a potentially substantial domestic market of 27 million homes. The UK, therefore, has the opportunity to become a trusted leader in the quality, service and installation of low carbon and energy efficiency products and an exporter of knowledge, skills and products to other countries. These markets can build on the success of the UK gas boiler market – the biggest boiler market in the world, in terms of value and volume (the annual market value for boilers in the UK is around £2.5-£3 billion188) with some of the most experienced 187 ONS (2017) Low Carbon and Renewable Energy Economy Survey, final 2015 188 Delta Energy & Environment (2016) Heat Insight Service, August 2016 Briefing note Enfield’s award-winning Exeter Road Project combined energy efficiency measures with the installation of a ground source heat pump system to provide a new heating and hot water system to 185 flats. The new heating system is estimated to reduce fuel costs by 80 per cent per flat, saving residents as much as £500 a year. Exeter Road resident Ms Adeleke “I am very happy with the heating, it keeps my home warm all of the time. My old heating didn’t work properly all day and wasn’t in every room. It is cheaper to run than the other heating so far this winter.”

1. ECO will upgrade around a million homes, supporting £3.6 billion of investment. We have changed the scheme so it is more focused on households with low incomes.
We will extend support for home energy efficiency out to 2028 at least at the current level of ECO funding. We will review the best form of support beyond 2022 recognising the need to both save carbon and meet the Government’s commitment to upgrade all fuel poor homes to EPC Band C by 2030. 2. For privately rented homes, we have legislated so that from April 2018, landlords of the worst performing properties will need to improve those properties to a minimum of EPC Band E before they can be let, lowering bills for some of the most vulnerable private tenants while ensuring costs of improvements are reasonable and affordable. We will consult shortly on steps to make these regulations more effective. 3. The Government will look at a long term trajectory for energy performance standards across the private rented sector, with the aim of as many private rented homes as possible being upgraded to EPC Band C by 2030, where practical, cost-effective and affordable. We will consider options with a view to consulting in 2018. In addition, the Government will also look at how social housing can meet similar standards on the same timetable. When looking at this we will need to take account of the findings of the independent public inquiry into the fire at Grenfell Tower 189 and the Government’s separate work looking at wider social 4. We want all fuel poor homes to be upgraded to EPC Band C by 2030, and our aspiration is that, across the whole housing stock, as many homes as possible reach a similar standard by 2035, where practical, cost- 5. To build the market for energy efficiency, we need to make it as easy as possible for people to pay for and make home energy efficiency improvements. We are publishing a call for evidence on additional measures to encourage energy performance improvements, including a focus • Working with mortgage lenders to incorporate energy efficiency into their lending decisions, alongside developing innovative “green mortgage” products. The Government is now exploring ways that it could support the launch of more products, and further details are included • Looking at incentives and other levers that could encourage homeowners to invest in energy efficiency improvements. 189 Grenfell Tower Inquiry (2017) Terms of Reference 190 Prime Minister’s response of 15th August 2017

Department for Business, Energy and Industrial Strategy 6. We will work with industry to implement the independent, industry-led Each Home Counts191 review to improve quality and standards for all retrofit energy efficiency and renewable energy installations. 7. We will replace the existing, telephone- only Energy Saving Advice Service with a digitally-led service by spring 2018, working closely with the Each Home Counts implementation, offering tailored advice on improving the energy performance of 8. Homeowners expect building work that improves the energy efficiency of a property to be high quality, helping them reduce energy bills and making their homes more comfortable. The Government has commissioned an independent review of Building Regulations and fire safety, being led by Dame Judith Hackitt. The review will report in spring 2018. Subject to the conclusions of that review, the Government intends to consult on making improvements to Building Regulations requirements, so that any new work (i.e. extensions to a property and other building work) to existing properties meets a high standard of energy efficiency, where the evidence shows there are cost-effective and affordable opportunities and that it is safe and practical to do so. Any improvements would focus on the standards of the work carried out on properties itself, and would not include any wider “consequential” improvements to 9. Following the sale of the Green Deal Finance Company, the Government is publishing a call for evidence on how to reform and streamline the Green Deal framework to make the “Pay as You Save” system more accessible to businesses, while ensuring adequate protection for consumers. 10. It could be possible to extend EPCs to other trigger points and we will issue a Call for Evidence by spring 2018 seeking views in this area, as well as wider views on how EPCs could be further improved, in light of new sources of data and capabilities. As the EPC requirements derive from the Energy Performance of Buildings Directive, any future changes will need to be considered in the context of leaving the European Union. 11. Energy performance improvements installed in both new build and existing properties can fall short of expectations. The Government has commissioned an independent review of Building Regulations and fire safety, being led by Dame Judith Hackitt 192. The review will report in spring 2018. Following the outcome of this review and subject to its conclusions we will look at the potential for any further action on compliance and enforcement related to energy performance. We will also continue to explore innovative solutions to this problem, such as measuring actual building performance using data from smart meters, and working with the industry to develop a ‘quality mark’ to drive up 191 DCLG (2016) Each Home Review of Consumer Advice, Protection, Standards, and Enforcement for Energy Efficiency and Renewable Energy uk/government/publications/each-home-counts-review-of-consumer-advice-protection-standards-and-enforcement-for-energy-efficiency-and-renewable-energy 192 Grenfell Tower Inquiry (2017) Terms of Reference

193 BEIS (2017) Boiler Standards IA 194 BEIS (2016) The Renewable Heat A reformed and refocused scheme the-renewable-heat-incentive-a-reformed-and-refocused-scheme 195 Defra (2017) £200 million boost for rural England 12. We will ensure every home is offered a smart meter by the end of 2020 and we expect energy suppliers to make every effort to provide smart meters to all their customers. • Continue to work with suppliers to ensure that people are provided with tailored advice when a smart meter is installed; • Trial the provision of regular information about their energy use to encourage long- • Explore how the data available through the national smart metering platform can, with customers’ consent, support personalised recommendations for saving energy, more targeted policy interventions and help businesses develop energy 13.
Alongside this Strategy, the Government has published Boiler Plus, improving standards for the 1.2 million new boilers 193 installed in England every year and ensuring control devices are included with every installation so people can more easily control comfort in their own homes for less fuel from April 2018. Encouraging the Take-up of Cleaner 14. Through the Renewable Heat Incentive (RHI), we are spending £4.5 billion between 2016 and 2021 to support innovative low carbon heat technologies in homes and businesses, such as heat pumps, biomass boilers and solar water heaters. We are also reforming the RHI to focus the scheme towards long-term decarbonisation through greater uptake of technologies such as heat pumps and bio methane (biogas to grid)194. 15. Beyond the RHI, our ambition is to phase out the installation of high carbon fossil fuel heating in new and existing off gas grid residential buildings (which are mostly in rural areas) during the 2020s, starting with new homes as these lend themselves more readily to other forms of low carbon heating. In line with broader Government priorities on delivering clean air, we are considering a range of policy options to support this, and are investing £10 million in an innovation challenge fund to support low carbon heating systems. We will involve consumers and industry in developing our new policy so that it is straightforward for people to get new technologies installed. The Government will also explore the use of the £200 million package of Growth Programme and Countryside Productivity offers to support renewable energy projects 16. In the Spending Review 2015, we allocated funding out to 2021 to grow the UK heat networks market so it is self-sustaining in the longer term. This could support significant investment of private and other capital by 2021. This will enable the construction of heat networks in areas of high heat demand density such as urban centres, campuses and business parks, including in rural locations. Following recommendations from an industry taskforce, we will also examine the measures necessary to create an effective long-term market framework for

Department for Business, Energy and Industrial Strategy 196 All figures are indicative and are subject to competitive bidding processes across sectors and value for money tests. 17. The Government has commissioned an independent review of Building Regulations and fire safety, being led by Dame Judith Hackitt. The review will report in Spring 2018. Following the outcome of the independent review, and subject to its conclusions, the Government intends to consult on improving requirements for new homes where the evidence suggests that there are cost-effective and affordable opportunities, and it is safe and practical to do so. This will look to ensure that new homes are future- proofed for the installation of lower carbon heating systems where this is cost-effective and affordable. This will help to phase out high carbon fossil fuels in the future, starting Government Innovation Investment The Government expects to invest £184 million196 out to 2021 in research, development and deployment of innovative energy efficiency and heating technologies, and the gas network. These will address the key innovation challenges to meet our long-term goals, • Developing better energy efficiency and heating technologies. We need innovation in products, supply chain capacity and skills, and new business models to reduce the expense and challenge of retrofit solutions. To deliver this the Research Councils are investing over £70 million in energy efficiency, including £22 million in buildings research. In addition, we will • A new £10 million grant fund for the innovation of new insulation materials, installation methods and business models • A further £10 million grant fund will focus on making low carbon heating technologies more affordable, better performing, and attractive to the • We also need to ensure that existing regulation does not impede the development of new low cost energy efficiency technologies. This will be considered as part of our call for evidence on additional measures to encourage energy improvements alongside this • Building lower cost, low carbon homes . New methods in construction including factory production and off-site manufacturing may help us build new energy efficient homes more quickly and more cheaply. The Government is currently tendering a £1.4 million three-year research project to address the drivers, barriers, and challenges

197 BEIS (July 2017) Funding for innovative approaches to a low carbon built environment funding-for-innovative-approaches-to-using-hydrogen-gas-for-heating • Behaviour change . Innovation can help overcome non-financial barriers, in particular behavioural barriers, to energy efficiency. Research Councils are planning to invest around £19 million to research how people’s energy choices can help them stop wasting as much energy. Government is investing in smart ways of developing heating services, with work led by the Energy Systems • Network solutions. To inform the decisions that will be needed on our long term approach to decarbonising heat (please see box below on the Future of Heat Decarbonisation), we will run a £25 million project on using hydrogen as an alternative to natural gas197, including looking at regulatory standards and the development of appliances. • Supporting innovation through policy instruments. We recognise that the way in which Government policies are designed can have an impact on the rate of deployment of new, innovative low carbon and energy efficient technologies. As such, we will explore ways in which we could make it easier for innovative approaches or products to be installed under our consumer-facing schemes such as ECO – potentially reducing costs, improving the overall performance of the technologies, and building a stronger evidence base on • Ofgem is making available up to £195 million for gas network companies in Great Britain to develop and demonstrate new technologies as well as new operating and Econovate, based in Hemel Hempstead produce construction ‘blocks’ made from recycled waste which might otherwise end up in landfill. They received an Energy Entrepreneurs Fund grant of £800,000, and their product is now fully certified for use.
Econovate have subsequently raised over £645,000 capital funding to grow the manufacturing of their award winning product which has a high level of performance, saving more than 300kg of CO 2 per cubic metre compared to standard concrete, and which is four times stronger than current blocks. Department for Business, Energy and Industrial Strategy The Future of Heat Decarbonisation Heating our homes, businesses and industry accounts for nearly half of all energy use in the UK and a third of our carbon emissions. Nearly 70 per cent of our heat is produced from natural gas. Meeting our target of reducing emissions by at least 80 per cent by 2050 implies decarbonising nearly all heat in buildings and most industrial processes. Reducing the demand for heat through improved energy efficiency will have an important role to play but will not by itself suffice to meet our 2050 target. We need to lay the groundwork in this Parliament to set up decisions in the first half of the next decade about the long term future of heat. The demands on our energy infrastructure will change as low carbon heating technologies take over from fossil fuels, with a greater dependence on electricity and potentially new infrastructure needed for system balancing and the generation of low carbon gases. Supply chains will need time to grow to provide products and services consumers across the country will need. There is a range of low carbon heating technologies with the potential to support the scale of change needed. These include the electrification of heating with households moving away from gas or oil boilers, to electric heat pumps; decarbonising the gas grid by substituting natural gas with low carbon gases like biogas and hydrogen; and heat networks (which are likely to be particularly effective in dense urban areas). At present, it is not clear which approach will work best at scale and offer the most cost-effective, long term answer. We will work with industry, network operators, manufacturers, and consumers to achieve a clear and shared understanding of the potential as well as the costs and benefits and implications of different pathways for the long term decarbonisation of heat. This includes modelling the costs and benefits of different approaches, establishing the likely level of change for households and demands on the electricity grid building on the work of Government has commissioned research into different heat demand scenarios, the use of hydrogen, what changes might be needed to the electricity grid in response to large scale uptake of heat pumps, the role that bioenergy might play in decarbonising heat and international activity. We plan to publish initial findings from a number of studies later this year, and a full report on our review of the

198 BEIS (2017) Final UK greenhouse gas emissions statistics 1990-2015 final-uk-greenhouse-gas-emissions-national-statistics-1990-2015 199 Provisional statistics suggest that GHG emissions from transport may show an increase 1990-2016. BEIS (2017) Provisional UK greenhouse gas emissions statistics 2016 200 Fuel efficiencies are from DfT modelling using DfT (2017) Vehicle statistics; ICCT (2015) From Laboratory to A 2015 update 201 DfT (2016) Road traffic estimates in Great 2015 Measured in ‘vehicle miles’ which combines the number of vehicles on the road and how far they drive. 202 DfT (2017) Licensed vehicles and new registration tables VEH0102 203 BEIS (2017) Final UK greenhouse gas emissions statistics 1990-2015 final-uk-greenhouse-gas-emissions-national-statistics-1990-2015 Transport emissions in 2015 were down two per cent compared to 1990198,199. While new cars in the UK are up to 16 per cent more efficient than they were in 2000 200, this improvement has been largely offset by a nine per cent increase in road traffic to 2015 201, with the number of registered vehicles increasing over the same period from 28.9 million to 36.5 million 202. The transport sector now accounts for 24 per cent Road transport travel (km) Road transport emissions intensity (grams/km)

Department for Business, Energy and Industrial Strategy Improvements by manufacturers in the fuel efficiency of vehicles have largely been driven by tighter regulation, mainly set at EU level 204. Driving a new car bought in 2015 would have saved car owners up to £200 on their annual fuel bill, compared to a car bought new in the The fuel we use in our cars is also lower carbon, with the Renewable Transport Fuel Obligation (RTFO) driving the greater use of biofuels. Biofuels now account for around three per cent of fuel sales, with around half of that derived from wastes 206. Average greenhouse gas savings from biofuels are around 70 per cent compared to petrol and diesel207. The RTFO has stimulated around £1 billion of investment in UK production facilities 208 including, for instance, Argent Energy’s £75 million production plant in Cheshire which is using innovative technology to turn sewage waste into biodiesel209. We are now seeing greater innovation from carmakers, beyond the internal combustion engine, as the world accelerates towards mass adoption of zero emission vehicles. The UK now has over 115,000 ULEVs on the road 210. ULEV uptake has been driven through a combination of grants, which reduce the upfront costs of ultra low emission cars by up to £4,500211, together with improved charging infrastructure 212 and new approaches like the £40 million Go Ultra Low Cities scheme, through which eight local authority areas are trialling local initiatives including city centre charge point hubs, free parking and access to bus lanes for ULEVs213. On public transport, Government has invested £37 billion in the public transport system between 2011 and 2016 214. Rail passenger journeys are now at their highest level since the 204 With a target of 95g/km for cars in 2021 (down from 146g/km in 2009) - Reducing CO2 Emissions from passenger cars, 205 Annual average household saving from driving a car purchased new in 2015 (the latest year for which data is available) compared to driving a car purchased new in 2000. Fuel savings valued using 2015 prices.
DfT (2017) National Travel Survey; DfT (2017) Vehicles Statistics; ICCT (2015) From Laboratory to Road; BEIS (2016) Green Book supplementary appraisal guidance 206 DfT (2017) Renewable Transport Fuel Obligation Period 9 2016/17, report 2 207 DfT (2017) Renewable Transport Fuel Obligation Period 8 2015/16, report 6 208 DfT (2014) Renewable Transport Fuel Post Implementation Review renewable-transport-fuel-obligation-a-draft-post-implementation-review 209 DfT press release (2016) Transport Minister views plans to boost Port of Liverpool transport-minister-views-plans-to-boost-port-of-liverpool 210 DfT (2017) Vehicles registered for the first time by body type, Great Britain and United Kingdom 211 Currently up to £4,500 for cars, £1,500 for motorcycles, £8,000 for vans, £7,500 for taxis, and through competitive funding support for low emission buses and taxis. 212 Currently up to £500 for home charge-points, up to £300 per socket for workplace charging and up to £7,500 per charge points for local authorities putting charging 213 £40 million to drive green car revolution across UK cities 214 HM Treasury (2016) Country and regional 2016 215 DfT (2017) Rail Trends Factsheet 2016

We want a more modern transport system – one that is clean, affordable and easy to use. That means cutting our carbon dioxide emissions, and improving our air quality – clean air is one of the most basic requirements of a healthy environment for us all to live, work and To meet our 2050 target, almost every car and van will need to be zero emission by 2050. The Government has announced an end to the sale of all new conventional petrol and diesel cars Emissions from heavy goods vehicles (HGVs) will also need to reduce significantly to make a meaningful contribution towards meeting the UK’s overall 2050 target. Walking and cycling will be made easier for many shorter journeys. By 2040, we want cycling and walking to be the natural choices for shorter journeys, or as We will continue to modernise our aviation and shipping sectors, both through international action, such as standards and offsetting schemes, and domestically, for example through support for sustainable alternative fuels, improved efficiency and new technologies216. One possible pathway to 2032 could involve emissions from transport falling by almost 30 per cent compared to today (to around 83 Mt 216 Although emissions from international aviation and shipping are not currently included in the UK’s targets under the Climate Change Act, our carbon budgets put the UK on a trajectory consistent with a 2050 target that includes these emissions. The Government has not reached a final view on the appropriate level of aviation emissions in 2050. For details on modelling assumptions, please see the technical annex. Emissions from transport have decreased

Department for Business, Energy and Industrial Strategy To achieve this 2032 pathway, we need to further upgrade our transport • ULEVs on the market today are already an attractive proposition for a significant proportion of motorists given the significantly lower running costs, but we can do more to accelerate ULEV development and uptake. ULEVs should become progressively more affordable as economies of scale are realised and they could provide savings for consumers compared to equivalent internal combustion engine cars by the mid-2020s or sooner217. As a result, at least 30 per cent of new car sales are expected to be ULEVs by 2030, and possibly as many as 70 per cent. For new vans, up to 40 per cent of • There needs to be significant improvement in the efficiency of HGVs, with new HGVs needing to be up to 15 per cent more efficient by 2030. We also need to take steps to encourage the industry in moving towards low emission technologies. • We need a cleaner public transport system. Low emission buses now represent 13 per cent of all buses in the UK 218,219, but we want to go well beyond this to achieve significant uptake of ultra low and zero emission buses. We will seek more use of electric, bi-mode (electric and diesel hybrid) and alternative fuel traction on the railway, and will continue to invest in route electrification where it benefits passengers220. • It will be important to reduce the number of shorter journeys made by car, by supporting people to use alternative forms of transport for these trips such as cycling and walking. • We want to see a near doubling of sustainable bioenergy used in the transport sector. The UK already has a thriving automotive sector, producing 1.7 million cars annually, employing over 160,000 people and generating £40 billion in exports 221. The sector’s skilled workforce, established manufacturing bases and high productivity ideally place it to be a world leader in the low emission vehicle market. In 2015, low emission vehicle exports were already estimated to be worth £2.5 billion to the UK economy222. With 80 per cent of UK produced vehicles already exported across the world 223 and increasing global demand for low emission vehicles the UK industry has real opportunity to 217 This is based on the whole-life cost of electric vehicles. The up-front cost of these vehicles is expected to fall below that of conventional vehicles in the second half of the 2020s. Bloomberg New Energy Finance (2015) Are the economics of EVs competitive with conventional cars? ; Element Energy (2016) Low carbon cars in the 2020s; International Council on Clean Transportation (2016) Evolution of incentives to sustain the transition to a global electric vehicle fleet. 218 Low Carbon Vehicle Partnership (retrieved August 2017): 219 DfT (2016) Vehicle stocks technology and equipment 220 DfT (2017) Written Statement to Rail bi-mode train technology 221 Automotive Council (2017) The UK Automotive core briefing, Sector-Core-Briefing-March-2017.pdf 222 ONS (2017) Low Carbon and Renewable Energy Economy Survey, final 2015 223 Automotive Council UK (2017) The UK Automotive core briefing, Automotive-Sector-Core-Briefing-March-2017.pdf

Accelerating Take up of Ultra Low 1. The Government has announced an end to the sale of all new conventional petrol and 2. We are spending £1 billion to drive the uptake of ULEVs.
If battery prices continue to fall there will be less need for Government subsidies for new vehicles in the future. We will provide support for ULEVs to help the development of a mature and self-sufficient 3. We will encourage ULEV uptake through schemes that build on our experience in delivering initiatives - for example the £40 million ‘Go Ultra Low Cities’ scheme. 4. We want to have one of the best electric vehicle (EV) charging networks in the world. We will set out our strategy to achieve this using regulation, funding and private • In addition to workplace and residential charging support, the Government has also allocated an additional £80 million to support charging infrastructure deployment, alongside £15 million from Highways England to ensure rapid charge points every 20 miles across 95 per cent of England’s Strategic Road Network225. • New powers under the Automated and Electric Vehicles Bill 226 will allow the Government to set specific requirements for the provision of EV charge points or hydrogen refuelling infrastructure at motorway service stations and large fuel retailers, as well as ensuring that charge points are convenient to access and work seamlessly right across the UK. 224 DEFRA (2017) UK plan for tackling roadside nitrogen dioxide Detailed plan. attachment_data/file/633270/air-quality-plan-detail.pdf 225 UK Parliament (2017) Electric Written question – 59924 written-question/Commons/2017-01-13/59924/ 226 Cabinet Office (2017) Queen’s Speech Background Briefing Notes 2017 Queens_speech_2017_background_notes.pdf The Government has pledged to be the first generation to leave the environment in a better state than it inherited. As well as significantly reducing greenhouse gas emissions, wide-scale adoption of ULEVs will improve our health and quality of life by making the air cleaner in our towns and cities. While air quality in the UK has been improving in recent decades and will continue to do so due to Government action and investment of over £3 billion in air quality and cleaner transport, there are some parts of the country where there are unacceptable levels of air pollution. Poor air quality remains the largest environmental risk to public health in the UK. The most immediate challenge is the problem of nitrogen dioxide concentrations around some roads, due mainly to conventional road vehicles, and the Government has published a plan to address this 224. As part of this plan, the Government announced a £255 million Implementation Fund to help local authorities develop and deliver targeted action to improve air quality, and committed to establishing a new Clean Air Fund. In 2018, the Government will also publish a wider Clean Air Strategy, setting out how it will significantly reduce the emissions of five damaging air pollutants by 2020 and 2030. Department for Business, Energy and Industrial Strategy • The Bill will also allow the Government to require all new charge points sold or installed in the UK to be ‘smart’ enabled. This will help shift charging away from peak times of the day, reducing demand on the electricity system and keeping • We will consider the role of regulation to accelerate the UK’s transition to widespread provision of 5. The Government has provided £4.8 million through the Hydrogen for Transport Advancement Programme to create a network of 12 hydrogen refuelling stations, and £2 million through the Fuel Cell Electric Vehicle Fleet Support Scheme to increase uptake of hydrogen fuel cell cars and vans in the public and private sector. A new £23 million fund was recently announced to boost the creation of hydrogen fuel infrastructure and encourage roll-out of 6. We will announce plans for the public sector to lead the way in transitioning to zero emission vehicles, with an ambitious uptake requirement for central government and new Buying Standards to encourage procurers to choose the cleanest, low 7. We will support the uptake of low emission • The Government will provide £50 million for the Plug-in Taxi programme, which gives taxi drivers up to £7,500 off the purchase price of a new ULEV taxi, alongside £14 million to support ten local areas to deliver dedicated charge points • We will consider whether our revised best practice guidance to local taxi and private hire vehicle (PHV) licensing authorities in England should recommend zero emission capability in urban areas by 2032. In considering the Law Commission’s recommendation for national taxi and PHV standards in England, we will examine the potential for Government to make this target 227 DfT (2017) £23 million boost for hydrogen-powered vehicles and infrastructure news/23-million-boost-for-hydrogen-powered-vehicles-and-infrastructure 228 BEIS, DfT (2017) 1,000 jobs created at new £325 million factory for electric taxis news/1000-jobs-created-at-new-300-million-factory-for-electric-taxis Sue Bentley from Runcorn, “When I purchased an electric car I was the only one in my neighbourhood at that time. I believe electric vehicles are the way forward, they’re easy to run, reliable and good for the planet. Now seven people in my neighbourhood have

8. ‘Go Ultra Low’ 229 brings the Government and leading vehicle manufacturers together to explain the benefits of ULEVs to motorists and businesses, and its success has been internationally recognised. We will continue to work with industry on consumer communications on ULEVs until 9. The Government will set out further detail on a long term strategy for the UK’s transition to zero road vehicle emissions by March 2018. Enabling our Automotive Industry to Become a World Leader in Zero 10. The Automotive Council is now developing an Industrial Strategy Sector Deal, building on the £1 billion Advanced Propulsion Centre, which is seeking to establish the UK as a world leader in zero emission vehicle technologies230. The Sector Deal will aim to accelerate the transition to zero emission vehicles, complemented by Automotive Council research to determine UK priorities Developing a More Efficient and Low 11. Low emission vans and HGVs between 3.5 and 44 tonnes have been eligible since late 2016 for plug-in grants worth up to £20,000 for the first 200 vehicles bought using 12.
We are consulting on proposals to allow category B (car) licence holders to drive slightly heavier vans if they are powered by a low emission technology, effectively offsetting the additional weight of the powertrain232. This will encourage further uptake of cleaner goods vehicles. 13. The Government’s Freight Carbon Review233, published in February 2017, identified a range of measures to help fleet operators reduce their emissions, including through improved fuel efficiency. The Energy Saving Trust is piloting a scheme to advise HGV fleet operators on reducing fuel consumption. The Government will set out further measures to support the pathway to low emission freight by March 2018, as part of a long term strategy for the UK’s transition 14. Our 2016 Rail Freight Strategy234 highlighted the potential to reduce emissions by growing rail freight and reducing HGV journeys. We will accelerate our activity to enable cost- effective options for shifting more freight from road to rail, including using low emission rail freight for deliveries into urban areas, with zero emission last mile deliveries. 229 Go Ultra Low 230 Advanced Propulsion Background 231 DfT, BEIS (2016) £4 million boost to help businesses switch vans and trucks to electric news/4-million-boost-to-help-businesses-switch-vans-and-trucks-to-electric 232 DfT (2017) Regulatory changes to support the take-up of alternatively-fuelled light commercial vehicles category-b-driving-licence-derogation-for-alternatively-fuelled-commercial-vehicles 233 DfT (2017) Freight Carbon Review 2017: Moving Britain Ahead 234 DfT (2016) Rail Freight Moving Britain Ahead

Department for Business, Energy and Industrial Strategy Encouraging Low Carbon Alternatives to 15. We will continue to invest in our public transport network, and help people to cycle, walk or travel by bus or train. 16. Our Cycling and Walking Investment Strategy235 identifies £1.2 billion which may be invested in cycling and walking from 2016-21. Under this new strategic approach, Local Cycling and Walking Infrastructure Plans identify improvements required at the local level, and enable a long-term approach to developing local cycling and walking networks, ideally over a ten year period. 17. As announced in the 2016 Autumn Statement, the Government will provide £100 million for a national programme of support for retrofitting and new low emission buses in England and Wales, including hundreds of new low emission buses and retrofitting of thousands of older buses. 18. The Government will seek more use of electric, bi-mode (electric and diesel hybrid) and alternative fuel traction on the railway. We will continue to invest in route electrification where it provides benefits to passengers. The industry is also developing trains powered by alternative fuels, for example using battery and hydrogen power. 19. As we leave the EU, we want the UK to continue to be a world leader in low carbon transport, and we will look for opportunities to strengthen further the controls on vehicle CO2 emissions. We will pursue an approach which offers certainty to industry, and is at least as ambitious as current arrangements. 235 DfT (2017) Cycling and Walking Investment Strategy University of Cambridge – Centre for The Centre for Sustainable Road Freight at the University of Cambridge has developed a new trailer design for articulated vehicles that makes the vehicle more aerodynamic. They were awarded £4.4 million in funding from the Engineering and Physical Sciences Research Council and £1.4 million in joint funding from an industrial consortium comprising freight operators such as DHL, John Lewis Partnership, Tesco and Wincanton, as well as vehicle industry partners including Firestone, Goodyear, Haldex and Volvo. Their innovation cuts fuel consumption and pollution by articulated vehicles by around seven per cent. Waitrose has already added 36 of the modified trucks to its fleet and Warburtons will use the new design for all future fleet purchases. 20. We will continue to help promote and support efficient driving behaviours amongst fleets and private drivers, seeking to maximise the potential of new technologies including early adoption in public sector fleets and close working with other programmes to improve 21. We will promote sustainable alternative fuels, which reduce the carbon emissions from petrol and diesel vehicles, and we will set targets to support development of advanced fuels suitable for HGVs and 22. We have recently relaunched the Future Fuels for Flight and Freight Competition – a £22 million industry competition to encourage development and deployment of low carbon HGV and aviation fuels. Modernising the Domestic Aviation and 23. We will set out our strategic approach to the aviation sector in a series of consultations over the next 18 months236, including a paper on how to support growth while tackling the environmental impacts of aviation. This will culminate in the publication of a new Aviation Strategy for the UK by the end of 2018. 24. Industry and the Government have made a joint £3.9 billion commitment between 2013 and 2026 to the development of new aircraft technology with the Aerospace Technology Institute237. We have announced that we will extend the RTFO to include incentives to 25. On domestic shipping, the Government will continue to work with industry to develop improved fuel efficiency technologies, including new propulsion systems, hull design and aerodynamic structures. 26. We will work with ship owners and ports to identify the barriers faced in supplying and using sustainable alternative fuels and cleaner emissions technologies, to explore possible solutions. In addition, we expect operational improvements to play a role, including better use of ship capacity. Government Innovation Investment The Government expects to invest around £841 million out to 2021 in innovation in low carbon transport technology and fuels, primarily through programmes run by DfT, OLEV, the Research Councils, Innovate UK, and BEIS238. The Government will build on this investment to make the UK one of the world’s leading innovators in new low carbon technologies. • Electric vehicle and battery technology . Government investment will help bring down the cost of EVs and increase their range. Through the Industrial Strategy Challenge Fund (ISCF), we will invest £246 million over four years in the design, development and manufacture of batteries for the electrification of vehicles, as part of the ‘Faraday Challenge’239.
The Government has also awarded £10 million to build UK capability in the development and commercialisation 236 HM Government (2017) Beyond the The future of UK aviation – a call for evidence on a new strategy consultations/a-new-aviation-strategy-for-the-uk-call-for-evidence 237 Aerospace Technology Institute 238 All figures are indicative and are subject to competitive bidding processes across sectors and value for money tests. 239 BEIS (2017) Business Secretary announces Industrial Strategy Challenge Fund investments business-secretary-announces-industrial-strategy-challenge-fund-investments

Department for Business, Energy and Industrial Strategy • Charging and grid support . We will provide at least £70 million over the next five years to support innovation in energy storage, demand side response and other smart energy technologies, including up to £20 million for vehicle-to-grid products and services 240. This is focused on how an expanded fleet of EVs could provide network flexibility and system balancing while potentially offering benefits to bill • Advanced fuels . There are fewer options for reducing emissions in the freight and aviation sectors, and here innovation in fuel technology can play an important role. We are providing £40 million out to 2021, to fund the development of advanced low carbon fuels derived from wastes or industrial and agricultural by-products. In August 2017 we relaunched the Future Fuels for Flight and Freight Competition - a £22 million industry competition to encourage development and deployment of low carbon HGV and aviation • Zero emission HGVs . In January 2017, we announced the winners of over £20 million for the Low Emission Freight and Logistics Trial 241. Twenty different projects are receiving funding to demonstrate and trial low and zero emission vehicles in UK fleets, for example using hydrogen, electric and biogas technologies. In the longer term, there is an opportunity to take forward projects to support innovative technologies such as ‘dynamic charging’ as a potential solution to decarbonising freight. • HGV platoons . HGV platooning, using advanced vehicle technologies, enables lorries to move in a group and could deliver significant fuel and emissions savings. We will be delivering trials of HGV platoons, with joint funding from Highways England, to assess the feasibility and potential costs and benefits of this technology on UK roads. In August 2017, we announced a trial of HGV platoons, jointly funded with Highways England, which will see up to three HGVs travelling in convoy, with acceleration and braking controlled by the lead vehicle, and with a driver ready to take control at any time in all the HGVs. Platooning trials have been conducted across Europe and the USA, and these trials will assess whether the technology is appropriate and beneficial Government has also established the Centre for Connected and Autonomous Vehicles (CCAV) and invested over £250 million, matched by industry, to position the UK at the forefront of research, development, and demonstration. These technologies have the potential to smooth traffic flows and increase efficiency of road transport. CCAV is also coordinating engagement with the wider research base and industry, identifying and reducing barriers to innovation or business expansion. 240 BEIS (2017) Funding for innovative smart energy systems 241 DfT (2017) Low emission freight and logistics trial competition winners announced low-emmission-freight-and-logistics-trial-competition-winners-announced

242 BEIS (2017) Final UK greenhouse gas emissions national 1990-2015 final-uk-greenhouse-gas-emissions-national-statistics-1990-2015 243 BEIS (2017): Digest of UK Energy Statistics 2017 244 Financial Times (2017) Britain passes historic milestone with first days of coal-free power 245 BEIS (2017) Energy Trends June 2017 Power sector emissions have fallen 49 per cent since 1990 as we have switched from coal to gas and renewable power such as wind and solar, with biomass conversions also playing an important transitional role, alongside improvements in the efficiency of our economy242. Last year, 47 per cent of our electricity came from low carbon sources, with the rest mainly coming from coal and gas 243. Coal use fell to record low levels last year, and on 21 April 2017, for the first time since 1882, we did not use any coal for a 24-hour period244. At the same time, we have ensured a secure

Department for Business, Energy and Industrial Strategy The costs of low carbon and more efficient technologies have fallen significantly since 2010 through a series of innovations and growth in deployment. Solar photovoltaic modules are now almost 80 per cent cheaper 246, LED lightbulbs over 80 per cent cheaper 247, and batteries for electric vehicles (EVs) over 70 per cent cheaper248. Average household electricity bills in 2016 were around 10 per cent lower than in 2008, when the Climate Change Act was introduced249. While policy costs on bills have increased over this period, this has been more than offset by reduced electricity use, thanks in part to tightening standards on electrical 246 IRENA & IEA (2017) Perspectives for the energy Investment needs for a low carbon energy system Publications/Perspectives_for_the_Energy_Transition_2017.pdf 247 International Energy Agency (2016) Energy Efficiency Market Report 248 Bloomberg New Energy Finance (2016) 2016 lithium-ion battery price survey 249 CCC (2017) Energy prices and bills report 250 BEIS (2017) Energy Trends from coal and renewables 2010-16 (right)250

We want a diverse electricity system that supplies our homes and businesses with secure, affordable and clean power. That means developing low carbon sources of electricity that are both cheap and clean, taking into account wider system impacts for all sources of generation. It also means upgrading our electricity system so it is smarter (using data to provide greater control), more flexible (providing energy when it is needed) and takes advantage of rapidly developing technologies such as By 2050, we anticipate that emissions from the power sector could need to be close to zero251. Indeed, we may even see negative emissions – that is, greenhouse gases being removed from the atmosphere – from the sector if sustainable bio-energy and carbon capture and storage are used together. At the same time, many more people are expected to drive EVs, many homes and offices may have efficient electric heating and cooling, and more industrial sites could be powered by clean electricity.
There are however alternatives to electrification, such as hydrogen, which could mean that electricity demand is 251 BEIS internal analysis of 2050 pathways could need to be as low as 4 Mt, clean growth pathway, 1990-2050

Department for Business, Energy and Industrial Strategy One possible pathway to 2032 could see power emissions fall by 80 per cent compared to today, to around 16 Mt 252. This could be • Growing low carbon sources such as renewables and nuclear to over 80 per cent of electricity generation, and phasing out • Enabling a smarter, more flexible system, unlocking significant expansion of interconnection, electricity storage, and demand side response, the first steps of which are set out in the Smart Systems and Flexibility Plan253. For consumers, this could mean smart appliances and smart tariffs which help balance the grid in return for • Keeping costs down for consumers by reducing any wasted energy, including more efficient electrical products. To achieve this we need to continue bringing down the costs of low carbon generation from renewables and nuclear power, and ensure that the UK can deploy CCUS at scale during the 2030s, subject to costs coming down sufficiently. We also need to remove barriers and improve price signals for smart energy innovations which improve the efficiency and 252 BEIS internal analysis of 2032 pathway 253 BEIS and Ofgem (2017) Upgrading our energy smart systems and flexibility plan upgrading-our-energy-system-smart-systems-and-flexibility-plan OXIS energy, based in Oxfordshire has developed a high performing rechargeable battery which is lighter, more efficient and cheaper than competitor products. The company has received £2.7m in funding from Innovate UK and has grown to employ 60 staff. Their most recent grant is supporting them to produce a revolutionary electric

254 BEIS (2017) Energy and Emissions Projections 2016 A number of model updates and improvements have been made regarding the electricity demand profiles of key technologies and how this demand might be shifted, the availability of electricity storage technologies, and assumed system operability requirements. 255 Fisher, J., Gammon, R. and Irvine, K.N. (2015) My Electric Avenue There is considerable uncertainty on the extent to which customers will change their behaviours and we will be monitoring the evidence here. 256 BEIS and Ofgem (2017) Upgrading our energy smart systems and flexibility plan upgrading-our-energy-system-smart-systems-and-flexibility-plan Generation (2032) Capacity (2032) Extra 10 TWh (+3%) Extra peak 2.8 GW (+4%) Extra capacity and BEIS internal analysis of GB power system The impact of the 2032 pathway is assessed against an updated version of the published BEIS 2016 reference case254. Not all extra capacity and flexibility is available to help meet peak demand. Numbers may not sum due to rounding. For this analysis, we took into account the potential for smart charging of electric vehicles and smart use of heat pumps. For example, we assumed potential to shift charging of most electric vehicles to overnight, which could reduce bills for consumers on a smart tariff255. This ‘demand-side response’ – adjusting energy consumption to when it is plentiful and cheap – would help to balance the grid and reduce peak demand. Our Smart Systems and Flexibility Plan is about unlocking Powering Electric Vehicles and Heating Electric vehicles, electric heating and energy efficiency are key options for reducing emissions in transport and buildings. The impacts of these measures on the power sector are taken into account in our 2032 pathway and summarised below. It shows a net increase of around 3 per cent in the electricity demand and around 4 per cent in peak demand in 2032, and how this can be met through a mix of technologies. In practice, we do not yet know exactly how quickly costs will fall and take-up will increase for electric vehicles, or the role that electrification could play in the long-term decarbonisation of heat. Department for Business, Energy and Industrial Strategy The UK is well placed to benefit from the transition to a cleaner, smarter power sector and we already see jobs, regional investment and export sales flowing from UK supply chains for clean power technologies. In 2015, the low carbon electricity sector generated over £12 billion in turnover and directly supported 47,000 jobs, with more in supply chains257. There is an opportunity for the UK to become one of the most advanced economies for smart energy and technologies, which is a core component of our Industrial Strategy, while upgrading our power infrastructure will improve energy security and air quality. Consumers will benefit from a smarter, more flexible power system to keep down costs, and will have more control of their energy through smart meters, with near real-time information on energy use 257 ONS (2016) Low Carbon Economy and Renewable Energy Economy Survey Clayhill solar farm and energy storage facility is the first in the UK to be built without subsidy. Consisting of over 30,000 solar panels, it can generate enough power for 2,500 homes. Five onsite batteries allow electricity to be stored and utilised when needed, providing services for the electricity grid, such as frequency response. Co-locating storage at new renewable sites, combined with significant reductions in generation and storage technology costs, may allow more subsidy free sites to be built – providing services that help to maintain the reliability of the grid and clean electricity at low cost. Growing Low Carbon Sources of Electricity 1. We confirm the Government’s intention to phase out unabated coal generation by 2025, and we will shortly publish the Government’s detailed response to the 2. We are delivering new nuclear capacity through the final investment decision on Hinkley Point C, and will progress discussions with developers to secure a competitive price for future projects in the 3. We will work with industry as they develop an ambitious Sector Deal for offshore wind. Provided costs continue to fall, this could result in 10 gigawatts of new capacity built in the 2020s, with the potential to support high value jobs and a sustainable UK industry exporting goods and services around the world.