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By Simon Evans
What does the UK's shock vote to leave the European Union mean for energy and climate change?
Speaking simultaneously on Wednesday morning at separate events in London, Amber Rudd, secretary of state for energy and climate change and Andrea Leadsom, energy minister, both sought to offer reassurances that UK energy and climate commitments would continue.
Rudd said, in unscripted comments added to her planned speech:
"We made a clear commitment to acting on climate change in our manifesto last year. That will continue."
She confirmed commitments to the UK Climate Change Act, a phaseout of unabated coal, thecapacity market to secure electricity supplies and support for offshore wind and new nuclear. Leadsom also said the referendum would not affect climate and energy policy.
However, Rudd conceded that the referendum result had made the path to climate action harder, raising a host of questions. Adding to the air of uncertainty, there is now the prospect of a new Conservative prime minister being in place by September, as well as the possibility of a snap general election.
Carbon Brief has assembled a lengthy and probably incomplete, list of post-referendum questions for climate and energy policy.
Questions Remain
In the days following the referendum, a range of questions and possible answers have already been offered on the climate and energy implications of the vote.
Policy Exchange looks at impacts across environment policy. Business Green has 12 unanswered questions for the green economy, Climate Home has six questions for UK and EU climate ambition and another three questions on whether Brexit means a climate policy "bonfire." Meanwhile, the Energy and Climate Intelligence Unit has five energy and climate predictions.
Elsewhere, consultancy Aurora Energy Research, the Economist Intelligence Unit and Nick Butler for the Financial Times look at what it means for energy and climate, with a focus on markets.
The expected approval this week of the UK's fifth carbon budget for 2028-2032 would provide a key reference point for future policy. Still, uncertainty is sure to continue for months, if not years.
Here are some of the many unanswered questions.
The Paris Agreement on Climate Change:
- Will the UK ratify it while still an EU member state, allowing the EU to ratify it, too?
- If the UK and EU delay ratification, (when) will the agreement enter force?
- Will the UK be able to retain a strong voice in international climate talks, outside of Europe?
- Which negotiating bloc would it join?
- What would UK and EU nationally determined contributions to the agreement look like?
- Will the UK government set the Paris goal of net zero emissions into UK law, as promisedby Leave supporter and energy minister Andrea Leadsom?
- Will UK spending on international climate finance continue its current, rising trajectory?
- Or will the spending be pared back as part of a move to end the UK commitment to spend 0.7 percent of national income on international aid?
UK Policy:
- Is the cross-party commitment to UK climate ambition assured, as Rudd claimed this week?
- Will the next prime minister believe in continued climate action?
- What are the views of other contenders, such as home secretary Theresa May or work and pensions secretary Stephen Crabb?
- How long will Rudd remain secretary of state for energy and climate change and Leadsom as energy minister, with both tipped for promotion if their side won the referendum?
- Who will replace them if they are moved on?
- Will the Department of Energy and Climate Change continue to exist under a new government?
UK Climate Change Act:
- The indications are that the government will put legislation on the fifth carbon budget before parliament on June 30, but Carbon Brief understands that parliamentary process means it may not pass into law before the end-of-June legal deadline. Will that legislation be in line with the advice of the Committee on Climate Change (CCC) to cut emissions by 57 percent by 2032, against 1990 levels?
- Will carbon accounting rules be amended, as per CCC advice, so that all UK emissions are counted towards carbon budget compliance?
- Will the government still publish a UK carbon plan by the end of 2016, on how the whole economy can decarbonize in line with the fourth and fifth carbon budgets for 2023-2032?
- If this plan is delayed or abandoned, how long can stasis continue without jeopardizing UK carbon targets?
- Would a delay or abandonment be subject to legal challenge, given the Act requires a planto be presented "as soon as is reasonably practicable" after the carbon budget is set?
- Does the act itself retain the overwhelming support of parliament, given all but six MPs approved it in 2008?
- Does it count for anything that Andrea Leadsom—Leave supporter, energy minister and potential Conservative leadership candidate—has said both before and after the referendum (see above) that the UK's climate commitment would be secure after Brexit?
- Or does the rise of climate sceptic Eurosceptics put the act in danger?
Energy Bills:
- What price premium on loans will be demanded by investors in UK energy infrastructure to cover the costs of political uncertainty? Rudd was unable to offer a direct answer to this "depressing" question from Carbon Brief.
- How much will this add to the costs of building new electricity generating capacity?
- Will any impacts vary by technology type, potentially favoring lower- or higher-carbon sources of power?
- How much will the price of imported energy increase as a result of the falling pound?
- How quickly will exchange-rate driven increases filter through to pump prices and energy bills, via the fuel used to heat homes and generate electricity?
- Is it realistic to expect any new government to mitigate this impact through a promised end to the 5 percent rate of VAT on energy, given the £2bn a year it brings the exchequer?
- How will steel and other energy-intensive industries cope with the expectation of higher energy prices?
- For instance, will the hoped-for Tata Steel rescue still go ahead?
- Will the government's Levy Control Framework, designed to limit the impact of low-carbon support on energy bills, remain in place?
- Could a new government seek to scrap the UK carbon price floor as a means to reduce energy bills for homes, businesses and industry, even though it brings in more than £1.5bn a year for the Treasury?
- How would this be squared with consequential increases in the level of required support for low-carbon sources of power?
- Will rising UK wholesale electricity prices attract investment in new generating capacity or will the rising cost of imported fuel outweigh any benefit?
- Could a post-Brexit cut in tariffs on Chinese solar module imports offset the impact of a falling pound?
- Will windfarms get more expensive in the UK, as sterling's fall pushes up the price of imported steel or turbine parts?
UK Energy Markets:
- Will Brexit lead to weaker economic growth and reduced energy use, as expected?
- Will this ease pressure on electricity supplies and reduce UK emissions?
- How will the new administration approach fuel duty, which has been repeatedly frozen by current Chancellor George Osborne?
- Is there still a business case for new interconnectors if the UK leaves the EU internal energy market and how will that case be affected by currency swings and changes in carbon pricing in the UK, France or other countries?
- How will energy firms operating in the UK and elsewhere fare if the value of sterling remains depressed, affecting relative earnings denominated in pounds, euros and dollars?
- Will the City of London still remain a leading lender to oil and coal projects around the world, as well as a center for carbon trading?
- Rudd has this week reiterated plans to phase out unabated coal, but when will the consultation on how to achieve this be published and what policy levers will it propose?
- Could the fall in the pound revive the UK coal-mining industry, which is currently embroiled in contentious efforts to expand despite the UK's coal phaseout plans?
- Will the new government heed climate-sceptic calls to back out of the EU Industrial Emissions Directive, blamed for the closure of aging coal-fired power stations?
- Will the government invoke provisions of the 2013 Energy Act, allowing it to set a 2030 decarbonization target for the power sector, once it has set the fifth carbon budget?
- How will support for shale gas exploration be affected by changes in government personnel?
- How will the nascent fracking industry fare with a weaker economy and pound?
- When will the government publish the CCC's report on fracking and UK carbon budgets?
- Will North Sea industry benefit from currency movements as costs become relatively cheaper or will restrictions on freedom of labor movement pose greater challenges?
Low-Carbon Energy:
- Will the UK now abandon efforts to meet its EU 2020 renewable energy targets, which it has in any case been widely expected to miss?
- Could the UK still be fined by the European Court of Justice if Brexit is slow and the UK is still a member of the EU when the target bites in 2020?
- Is there cross-government backing for new renewable heat and transport subsidies?
- Will the UK continue to support electric vehicle uptake?
- When will the government set out the details and budget of the next auction for low-carbon electricity subsidies, supposedly due to take place later this year?
- Will this year's Autumn Statement set out post-2020 arrangements for low-carbon support under the Levy Control Framework, as suggested this week by Leadsom?
- Will there be support for low-carbon technologies other than offshore wind, which has received the clearest government backing but is more costly than solar and onshore wind?
- If the government is opposed to support for onshore wind, even in the form of so-calledsubsidy-free contracts for difference, will it follow the Competition and Markets Authority's recent request to produce an assessment of the negative impact on consumer bills?
- Rudd has given post-referendum assurances to French firm EDF over the Hinkley C new nuclear plant, but can the scheme hope to retain the high-level political support it has enjoyed from David Cameron, George Osborne and the French government?
- Does Brexit render Austria's legal challenge to the Hinkley C scheme irrelevant?
- Would a UK exit from the EU free the UK's hand to subsidize further new nuclear reactors without the need to seek state aid approval from the European Commission?
- Will the new government be as keen on small modular nuclear reactors as the current one?
- After Siemens' decision to freeze its UK wind power plans and with UK access to the EU's single market in doubt, can the UK attract new renewable manufacturing investments?
- What will a weaker pound mean for the cost of burning imported biomass at power stations including Drax, formerly the UK's largest coal plant?
- Does the prospect of Brexit mean the UK can award further biomass subsidies to Drax, before the ongoing EU state aid investigation into the planned support has concluded?
- When will the government publish follow-up research it commissioned on the climate impacts of burning wood, mostly imported from north America, to generate electricity?
- Could a new administration reverse the current government's skepticism over financial support for carbon capture and storage or tidal energy?
EU Policy:
- How will Brexit affect the balance of power between EU member states on the European Council, given the UK has been part of a progressive alliance on climate and energy?
- Could Brexit strengthen Germany's hand, with its backing for more interventionist and target-led approaches such as binding energy efficiency and renewable energy targets?
- Or will Brexit give eastern European countries more leverage as they attempt to limit EU climate ambition?
- Will the UK relinquish its EU presidency, scheduled for the second half of 2017?
- Will the EU continue to negotiate its effort-sharing decision on member state climate targets for 2030, despite the prospect of Brexit?
- If the EU's 2030 target is recast with no UK participation, will it keep its headline goal of a 40 percent emissions reduction on 1990 levels or will it choose a new goal for 2030 emissions, either by simply removing the UK contribution or formally renegotiating country shares?
- Will the UK remain part of the EU Emissions Trading System (EU ETS)? (Non-EU members including Norway are part of the scheme).
- Are currently-proposed EU ETS reforms still considered sufficient to cope with market shocks, such as that experienced in the wake of the UK vote?
- Does the fall in EU ETS prices of more than 20 percent in a week suggest further reform, perhaps an EU-wide floor price, is necessary to maintain decarbonization momentum?
- Who will lead the reform process now that British MEP Iain Duncan has resigned from the role of European Parliament rapporteur?
- Will the UK remain part of the EU Energy Union, with its plans for closer coupling between European energy markets?
- Would current or future energy infrastructure investments, including electricityinterconnectors to the continent, automatically lose EU funding after Brexit? (The EU isinvesting more than €2bn in UK energy projects, more than any other member state).
- Will the UK remain subject to EU product standards, including on the energy efficiency of vehicles and household goods?
Scotland and Northern Ireland:
- If Brexit triggers a successful Scottish independence referendum, what would become of UK climate policy and how would UK climate targets be divided? (Scotland already has its own climate goals, but the rest of the UK does not).
- Would consumers in the rest of the UK be willing to continue paying for a planned expansion of renewable energy in Scotland?
- Could the rest of the UK meet its climate targets without Scottish renewables?
- Would Scotland be willing to shoulder the cost of North Sea oil and gas decommissioning, which being funded via tax breaks on the industry?
- Are moves to unite Northern Ireland with the Irish republic likely to gain any traction and what would that mean for UK, Irish and EU climate pledges?
Other Issues:
- What are the prospects for a third runway at Heathrow, given the committed opposition of Boris Johnson, a leading candidate to become prime minister?
- Does Brexit ease its path, given the UK's long-running breach of EU air pollution rules has been seen as a barrier to approval or will its demise enable the UK to meet suggested targets for aviation emissions more easily?
- How will the UK respond to this week's ruling that it breached EU air pollution rules in relation to the coal plant at Aberthaw in south Wales?
- Will the National Infrastructure Commission, seen as a personal project of current Chancellor George Osborne, still be able to carve out the significant policy role it had been poised to secure?
- Will a new government reverse the decision to scrap rules for zero carbon homes?
- How will it approach planning law, in particular the major pieces of UK environmental legislation that originate in EU law?
- If these EU planning rules are scrapped, will it become easier to build new energy infrastructure including wind farms, fracking sites or marine renewables?
- Will a new government continue to respect EU law during any transitional period, as called for by some lawyers?
Update 6/29/16—The question on the fifth carbon budget was amended. It previously said, in line with earlier press reports, that the fifth carbon budget would pass in to law on June 30, meeting the legal deadline. However, Carbon Brief now understands that the parliamentary process will not be completed on June 30.
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By Peyton Fleming
Some of the ingredients for catalyzing clean energy investments in Asia, Africa and other emerging markets have their own unique nomenclature—“blend 2.0," “de-risking" and “national investment catalogues." Yet there is a more straightforward recipe: A mix of national clean energy policies with the needs of institutional investors looking for opportunities that are safe and relatively profitable.
Lake Turkana Wind Power project in Northern Kenya.
To date, creating this relatively simple blend has been largely elusive. While clean energy investments in developing countries are growing at a rapid clip, it has been done with minimal help from pension funds, insurers and other institutional investors who manage enormous amounts of capital—tens of trillions of dollars among U.S. institutional investors alone.
But the momentum could be changing as clean energy environments are ripening worldwide.
On the heels of another year of record high temperatures and a historic global climate agreement in Paris, investors are opening their eyes to the urgency of shifting significantly more capital to clean energy in developed and developing countries. Developing countries, whether in Asia, Africa or Latin America, are especially in need of capital because their economies, populations and overall carbon footprints are growing far more quickly compared to Europe, the U.S. and other industrialized countries.
Barring major changes, energy-related pollution in developing countries will be more than double that from developed countries by 2040, according to the U.S. Energy Information Administration. The fact that these countries are also working feverishly to provide electricity to the more than one billion people who have no access to power today further exacerbates the challenge.
“If you don't have access to energy, you're not going to see economic growth," said Rachel Kyte, CEO of Sustainable Energy for All, speaking to 500 global investors at the Investor Summit on Climate Risk: Advancing the Clean Trillion, last month at the United Nations. "This has to be a just energy transition where everyone can imagine they will prosper."
For institutional investors, the opportunities are especially enormous after the recent climate accord in Paris, which aims to limit average global temperature rise to well below 2 degrees Celsius. The linchpin of the agreement is the carbon reducing commitments of 187 countries and their pledge to ratchet up those efforts in the years ahead.
But which of these countries have the necessary policy frameworks in place that will induce institutional investors to open their wallets? Is India truly ready to attract the sizeable investment flows it will need to become a solar super power by 2022? To what extent are Sub-Sahara African countries open for business to ever-cheaper wind and solar power over costly, high-polluting diesel generators?
Investors and other speakers at last month's summit, organized by Ceres and the United Nations Foundation, did not mince their words in answering these questions.
For all of Prime Minister Narendra Modi's enthusiasm about developing a mind-boggling 100,000 megawatts of solar by 2022, India's clean energy investment environment faces key hurdles, the biggest being exorbitant capital costs and high currency risks.
“In India, the costs of financing are at least twice as high as they are in the U.S. That means the power is twice as expensive in the places that can least afford it," Dr. Ion Yadigaroglu, partner and managing principal at the Capricorn Investment Group, said.
Still, India is working hard to open its doors. Uday Khemka, vice chairman of the SUN Group, outlined government efforts to “de-bottleneck" investment barriers, citing transparent bidding processes for projects, the use of partial credit guarantees and opening up large swaths of land for “plug-and-play solar parks." Plummeting solar and wind power costs are helping enormously, too, he said.
While India's changes are encouraging, its neighbor, China, “is the rock star of clean energy investment," concluded Bloomberg New Energy Finance (BNEF) founder Michael Liebreich. China was the dominant leader of BNEF's latest annual tally of global clean energy investments, accounting for $110 billion of a record $329 billion in global investments in 2015. The reasons are multifold, including clear, long-term government policies, a relatively stable liquid currency and a wealth of government-controlled sovereign funds to finance projects.
Yet, according to Dr. Guo Peiyuan, co-founder and general manager of SynTao Co., there are big opportunities for institutional investors, especially in green bonds. Dr. Guo said China's newly formed Green Finance Committee will require 2 to 4 trillion yuan of green financing every year ($325 billion to $625 billion), with only 15 percent being covered by the government, the rest by institutional investors. Green bonds will surely be a big part of this gargantuan effort. China's carbon emissions trading system, which is set to go nationwide in 2017, is another opportunity.
While China and India get most of the attention, investors should also be paying attention to smaller emerging markets.
Kyte praised Chile, South Africa and Morocco for putting the necessary policy frameworks in place to catalyze projects and attract capital. Each of these saw healthy double-digit jumps in clean energy investments last year, compared to 2014.
Island nations in the Caribbean are moving aggressively to attract investors for solar grids, geothermal and other clean energy projects. A few months ago, St. Kitts and Nevis signed a power purchase agreement to develop 10 megawatts of geothermal energy as an alternative to relying on costly, high-polluting diesel fuel. A second phase of the project will boost the facility's output to 150 megawatts. Other Caribbean islands are building solar grids for the same reason.
The 1,200 islands that make up the Maldives in the Indian Ocean are also putting strong renewable energy programs in place. Among those taking advantage is the Danish pension fund, Pension Danmark, which has invested $25 million in a project that will use solar power to turn salt water into freshwater.
“It's a small investment, but it's very scalable (for islands)," Pension Danmark Director Jens-Christian Stougaard said, which is also investing in a 300-megawatt wind farm in Kenya through the Danish Climate Investment Fund, which is focused entirely on climate investing in developing economies.
No doubt, there is a special sauce to tapping clean energy opportunities in emerging markets. In its simplest form, countries and institutional investors must be willing to work together.
“Having that local engagement, that local connection, is pivotal to have success," Stougaard said. “When we invest together with government entities, we have much better protection of regulatory and political risks."
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Republican presumptive presidential nominee and climate change denier Donald Trump said in an interview he would renegotiate U.S.’ role in the Paris agreement.
Photo credit: a katz / Shutterstock
“I will be looking at that very, very seriously and at a minimum I will be renegotiating those agreements, at a minimum. And at a maximum I may do something else," Trump told Reuters. "But those agreements are one-sided agreements and they are bad for the United States.” The Paris agreement has a clause that says a new government wanting to back out of the climate accord would have to wait four years to do so.
“This is simply more proof that Trump’s international antics would isolate the United States around the world and only ‘negotiate’ away American leadership," Sierra Club political director Khalid Pitts said. "Meanwhile, we can only wonder how a climate science denier is supposed to renegotiate an international climate agreement.”
For a deeper dive:
News: Reuters, MotherJones.
Commentary: New York Times, Tom Friedman column
For more climate change and clean energy news, you can follow Climate Nexus on Twitter and Facebook, and sign up for daily Hot News.
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With the possible prospect of the world warming dangerously and uncontrollably, half of one degree Celsius may sound like a negligible temperature change unlikely to make much difference to life on Earth.
But scientists say 0.5 C could make a crucial difference in some regions—particularly in developing countries in the tropics—that are already at great risk from climate change. The consequences could include higher sea level rise and extended heatwaves, threatening most tropical coral reefs.
Bill Hare, CEO of Climate Analytics and a member of the research team that has produced the cautionary report, said: “Our study shows that tropical regions—mostly developing countries that are already highly vulnerable to climate change—face the biggest rise in impacts between 1.5 C and 2 C.
Vulnerable Countries
“Our results add to a growing body of evidence showing that climate risks occur at lower levels than previously thought. They provide scientific evidence to support the call by vulnerable countries, such as the Least Developed Countries and Small Island Developing States, that a 1.5 C warming limit would substantially reduce the impacts of climate change.”
The Paris agreement on climate change being signed today in New York was concluded at last December’s UN climate conference. It aims to keep global average temperatures “well below” the 2 C previously agreed—and to pursue efforts to limit the increase to 1.5 C.
But the report by European researchers—published in Earth System Dynamics, an open access journal of the European Geosciences Union (EGU)—says they have found that there would be substantially different impacts for the two targets by 2100. They say the extra 0.5 C would mean a global sea-level rise of 10 centimeters, longer heatwaves and would put virtually all tropical coral reefs at risk.
“We found significant differences for all the impacts we considered,” said the study’s lead author, Carl-Friedrich Schleussner, a physicist at Climate Analytics.
“We analyzed the climate models used in the Intergovernmental Panel on Climate Change’s Fifth Assessment Report, focusing on the projected impacts at 1.5 C and 2 C warming at the regional level. We considered 11 different indicators, including extreme weather events, water availability, crop yields, coral reef degradation and sea-level rise.”
The team, including researchers from Germany, Switzerland, Austria and the Netherlands, identified a number of hotspots around the globe where projected climate impacts at 2 C are significantly more severe than at 1.5 C.
One of these is the Mediterranean region, already experiencing climate change-induced drying. With a global temperature increase of 1.5 C, the availability of fresh water in the region would be about 10 percent lower than in the late 20th century. But in a 2 C world, the researchers project that this reduction would double to about 20 percent.
In tropical regions, the half-a-degree difference in global temperature could damage crop yields, particularly in Central America and West Africa. On average, local tropical maize and wheat yields would fall twice as much with a 2 C temperature increase as with 1.5 C.
By 2100, tropical regions would also experience warm spells lasting up to 50 percent longer in a 2 C world than at 1.5 C. “For heat-related extremes, the additional 0.5 C increase marks the difference between events at the upper limit of present-day natural variability and a new climate regime, particularly in tropical regions,” Schleussner said.
The extra warming would also affect tropical coral reefs. Limiting warming to 1.5 C would provide a window of opportunity for some reefs to adapt to climate change, but a 2 C increase by 2100 would put virtually all of them at risk of severe degradation from coral bleaching.
Large-scale Bleaching
Australian researchers say 93 percent of the Great Barrier Reef, off the coast of Queensland, is affected to some degree by bleaching. They say large-scale bleaching has also been found off Australia’s west coast.
In the EGU study, the researchers say they expect sea level to rise by about 50 cm by 2100 in a 2 C warmer world, 10 cm more than for 1.5 C warming. These levels are appreciably lower than some scientists expect.
“Sea level rise will slow down during the 21st century only under a 1.5 C scenario,” Dr. Schleussner warns.
One of his co-authors, Jacob Schewe, a climate physicist at the Potsdam Institute for Climate Impact Research, Germany, says it is necessary to account for natural variability, model uncertainties and other factors that could obscure the picture.
“We did that in our study,” he said. “And by focusing on key indicators at the regional level, we clearly show that there are significant differences in impacts between 1.5 C and 2 C.”
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