Hot on the heels of publication of the latest Climate Change Committtee report to Parliament that claims the UK has ‘lost’ its global leadership position on net zero, the UK Emissions Trading Scheme Authority (UK ETS) has announced a package of reforms to tighten caps on industrial, power and aviation emissions from 2024.

In place since 2021, the UK ETS scheme puts a limit on the total amount of greenhouse gases (GHG) aviation, power and other energy intensive industries can emit, incentivising them away from fossil fuels and encouraging them to cut their carbon footprint by investing in energy efficiency and cleaner, or renewable, technologies, which in turn can boost energy security.

To ease the transition under the new reforms, ‘the cap will be set at the highest level of the range consulted on, in line with net zero, allowing maximum flexibility for industries’, says the Authority. ‘Extra allowances will also be made available to the market between 2024 and 2027, while the current levels of free allocation of allowances for industry has also been guaranteed until 2026, to continue to protect them from international pressures.’

The UK ETS is also to be extended to cover more sectors – domestic maritime transport (vessels of 5,000 gross tonnage and above) from 2026 and waste from 2028 – while rolling out a phased removal of free carbon allowances for the aviation industry in 2026 and supporting investment in new GHG removal technologies.

Earlier, the UK government announced a £80mn boost to put businesses on a path to revolutionising their industry with cleaner energy sources such as hydrogen and biomass. The funding – part of the UK government’s £1bn Net Zero Innovation Portfolio – aims to reduce overall UK energy demand by 15% by 2030, alongside the wider ambition for the UK to move towards greater energy independence.

Call for new policies to stop net zero investment going abroad
Meanwhile, UKPIA, which represents the interests of the UK downstream sector, has called upon the UK government to introduce ambitious carbon policies to prevent investment vital for net zero going abroad.

Stating that the UK ‘has higher carbon and energy costs than most competitor countries, poorer incentives to develop low-carbon technologies, and a policy environment that does not offer enough investor certainty,’ UKPIA says new policies are ‘urgently needed to secure investment in decarbonisation projects and reduce the risk of increasing levels of fuel imports’.

It believes a ‘well-designed carbon levy in the form of a carbon border adjustment mechanism (CBAM)’ is needed ‘to ensure importers have equivalent costs for carbon emissions as UK manufacturers have to face’.

In addition, UKPIA says the UK government should match the financial support offered to decarbonisation projects in the US, European Union (EU) and other competitor countries.

Call to reform clean power auctions
The UK government is also being called upon by RenewableUK, Energy UK and Scottish Renewables to make ‘urgent changes’ to its annual clean power auctions, known as contracts for difference (CfD), ‘to maximise benefits for consumers’.

The trade bodies have put forward in a letter to government a series of recommendations to lower energy bills by maximising private investment in renewable technologies, while also ensuring growth of industrial supply chains throughout the UK, creating tens of thousands of high-quality well-paid jobs.

In the letter, the trade bodies call for ‘a broader approach’ in defining how best value is delivered from the auctions, ‘taking into account the current economic environment, international competition in the sector and the benefits to UK plc from the timely deployment of homegrown, cost-effective renewable energy’.

Specifically, the letter warns that: ‘The current emphasis on securing renewable capacity at the lowest possible strike price – minimising expenditure rather than maximising benefit – risks creating a less attractive investment environment in the UK. The race to the bottom on strike prices incentivised by the current auction process is at odds with the reality of project costs and investment needs, jeopardising deployment targets. This is especially relevant for supply chain companies that have been recording losses as the continuous squeeze on strike prices has been passed on to them. CfD strike prices are no longer cost reflective and, consequently, the industry’s capacity to invest in critical infrastructure and the domestic supply chain is being eroded.’

The trade associations point out that the US and the EU have stepped up their ambitions for renewable energy significantly, offering financial incentives and supportive regulations to developers and supply chain companies. They highlight the fact that as a result of these measures, the UK’s position as a world leader in clean energy can no longer be guaranteed.

The letter puts forward a series of recommendations to address these issues. These include reassessing and uplifting the budget for this summer’s auction, as since it was announced in March, a number of new projects have become eligible to bid. It also suggests that fixed-foundation offshore wind should be put back into a separate budget pot to maximise deployment.

The second measure focuses on the need to support emerging technologies such as floating wind and tidal stream projects, to accelerate cost reductions and build up supply chains. This could be achieved by setting clear deployment targets and ringfencing budgets for each technology, to ensure that each secures a minimum amount of new capacity.

The third recommendation urges Ministers to ensure that in future auction rounds, CfD parameters should reflect their economic environment more closely in terms of supply chain costs and interest rates. ‘A clear schedule with auction parameters, budgets and capacity targets would provide a clear roadmap towards net zero,’ state the trade associations.

‘Substantial gap’ between government targets and efficiency progress
Meanwhile, a new study for WWF UK and ScottishPower has found a ‘substantial gap’ emerging between what is on course to be delivered and what is needed to reach the UK government’s desired energy reduction target of 15% by the end of the decade.

The report says that the UK government needs to significantly step up its plans to accelerate the delivery of energy efficiency measures in homes, such as better insulation or replacing fossil fuel boilers with electric heat pumps, to get on track with meeting its ambition.

Currently 6mn homes need to be better insulated by 2030 to meet the UK government’s target; however, existing policies are expected to deliver around 1.1mn. As well as better insulation, it is estimated that 1.5mn homes will still need heat pumps installed and a further 600,000 homes will need connection to low-carbon heat networks.

If the UK aimed for the more ambitious target of a 20% reduction in consumption by 2030, the report suggests that, with all committed and planned policies accounted for, an additional 5.4mn homes would require fabric efficiency retrofits, an additional 1.4mn homes would require heat pumps and a further 1.4mn homes would require connecting to a heat network.