UK climate watchdog calls for urgent action on heating fossil fuel subsidies

Revised energy subsidies that would incentivise lower carbon power and heat in the UK is one example of more ambitious near-term action needed on decarbonisation, environmental policy experts argue.

The UK’s independent Climate Change Committee (CCC) has said that the next 12 months will be crucial for the country to deliver on its decarbonisation commitments.

This includes pledges in the recently published Heat and Buildings Strategy to look at revising tariffs and subsidies on natural gas to incentivise a shift towards other forms of heating powered via electricity over the next decade.  It is therefore urging the Treasury to undertake a review of the impact of tax policy on a net zero transition.

The calls have been made in response to the COP26 International Climate Change Conference that concluded in Glasgow last month with renewed global commitments on decarbonisation.

A range of stricter national carbon reduction targets and pledges were made during the conference. This included agreeing to broadly phase down reliance on coal. The CCC currently predicts that average global temperatures are now set to rise by 2.7 deg C following on from the pledges made at the conference.

An initial CCC report looking at the key outcomes from COP26 said that the conference commitments were expected to deliver an improvement on the 3.6 deg C temperature rises anticipated prior to the signing of the Paris Agreement in 2015. The environmental watchdog argued that the COP26 commitments were not ambitious enough to limit severe ecological disruption without additional actions at a national and global level in areas that could include building, transport and economic policy.

The committee stated that COP26 has seen some breakthroughs that could accelerate global reductions in carbon emissions from buildings, transport and infrastructure by 2030. These could in turn improve the chances of meeting a global target of limiting temperature rises to 1.5 deg C, it added.

CCC Chair Lord Deben said that it was still too early to assess the success of COP26 in delivering meaningful change in addressing climate change. However, he noted that the conference had shown a “genuine increase” in overall ambition to move towards net zero carbon industries and economies across a range of sectors.

Lord Deben added, “The next year is critical for climate action in the UK and internationally. At home, we need to walk the talk and urgently deliver actions in the Net Zero Strategy. Globally, the UK must continue to encourage stronger action on climate and insist on rapid emissions reductions and stronger adaptation through all diplomatic channels. The ultimate success of the Glasgow Climate Pact will be measured in climate risks averted, not words on a page.”

Tax reforms

Among the priorities for more ambitious climate action recommended by the CCC were calls to review incentives and subsidies to encourage an end to relying on fossil fuels.  The committee noted that the UK claimed to no longer offer fossil fuel subsidies based on what it called a more ‘narrow’ definition of the term.

However, the CCC argued that the UK could be considered to still be incentivising fossil fuel heat under the concept of ‘Post-Tax’ subsidies put forward by the International Monetary Fund (IMF). Initiatives such as reduced VAT and the lack of a carbon price on natural gas used to heat buildings was identified as post-tax subsidies under the IMF definition that still apply in the UK.

The report warned that such subsidies risk undermining efforts to move to renewable energy by failing to account for climate change impacts of fossil fuels.

The CCC stated, “If the tax system is to support the transition as it should, a higher and more consistent carbon price across the economy will be needed, which would also remove post-tax subsidies. The UK Government is taking steps which will address some of these de-facto subsidies.”

“These include a commitment to review the imbalance between gas and electricity prices, set out in the Heat and Buildings Strategy, and plans to review the scope of the UK Emissions Trading Scheme to potentially expand the reach of carbon pricing across more sectors of the economy. “

HVAC and building engineering specialists used the occasion of COP26 – either directly from the conference itself or via sperate events and initiatives – to ramp up pressure on the UK Government to go beyond current commitments to decarbonisation in its Heat and Buildings Strategy and Net Zero Strategy.

This included calls from a range of trade bodies for consistent longer-term plans to improve the energy efficiency of homes and support a shift to alternative heating systems while reducing overall demand on the energy grid to keep buildings safe and comfortable.