Accelerating to Net Zero:

A sector led approach to an

economy-wide carbon policy
framework

1
 Contents
About Energy Systems Catapult 2
Acknowledgements 3
Glossary of Terms 5
Executive Summary 6
1. Building an Economy-Wide Carbon Policy Framework for Net Zero 12
1.1 The Existing Policy Framework is Incompatible with Net Zero 13

2. The Role of Carbon Policy 18

2.1 Principles for an Economy-Wide Carbon Policy Framework 19

3. A Sector Led Approach to an Economy-Wide Carbon Policy Framework 20

3.1 The Potential Role of Sectoral Carbon Standards 21

3.2 Linking Sectoral Policies 24

3.3 Examples of Sector Led Approaches 25

4. A Pathway to an Economy-Wide Carbon Policy Framework 28

4.1 Near-Term: Scaling Up (Early/Mid 2020s) 30

4.2 Medium-Term: Rolling Out (Late 2020s/Early 2030s) 31

4.3 Long-Term: Reaching Net Zero (Mid 2030s Onwards) 32

5. Recommendations for Policymakers 34

5.1 Next Steps 35

6. Endnotes 36

Authors
Dr. Danial Sturge, Energy Policy Advisor
danial.sturge@es.catapult.org.uk

George Day, Head of Markets, Policy and Regulation

george.day@es.catapult.org.uk

2 1
 About Energy Systems Acknowledgements
Catapult We would like to thank the Expert Advisors that provided feedback throughout
developing this report, including:
Energy Systems Catapult was set up to accelerate the transformation of the UK’s • Duston Benton, Green Alliance
energy system and ensure UK businesses and consumers capture the opportunities
of clean growth. The Catapult is an independent, not-for-profit centre of excellence • Joshua Burke, Grantham Research Institute on Climate Change and the
that bridges the gap between industry, government, academia and research. Environment, London School of Economics
• L uca Taschini, University of Edinburgh Business School and Grantham
We take a whole systems view of the energy sector, helping us to identify and
Research Institute on Climate Change and the Environment, London School of
address innovation priorities and market barriers, in order to decarbonise the
Economics
energy system at the lowest cost.
• Mike Thompson, Committee on Climate Change
We have more than 200 staff based in Birmingham and Derby with a variety of
technical, commercial and policy backgrounds. We work with innovators from • Simon Skillings, E3G
companies of all sizes to develop, test and scale their ideas. We also collaborate • S
tuart Evans, Vivid Economics and Grantham Research Institute on Climate
with industry, academia and government to overcome the systemic barriers of the Change and the Environment, London School of Economics
current energy market to help unleash the potential of new products, services and
value chains required to achieve the UK’s clean growth ambitions as set out in the • Tanisha Beebee and James Diggle, Confederation of British Industry
Industrial Strategy. • Department for Business, Energy and Industrial Strategy
• Drax

Net Zero Carbon Policy

Providing feedback does not imply endorsement and the content of the report
remains solely that of Energy Systems Catapult.

Net Zero Carbon Policy is our new thought leadership project, focusing on how
the UK can build an innovation-friendly, economy-wide framework for Net Zero.

Execu
We aim to build on the insights from our Rethinking Decarbonisation Incentives¹
project, to develop credible policy options for an efficient and socially beneficial
transition.

tive summary
We will be publishing a number of reports and policy briefs during 2020-21 ahead
of the Committee on Climate Change’s recommendations on the Sixth Carbon
Budget, HM Treasury’s Net Zero Review, and COP26.

2 3
 Only thirty years remain Glossary of Terms
before the UK must Net Zero - Net Zero requires elimination of all greenhouse gas emissions wherever feasible,
with any remaining sources offset by the removal of carbon dioxide from the atmosphere.

legally reach Net Zero

Just Transition - Ensuring that costs and benefits of the transition to Net Zero are fairly
shared between income groups, industries, and regions – as well as between current and
future generations.

emissions. All major Whole Energy Systems Approach - This considers:

» All parts of the physical system that transforms primary energy (e.g. wind, solar,

emitting sectors – travel,

fuels) into usable energy or services.
» All end users (e.g. households and businesses) of energy.
» How the entire system is controlled and shaped by policy, markets, and digital

heating, manufacturing,
arrangements.
A whole energy system approach also recognises specific sectoral challenges and seeks to
address them.

power generation, Carbon Policy - Carbon policy is a shorthand term for all policies that require or incentivise
action to reduce or remove greenhouse gas emissions, including pricing, regulation,
subsidies, and standards. These can be combined with complementary policies, such as

and farming practices

innovation support and access to finance, to form policy packages.

Carbon Standard - The term ‘carbon standard’ is used to encompass any regulation,

– will need to change

standard, or policy mandate on an economic actor (e.g. a business or a household) to meet a
decarbonisation requirement or metric. Examples include product or performance standards,
regulatory targets, regulated obligations, or market rules.

radically to get as close

Effective Carbon Prices - The incentive or reward for a firm or individual to reduce emissions
(in £/tCO₂e) resulting from direct (e.g. explicit carbon pricing instruments, energy and fuel
taxation, etc.) and indirect (e.g. reduced VAT on energy, subsidies for low and zero carbon

as possible to zero
options, etc.) carbon policies.

Economy-Wide Carbon Policy Framework - A framework that delivers incentives for

emissions reduction across all major emitting sectors that are consistent with carbon targets,

emissions by 2050. This

while achieving beneficial social and economic outcomes for all of society.

Crucially, an economy-wide carbon policy framework can be created by combining sectoral

policy packages and does not necessarily depend on implementing an economy-wide carbon

will require major new

pricing or policy instrument, such as a carbon tax or an emissions trading system.

Sector Led Approach - A sector led approach can enable the stepwise creation of a

policy reforms to drive

coherent economy-wide carbon policy framework by:
» Progressively introducing or strengthening tailored sectoral carbon policies, such
as incentives or standards, to drive required emissions reductions in major emitting

both the supply of, and

sectors.
» Enabling sectoral price or regulatory policies to be supported by packages of
complementary policies (e.g. innovation support or access to finance) specifically
designed to address key sectoral challenges and barriers (e.g. transitional or

demand for, low, zero,

distributional impacts).
» Linking sectoral carbon policies by introducing trading and validated carbon
credit market mechanisms to enable the emergence of a balanced economy-wide

and negative carbon

framework of decarbonisation incentives.
A sector led approach can pragmatically and progressively improve the low and imbalanced
current pattern of effective carbon prices across major emitting sectors. It also recognises

technologies.
that increasing effective carbon prices will not be sufficient to drive innovation and private
investment on its own. A range of complementary policies will also be required to address
the variety of sector specific barriers, characteristics, and transition challenges.

4 5
 Executive Summary

A Sector Led Approach can open a pathway

to an Economy-Wide Carbon Policy Framework

Sectoral Packages of Linking Sectoral

Carbon Policies Complementary Policies Carbon Policies

• Implement tailored sectoral • Implement complementary policy • Introduce trading and validated
carbon policies packages to support carbon carbon credit market mechanisms
• Cover all major emitting sectors policies (e.g. innovation support • Link sectoral policies with carbon
or access to finance) markets
• Progressively strengthen
incentives or mandates to drive • Address key sectoral barriers • Enable an integrated economy-
required pace to change (e.g. transitional or wide framework of incentives
distributional impacts)

• Enables more rapid progress than relying on strengthening or extending generic carbon pricing policy.
• Corrects current sectoral gaps and imbalances in decarbonisation incentives.
• Opens a pathway to an economy-wide carbon policy framework linked by validated market mechanisms.
• Creates a credible market framework to accelerate the transition to Net Zero.

6 7
 Only thirty years remain before the UK must legally reach Net Zero emissions. All Recommendations for Policymakers
major emitting sectors – travel, heating, manufacturing, power generation, and
farming practices – will need to change radically to get as close as possible to zero There is significant merit in taking a sector led approach to accelerate the transition
emissions by 2050. This will require major new policy reforms to drive both the to Net Zero. The following recommended actions could initiate such a sector led
supply of, and demand for, low, zero, and negative carbon technologies. approach, as part of a pathway to an economy-wide carbon policy framework in
future:
In this report, we discuss the role of carbon policy, which we use as a shorthand
term for all policies that require or incentivise action to reduce or remove
greenhouse gas emissions, including pricing, regulation, subsidies, and standards.
Key departments including BEIS, Defra, DfT, and HMT should work with the
We propose a set of guiding principles for designing and implementing policies CCC, to clarify options for aligning the UK ETS, sectoral carbon standards,
to achieve Net Zero. We also explore and make the argument for taking a sector 1 and sectoral policy packages with carbon budgets, in particular the Sixth
led approach that can accelerate progress during the 2020s from the incomplete Carbon Budget.
and unbalanced pattern of current carbon policies towards a more coherent
economy-wide carbon policy framework in the 2030s. Finally, we provide set of Develop the required scientific and regulatory oversight to ensure that
recommendations for policymakers. sectoral carbon standards and decarbonisation incentives are driving
2 genuine emissions reduction, including removals, particularly in agriculture,
The sector led approach that we propose in this report: forestry and other land use sectors.
• Recognises the importance of sector specific barriers to change. For industry, develop policy options to improve or replace allocation of free
• Avoids relying on an overarching carbon pricing mechanism. allowances within a UK ETS to mitigate carbon leakage and competitiveness
3 impacts for energy-intensive, trade-exposed industries, including both
• Enables carbon policy to be designed at a sectoral level to address sector specific
challenges (e.g. mitigating competitiveness impacts in industrial decarbonisation performance standards and border carbon adjustments.
or enabling energy suppliers to create attractive consumer propositions for home
energy services and heat decarbonisation). For electricity, design a sectoral decarbonisation obligation to reinforce,
complement, or potentially replace a UK ETS in driving complete
A sector led approach (see summary on previous page) can also be combined decarbonisation of the sector in line with the Sixth Carbon Budget pathway.
with complementary policies and co-ordination mechanisms (such as infrastructure Policy design work needs to be completed as part of the consultation on
regulation or multi-vector local energy planning tools) to enable a whole systems
4
the appropriate trajectory for the UK ETS’s cap, which the Government plans
approach to the energy transition. to complete within nine months of the CCC’s advice on the Sixth Carbon
Budget.
Our other thought leadership projects – Rethinking Electricity Markets² and Zero
Carbon Buildings³ – are developing further detailed sector policy proposals, as For negative emissions, develop a marketplace for nature-based greenhouse
components of an integrated economy-wide carbon policy framework. gas removals using the proposed framework provided by the Environmental
5 Bill 2020. In addition, explore options for future integration of such a
marketplace with a UK ETS.

For road transport, bring forward the end to the sale of new petrol, diesel,
6 and hybrid cars and vans to at least 2035 as part of a comprehensive phase-
out plan that enables earlier phasing out for targeted vehicle/user categories.

For buildings, phase in minimum carbon performance requirements and

7 introduce a building carbon credit scheme to reward low and zero carbon
choices through energy bills.

For carbon markets, develop the necessary regulatory requirements to

enable linkages between sectoral policies within the UK and use COP26 to
8 progress agreement of Article 6 rules to better enable international linkages.

8 9
10 11
 Building an Economy-Wide A sector led approach can address sector specific challenges

Carbon Policy Framework

The sector led approach that we propose in this report recognises the importance
of sector specific barriers to change. By avoiding reliance on an overarching
carbon pricing mechanism, policy can be designed at a sectoral level to address

for Net Zero sector specific challenges, for example mitigating competitiveness impacts in
industrial decarbonisation or enabling energy suppliers to create attractive
consumer propositions for home energy services and heat decarbonisation.
Similarly, transitional and distributional impacts often have sector specific
Thirty years to deliver Net Zero characteristics that require sector specific policy responses (e.g. targeted fuel
Only thirty years remain before the UK must legally reach Net Zero emissions. All poverty interventions).
major emitting sectors – travel, heating, manufacturing, power generation, and
farming practices – will need to change radically to get as close as possible to zero
Sector led policy reform can also support a whole systems transition
emissions by 2050. This will require major new policy reforms to drive both the A sector led approach can also be combined with complementary policies and
supply of, and demand for, low, zero, and negative carbon technologies. co-ordination mechanisms (such as infrastructure regulation or multi-vector
local energy planning tools) to enable a whole systems approach to the energy
Current relative prices often favour high carbon options transition. It is also crucial to align investment and infrastructure decisions
Our Rethinking Decarbonisation Incentives project highlighted how current policies consistent with the Net Zero target. A range of commentators have suggested new
deliver incentives (or ‘effective carbon prices’) that are uneven and too low in many institutions (for example, ‘Net Zero Delivery Body’, ‘Clean Economy Observatory’,
major emitting sectors. Indeed, the relative prices facing actors in many sectors and ‘Innovation and Governance’).⁴
favour high rather than low and zero carbon choices. Notably, current gas and
electricity prices drive most consumers to stay with the high carbon status quo of
gas boilers for home heating.
The Existing Policy Framework is Incompatible
Clearly, relative prices are not the only determinant of choices made by consumers, with Net Zero
businesses or investors, but they remain a key consideration and set the ‘terms of
trade’ between high and low/zero carbon options. Long term-change, investment, The UK’s current carbon policy framework, as it stands in 2020, is not fit for
and innovation will become much easier to deliver when the competitive playing purpose to deliver Net Zero ambitions; as recently emphasised by the CCC in their
field tilts in favour of choices that reduce emissions. annual progress report to Parliament.⁵

This report focuses on reforming carbon policyⁱ to build a more coherent The pattern of effective carbon prices delivered by current policies is uneven
framework of incentives to reduce emissions. This means a stronger and more and too low to incentivise the pace and depth of change required in most major
consistent pattern of effective carbon prices to reward efforts to reduce emissions emitting sectors across the economy, as shown in Figure 1. Carbon pricing is
across all major emitting sectors of the economy. It also means addressing relative not wide enough in scope or sufficiently stringent. As a result, a complex mix of
prices, so that they more consistently favour low and zero carbon choices. subsidies and other policy interventions are relied on to incentivise action.

Complementary policies are needed as well as better effective carbon The low and uneven nature of carbon pricing policy flows through to consumers.
price signals Relative prices continue to tilt in favour of higher carbon options for many
consumer choices, adding to the difficulty of achieving change.
We recognise explicitly that carbon policy must fit within the broader public policy
mix. As well as strengthening incentives and rebalancing relative prices in favour
of low and zero carbon choices, we will also need a wide range of complementary
policies to deliver Net Zero in a way that is practical and addresses barriers to
change. Complementary policies will be needed, for example, to develop the new
workforce skills and supply chains for low and zero carbon technologies or to
unlock finance for key infrastructure investments.

ⁱ In this report we use the term ‘carbon policy’ as a shorthand for all policies that require or incentivise
action to reduce or remove greenhouse gas emissions, including pricing, regulation, subsidies, and
standards.

12 13
 Figure 1 Effective carbon prices and emissions in the UK by sector. The average target price Rail
of £80/tCO₂e is the central value for 2030 as used by BEIS for appraisal purposes; this target transport
price has not been updated to align with the Net Zero emissions target.⁶ 3.8 MtCO2e

+£250

Energy

Effective carbon prices

from waste
Road
0 Emissions
transport
123.8 MtCO2e Onshore

and emissions in the UK wind

0 Emissions
+£200

by sector
Feed-in Offshore
tariffs wind
0 Emissions 0 Emissions
Biomass Nuclear
combined 0 Emissions
+£150
Sectors: heat and
power
Landfill 0 Emissions
Power Generation Public 12.1 MtCO2e Advanced
Fossil Fuel Production Agriculture, Forestry and Electricity use conversion
6.5 MtCO2e technologies
Transport Other Land Use (AFOLU) 0 Emissions
+£100
Business Waste Solar PV
0 Emissions
Residential

+£50

Average
target
price
£80/tCO2

-£50

Key:
Gas Electricity use
Other
Waste fossil fuels 34.2 MtCO2e 62.3 MtCO2e Average effective carbon -£100
water 35.4 MtCO2e price currently above target
Oil 6.1 MtCO2e Electricity use
production Rural
Gas 45.8 MtCO2e
13.0 MtCO2e development
8.1 MtCO2e Average effective carbon
Refrigeration grants
13.3 MtCO2e (CAP Pillar 2) Other price currently below target
Gas 0 Emissions fossil fuels
54.0 MtCO2e Industrial -£150
Coal 5.4 MtCO2e Circle size = MtCO2e
process
Farm production Other 13.3 MtCO2e
15.5 MtCO2e heating Coal
payments
fuels 65.5 MtCO2e
(CAP Pillar 1)
63.3 MtCO2e 12.2 MtCO2e

Gas Gas
Air Other
production 34.1 MtCO2e
transport land use
42.4 MtCO2e 5.3 MtCO2e –19.6 MtCO2e

14 15
 Consumer Choice in 2020: Small Family Car
Consumer Choice in 2020: Air Source Heat Pumps vs. Gas Boilers
Battery EV vs. Petrol Engine
In home heating, current carbon policy tilts relative prices for consumers in In motoring, current carbon policies do tilt prices for consumers in favour of
favour of the high carbon choice: lower carbon options (i.e. higher emitting vehicles are more heavily taxed):
• Relative prices are among a range of factors that continue to drive most • Uptake is currently limited by issues such as range anxiety and a nascent
consumers to retain gas boilers as their preferred source of heating. This falls chargepoint infrastructure.
short of what is required for Net Zero.
• Addressing such barriers with the use of complementary policies as well as
• Relative prices are a key barrier for buildings decarbonisation and will need to be ensuring the effective carbon prices continue to align with Net Zero ambitions
addressed alongside related barriers such as installing energy efficiency measures, highlights the need for sector specific policy packages.
access to finance, and developing supply chains.
The scale of the challenge¹²:
The scale of the challenge:
• There are over 0.3 million plug-in cars on UK roads today, but this only represents
• Fewer than 0.2 million homes currently use heat pumps⁷ compared with 26.7
million homes using gas boilers⁸ for heating. ~1% of the total 37 million cars and vans.

• Currently, fewer than 30,000 heat pumps are installed per year, this needs to • Despite EV sales increasing from 0.1% in 2010 to 3.1% in 2019, this will need to
increase to ~1.5 million installations per year by 2030.⁹ increase close to 100% by the early-2030s.

For example, below is a comparison of the annual energy and total lifetime costs of heating For example, below is a comparison of the annual fuel and total lifetime costs of driving a
a typical UK semi-detached home when using an air source heat pump (ASHP) versus a gas typical small family car for a battery EV and petrol engine equivalent.*
boiler.*

Under the current carbon policy framework Under the current carbon policy framework

Air Source Heat Pump Gas Boiler Battery EV Petrol Engine

£752 Annual Energy Cost (2020) £712 Annual Fuel Cost (2019)
£221 £1,322
£19,800 or £14,047 with RHI Lifetime Cost (2016-2030) £12,414 Total Ownership Cost (2019-
£25,289 (with Plug-In Grant) £26,134
2023)
If carbon policies were introduced that levelise the effective carbon prices** There is no need to introduce carbon policies that levelise the effective carbon prices in
the near-term. Going forward, fuel duty could be strengthened by making the carbon
£752 Annual Energy Cost (2020) £979 component explicit.
£19,800 or £14,047 with RHI Lifetime Cost (2016-2030) £15,601

RHI will no longer be open to new applications after March 2021 and without it, even * This is based on analysis carried out by Green Alliance who compared a VW Golf E and VW Golf.¹³
with a levelised effective carbon price, the lifetime costs of an ASHP still remains higher
than a gas boiler. In the near-term, this points to the need for capital costs reductions in
technology and installation. In addition, with the use of time of use tariffs and home energy The two examples above demonstrate the variation in how current effective
management systems, the annual cost of running a heat pump can be further reduced. carbon prices impact on consumer choices. In both cases, however, other barriers
remain for the uptake of low and zero carbon choices. This highlights that careful
* Homes are assumed to have a ‘normal’ level of insulation, the gas boiler (23 kWth) has a mean efficiency consideration of sector specific challenges would almost certainly be required
of 0.92, and the ASHP (6 kWth) has a mean seasonal performance factor of 3.¹⁰
** We have assumed that for households in 2020 the effective carbon price for electricity is £48/tCO₂e and
to complement economy-wide carbon policies such as a carbon tax. Given the
gas is £1/tCO₂e.¹¹ Therefore, for the purposes of this comparison we have increased the effective carbon difficulty of implementing economy-wide carbon pricing, we propose a sector led
price of gas to equal electricity. approach based on sectoral carbon policies alongside complementary policies to
drive the transition.

16 17
 The Role of Carbon Policy Principles for an Economy-Wide Carbon Policy
Framework
By legislating the objective of reaching Net Zero by 2050, the UK strengthened We propose the following set of guiding principles for developing and
what is in effect an economy-wide outcome-based target. The high-level outcome implementing the carbon policies (as part of wider policy packages) necessary to
for the economy is known, but not the precise mix of actions to achieve it. establish an economy-wide framework:
The final mix of changes and measures to deliver Net Zero is likely to involve a 1. Economy-wide in scope. Net Zero leaves no room for exceptions, therefore,
complex combination of new technologies, behaviour changes, new business policy must cover all major emitting sectors.¹⁵
models, and structural shifts in industrial sectors. It will be shaped by wider Economy-wide in scope. Net Zero leaves no room for exceptions,
societal trends and preferences, as much as by technology, innovation, and more
1 therefore,
2. A whole policies
systems must cover
approach. all must
Policy majorcover
emitting sectors.¹⁵
all energy vectors and parts of
recently the effects of COVID-19. Modelling scenarios highlight that there are many the supply chain, from investment through to consumers.¹⁶
plausible (although no easy) pathways to Net Zero.¹⁴ 3. Technology, vector, and material neutral as far as possible. Policy must
A whole
enable systems
innovation andapproach. Policy
the discovery mustthe
of best cover all energy of
combination vectors and
measures.
Given the inherent unpredictability of technical and social change over a thirty year 2 Thisparts
mustof therecognise
also supply chain, from to
the need investment through
support low- to consumers.¹⁶
or no-regret technologies
period, the role of carbon policy is not to attempt to bring forward a particular and vectors early on.¹⁷
planned Net Zero technology mix.
4. Create coherentvector,
Technology, marketandincentives
materialfor low and
neutral zeroascarbon
as far choices.
possible. Policy In a
Our contention is that carbon policy – and economic incentives in particular market
musteconomy, prices andand
enable innovation incentives are a key
the discovery long-term
of best driver of choices
the combination of
– should be designed to enable markets to discover, over time, a broadly cost- 3 andmeasures.
investmentThis
by must
consumers and the private
also recognise the needsector, therefore,
to support low-relative
or no-prices
efficient and socially beneficial pathway to Net Zero; while recognising the mustregret
be aligned to favour
technologies andlow and zero
vectors earlycarbon
on.¹⁷ choices.¹⁸
importance of fairness and societal acceptability for the mix of changes. There
5. Market signals need to be supported by complementary policies. Prices
remains, however, an important role for innovation support for technologies with
and incentives need to be complemented by other policies that address
the potential to have a large-scale impact on decarbonisation. Create
barriers coherent
to change andmarket incentives
coordinate for decisions
collective low and zero carbon choices.
(e.g. infrastructure).¹⁹
In a market economy, prices and incentives are a key long-term driver of
Carbon policies that aim to strengthen the incentives or regulatory requirements 4 choices
6. Support and transition.
a just investment Policy
by consumers and the
design should private
ensure sector,
that directtherefore,
and indirect
on market players to reduce emissions should also be supported by packages of relative
costs prices must
and benefits of thebetransition
aligned to
to favour
Net Zeroloware
and zero carbon
distributed choices.¹⁸
fairly.²⁰
complementary policies. These might be complementary policies to make change
easier (e.g. access to finance) or to ease distributional and transitional impacts 7. Long-term credibility. Long-term policy credibility will unlock the large
on particular groups. This approach also recognises the additional co-benefits of volumes
Marketof private
signalsinvestment
need to beand innovation
supported byneeded.²¹
complementary policies.
getting carbon policy right, including workforce upskilling and job creation, cleaner Prices and incentives need to be complemented by other policies that
air and healthier lifestyles, as well as enabling the socio-economic recovery from
5 address barriers to change and coordinate collective decisions (e.g.
COVID-19 in the near-term. infrastructure).¹⁹

The inherent difficulty of predicting ‘correct answers’ also suggests that early action
to unlock greater pathway flexibility makes sense, given that actions taken now Support a just transition. Policy design should ensure that direct and
can either constrain or expand the option set for future emissions reduction or 6 indirect costs and benefits of the transition to Net Zero are distributed
removals. fairly.²⁰

Long-term credibility. Long-term policy credibility will unlock the large

7 volumes of private investment and innovation needed.²¹

18 19
 A Sector Led Approach to This report does not intend to provide comprehensive carbon policy
recommendations. Rather, it discusses the potential role of sectoral carbon

an Economy-Wide Carbon
standards, linking sectoral polices, and to provide examples of what sector led
approaches can be used to accelerate the transition from the existing policy
framework to one suitable for Net Zero.

Policy Framework
International experience across a range of jurisdictions suggests that it is The Potential Role of Sectoral Carbon Standards
very difficult to introduce ambitious economy-wide carbon policies (see our
international case studies, including New Zealand²²). Our Rethinking Decarbonisation Incentives project made the case for developing
and introducing long-term carbon standards (or mandatory decarbonisation
International experience also shows that the most ambitious jurisdictions have obligations), applied to specified emitting sectors. These can play a key role as part
tended to apply a mix of sectoral and more generic carbon policies (for example, of a pathway to an economy-wide carbon policy framework.
California²³). The UK’s experience in implementing carbon policies to date suggests
that similar sector distributional challenges apply, despite the economy-wide legal What are sectoral carbon standards?
framework for emissions reduction created through the Climate Change Act 2008.
Sectoral carbon standards (or mandatory decarbonisation obligations) can be an
Practical experience demonstrates how different sectors across the economy have alternative (or addition) to explicit carbon pricing policies.
different associated challenges with emissions reduction that must be reflected
by policy response. For example, energy-intensive, trade-exposed industries Standards can be designed to be:
have competitiveness concerns, while road transport has the requirement for • Technology-neutral, which provides flexibility in compliance and enables longer-
widespread charging networks²⁴. term cost efficiency.

Therefore, a mix of sector specific carbon and complementary polices (as part of • Transparently aligned with carbon budgets, thereby providing long-term certainty
wider policy packages) within an enduring economy-wide framework is likely to be and enhancing credibility for investors.
both more socially and politically acceptable as a route to Net Zero. • Flexible and tradeable, with trading of validated carbon credits within (and
potentially between) sectors providing an additional level of flexibility in compliance
A sector led approach to an economy-wide carbon policy framework allows strategies.²⁷
carbon policies to be designed in such a way that better enables integration on a
The design is similar to an emission trading system, such as a cap and trade, in
sector level alongside the necessary complementary polices that are essential for
some important respects, but it does not require the allocation of allowances.
addressing social and technological barriers specific to each (see Figure 2). This
However, this also means that government revenue cannot be as easily raised.
suggests that a combination of sector specific policy packages is likely to perform
Designing and introducing standards at a sectoral level may also provide a way to
better than implementing a single economy-wide carbon policy or price with
circumvent the policy risks and complexity in implementing and setting the ‘right’
associated sector-based exemptions.
carbon price explicitly through a carbon tax.
Sectoral policies can also be designed to align with principles around technology
Approaches based on sectoral carbon standards and mandates have been used
neutrality and long-term credibility. In the medium- and longer-term, trading
effectively in several jurisdictions to drive emissions reduction, for example:
mechanisms and validated carbon credits can link across sectoral policies,
providing a pathway to an enduring economy-wide framework. Indeed, this could
provide a pathway to the emergence of a carbon price, and a wider market for California Low Carbon Fuel Standard (LCFS)
validated carbon credits, that is applicable to all major emitting sectors. The LCFS provides an example of a technology-neutral carbon standard,
which aims to reduce road fuel GHG emissions by at least 10% by 2020.
Energy Systems Catapult has begun developing carbon policy proposals for key It also provides experience of developing processes for carbon rating,
trading of credits, and monitoring, reporting, and verification.
sectors across the economy, these include electricity, buildings, and industry via
the following projects:

• Rethinking Electricity Markets.²⁵

• Enduring Policy for Zero Carbon Buildings.²⁶
• Advisory work on industrial decarbonisation for the Committee on Climate Change,
focusing on carbon policy options to mitigate carbon leakage and competitiveness
impacts.

20 21
 Figure 2 A summary of a sector led approach to an economy-wide carbon policy framework.

A Sector Led Approach can open a pathway

to an Economy-Wide Carbon Policy Framework

Sectoral Packages of Linking Sectoral

Carbon Policies Complementary Policies Carbon Policies

• Implement tailored sectoral • Implement complementary policy • Introduce trading and validated
carbon policies packages to support carbon carbon credit market mechanisms
• Cover all major emitting sectors policies (e.g. innovation support • Link sectoral policies with carbon
or access to finance) markets
• Progressively strengthen
incentives or mandates to drive • Address key sectoral barriers • Enable an integrated economy-
required pace to change (e.g. transitional or wide framework of incentives
distributional impacts)

• Enables more rapid progress than relying on strengthening or extending generic carbon pricing policy.
• Corrects current sectoral gaps and imbalances in decarbonisation incentives.
• Opens a pathway to an economy-wide carbon policy framework linked by validated market mechanisms.
• Creates a credible market framework to accelerate the transition to Net Zero.

22 23
 What is the potential role of sectoral carbon standards? All sectoral carbon credits can be converted to a common ‘currency’ of
per tCO₂e that can be traded across the economy. Converting to a common
Sectoral carbon standards are not a Net Zero panacea. They can, however, be currency will yield an implicit economy-wide carbon price via carbon markets.
used to create stable market signals to drive investment and innovation to develop However, the aim of linking is not to reveal a carbon price, rather it is to enable
low and zero carbon options. cost-effective emission reduction as a result of trading, which can be achieved as
a result of increased market liquidity and by reducing the risks of market power;
Crucially, sectoral standards can be combined with complementary policy both as a result of increasing the total number of potential buyers and sellers.
packages designed to address sector specific market conditions, barriers and social Linking also provides effort and risk sharing benefits.
or transitional challenges.
Linking of carbon credit markets does, however, require effective scientific and
How can sectoral carbon standards improve effective carbon price regulatory oversight to ensure economic incentives are driving genuine reduction,
signals? including removals. In addition, accounting for the permeance and associated risks
of each carbon credit, especially those generated from agriculture, forestry and
There are several examples of sectoral carbon (or other policy) standards which other land use (AFOLU) sectors, is essential. One possible solution is for an existing
allow for trading of credits, greatly increasing the flexibility in compliance strategies (or new) body to take responsibility for the verification of emissions across the
for obligated parties. economy, ensuring monitoring and reporting is robust, transparent, consistent, and
accurate as far as possible.
Tradeable credits enable an implicit carbon price (or prices) to emerge organically
from the operation of trading reflecting the underlying costs of options available
within the sector to reduce emissions to comply with a carbon standard.

The stringency of a sectoral standard performs a role similar to the setting of Examples of Sector Led Approaches
the cap in ‘cap and trade’ systems, by in effect setting the envelope of emissions
‘allowed’ in a given sector.
Decarbonising Buildings: Towards an Enduring Policy Framework³¹
Our Rethinking Decarbonisation Incentives project highlighted the low effective
carbon prices that currently apply for actions to reduce carbon emissions from
Linking Sectoral Policies buildings. Given the importance of the sector as a source of emissions, this
remains a key challenge for the UK. The transition is particularly challenging for
Trading within carbon policies, such as the proposed UK ETS²⁸, is used to enable residential heating given its potential impact on household energy bills and the
cost-effective emissions reduction. The flexibility and political attractiveness it difficulties of low carbon alternatives in thermally-inefficient housing stock.
offers is the main reason that twenty-nine emissions trading system are currently
operating at every level of government from supranational, countries, provinces For buildings, no single party can decarbonise the sector alone, therefore, a
and states, and cities – equivalent to 9% of global greenhouse gas emissions.²⁹ range of parties need to be obligated and incentivised by policy to make low
and zero carbon choices. Carbon policy must also drive change in products,
Employing a trading system is not limited to a cap and trade approach and it behaviours, and business models of associated value chains.
can be used by other policy mechanisms such as standards (see California’s
Low Carbon Fuel Standard³⁰). As described above, sectoral standards can form Further, the existing carbon policy landscape and wider consideration
a significant component of sector specific policy packages - to maximise the of decisions made by energy networks, while not unique to building
opportunity for investment in transformative innovation, these essentially disparate decarbonisation, does differ in its details from other sectors.
policies can ultimately be integrated via linking of validated carbon credit markets.
Therefore, assuming credits are entirely fungible, this should be a long-term policy As part of our Zero Carbon Buildings project, we propose that a policy package
goal, as it already is between the UK ETS and EU ETS. consisting of six steps should be implemented. These include:

The result is an economy-wide emissions trading system of sorts, but instead

of a blanket cap on emissions, key emitting sector are covered by a metric that
best enables decarbonisation to occur efficiently in each (alongside necessary
complementary policies).

24 25
 Decarbonising Electricity: Rethinking Electricity Markets³²

Achieving complete decarbonisation of the electricity sector by relying mainly on

a carbon price resulting from a UK ETS that also applies to industry and aviation
1. Fund place-based low carbon 2. Roll out Local Area 3. Make energy networks is likely to present challenges.
programmes, to build supply Energy Planning (LAEP) invest for Net Zero (by
chains and skills adapting the RIIO2)
Our Rethinking Electricity Markets project is developing proposals to reform
To drive early deployment of To develop a national framework To make energy networks’
low carbon solutions in building for local energy transition long-term investment plans electricity markets, including options for an electricity sector decarbonisation
stock and develop supply planning and co-ordination supportive of local ‘whole
chains in a ‘place-based’ spanning buildings and all system’ decarbonisation obligation, such as a standard on electricity suppliers.
framework. energy vectors and networks. plans.
Such a sectoral measure could be designed to replace, complement, or reinforce
the effectiveness of a UK ETS applied to power generators, with a range of
options about rules for merging or linking the two measures. The advantage is
that it would enable electricity policy to be more stringent than that applied to
4. Phase in minimum carbon
performance requirements for all
5. Reward low carbon
choices through energy
6. Develop low cost green
finance for zero carbon
industry, and for it to be integrated with wider reforms to support measures for
building owners bills solutions renewables and other low or zero carbon forms of electricity.
To improve understanding of To create rewards and revenue To create new affordable
carbon performance and for consumers who adopt and green finance options for
drive long-term demand for innovators who create zero consumers and reduce The Government has indicated in ‘The Future of UK Carbon Pricing – UK
innovative building upgrade
solutions. Give homeowners
carbon energy solutions,
through a new building
default risks for finance
providers. Government and Devolved Administrations’ Response’ that it will consult
long lead times to get ready. carbon credit scheme. again on the appropriate trajectory for the UK ETS’s cap within nine months
of the CCC’s advice on the Sixth Carbon Budget.³³ The design of an electricity
sector decarbonisation obligation, and its interaction with the UK ETS’s cap,
This approach addresses the specific barriers unique to the buildings sector as should be considered as part of this consultation, ensuring that the resulting
well as leveraging key economic opportunities that can support the transition to economic incentives for decarbonisation are sufficient to drive deep electricity
Net Zero. decarbonisation consistent with the Sixth Carbon Budget.
Within this overall sectoral policy framework, a building carbon credit scheme in
conjunction with minimum carbon performance requirements, would serve as
the main carbon policy instruments to tilt relative prices towards favouring low
or zero carbon choices by households and building owners:

Suppliers measures actual smart metered energy usage

to calculate carbon emissions.
Measured emissions are compared to the carbon performance
benchmark level in kgCO₂e/m².
(The benchmark level should tighten over time in line with carbon budgets, and be
aligned with carbon performance requirements, but with some scope to fine-tune
calibration and phasing).

Properties with emissions below Properties with emissions above

the kgCO₂e/m² benchmark: the kgCO₂e/m² benchmark:

Supplier obliged to award (and Supplier bills for supply of

purchase) carbon credits for carbon credits required to meet
kgCO₂e saved (i.e. a bill reduction). benchmark (i.e. a bill surcharge).

Steps 1, 2, 3 and 6 act as complementary policies addressing other challenges

(infrastructure planning and coordination, supply chain development, and access
to finance) to enable the transition to zero carbon buildings.

26 27
 A Pathway to an Economy- Figure 3 An overview of how a sector led approach can evolve
into an economy-wide carbon policy framework for Net Zero.

Wide Carbon Policy

Framework Near-Term: Scaling Up

Strengthen existing and, where there are gaps, introduce new sectoral carbon
The starting point for accelerating to Net Zero must acknowledge that wiping policies to scale up low and zero carbon technologies, vectors, and services. For
the carbon policy slate clean is not feasible, nor is it necessarily desirable. Rather, example:
it is possible to build on existing policies by aligning with the Net Zero ambition
• A UK ETS covering industry, power generation, and aviation
and introducing new carbon policies where significant gaps remain. This process
cannot happen overnight and while thirty years to 2050 means there is no time for • Phase in minimum carbon performance requirements for all buildings
complacency, it does provide opportunities to develop – including learning from alongside a building carbon credit scheme
mistakes – and build a coherent set of sector specific policy packages that together • Pay farmers (using public money) for actions to sequester carbon as a first
ensure the Net Zero target is met. step in creating a GGR marketplace
• Reinforce road transport fuel and vehicle taxation
The aim of this section is to describe a potential pathway to an economy-wide
carbon policy framework (see Figure 3 for an overview), taking into account • Provide innovation support for CCS and hydrogen projects
key sectoral carbon policies soon to be implemented, such as the UK ETS, and
proposals ESC (and others) are currently developing.
Medium-Term: Rolling Out
The 2020s represent a crucial decade for accelerating to Net Zero. It requires
significant scaling up of technology/behaviour/infrastructure change, which is
needed to lay the foundation for rolling out during the 2030s. This supports Continued development and alignment of sectoral carbon policies with carbon
the need for a sector led approach to address specific challenges and seize the budgets. For example:
opportunities unique to each. The transitional period of the 2030s and early 2040s
is key for longer-term emissions reduction, enabled by a carbon policy framework • Introduce an electricity sector decarbonisation obligation
that is genuinely economy-wide in scope and sufficiently stringent to deliver Net • Use tradeable performance standards to support energy-intensive, trade-
Zero. exposed industries decarbonise
• Fully roll out the building carbon credit scheme with trading
• Expand the GGR marketplace to include both nature- and technology-
based negative emissions
• End the sale of new petrol, diesel, and hybrid cars and vans

Long-Term: Reaching Net Zero

Link sectoral carbon policies via trading of validated carbon credit markets
(both within the UK and internationally).

All sectoral carbon credits can be converted to a common ‘currency’ of per

tCO₂e that can be traded across the economy.

This would:

• Yield an economy-wide carbon policy framework that harnesses markets

to help reveal least-cost combinations that delivers Net Zero by 2050
• Be important for maintaining Net Zero beyond 2050

28 29
 Near-Term: Scaling Up (Early/Mid 2020s) Medium-Term: Rolling Out (Late 2020s/Early
In the near-term, a UK ETS would continue to cover energy-intensive industries, 2030s)
power generation, and aviation (including UK domestic flights and flights from the
Bringing forward a reliable Net Zero electricity system that integrates and best
UK to EEA states) as it does under the EU ETS; representing approximately a third
exploits large volumes of renewable generation will almost certainly require
of UK emissions. Careful consideration of the interaction with CORSIA (Carbon
significant market reforms³⁷, including for electricity sector carbon policy. The
Offsetting and Reduction Scheme for International Aviation) is needed, however.
pace of electricity decarbonisation in a Net Zero pathway looks likely to be faster
For industry, the current approach to free allowance allocation (using fixed sector
than other sectors covered by a UK ETS, making it difficult to achieve complete
benchmarks) could be replaced with an output-based allocation system, which
decarbonisation by relying mainly on the resulting carbon price.
is based on a firm’s actual production. This approach can be better at controlling
carbon leakage by using industry sector specific performance standards as the An electricity sector decarbonisation obligation – such as a mandatory carbon
benchmark, which then ratchet based on ‘best-in-class’ technological changes over intensity standard applied to electricity suppliers – could be introduced as part of
time. a wider package of electricity market reform. Such a sectoral measure could be
phased to replace, complement, or reinforce the effectiveness of a UK ETS applied
For buildings, phase in, with long lead times, minimum carbon performance
to power generators, with a range of options about rules for merging or linking
requirements for all buildings and begin introducing a building carbon credit
the two measures. We plan to explore the detailed options through our Rethinking
scheme to reward low and zero carbon choices through energy bills.
Electricity Markets project.
As proposed by Defra, replace agriculture support schemes, as the UK leaves
The advantage of an electricity sector decarbonisation obligation is that it would
the EU’s Common Agriculture Policy (CAP), with paying farmers (using public
enable electricity policy to be more stringent than that applied to industry, and
money) in return for providing public goods.³⁴ This requires careful design of
for it to be integrated with wider reforms to support measures for renewables and
the incentives for farmers to adopt practices that mitigate climate change (e.g.
other low or zero carbon forms of electricity.
measures that sequester carbon from the atmosphere). In addition, the scheme
should ensure that incentives are calibrated and updated in line with a robust For industry, as the allocation of free allowances is phased down during Phase I
process to build an empirical evidence base for nature-based negative emissions. (2021-2030) of a UK ETS and recognising carbon pricing alone is not enough to
In doing so, this could lay the foundation for a greenhouse gas removals (GGR) decarbonise heavy industry³⁸, it could be replaced with a tradeable performance
marketplace. standard on energy-intensive, trade-exposed industries.³⁹ Tradeable
performance standards set carbon emission benchmarks (emissions per unit of
Consideration should also be given to the design of the scheme to enable hard-to-
output) tailored to energy-intensive industrial production processes against which
treat emitting sectors (such as aviation and industry) to fund nature-based GGRs
a firm’s emissions are evaluated. The benchmark is set at a level that represents
and receive appropriately validated carbon credits in return. The potential for this
best-in-class performance (top quartile or better). Firms with emissions in excess
scheme to be aligned with initiatives like the Woodland Carbon Code, should be
of their benchmark would be required to purchase surplus credits from firms
assessed while addressing concerns that cheap, natured-based negative emissions
that reduce emissions below their benchmark. Such a measure can be used to
can damage the early phases of a marketplace.³⁵
mitigate concerns about the impact of carbon policies on carbon leakage and
In road transport the high effective carbon price arising from existing fuel and competitiveness, while maintaining marginal incentives to reduce emissions and
vehicle taxation should be maintained (see Figure 1); going forward this could encourage innovation.
be strengthened by making the carbon component of fuel duty explicit. Incentives
Alternatively, a border carbon adjustment (BCA) set at the UK ETS price could
in the near-term should be focused on encouraging the switch to electric vehicles,
be applied. Of course, while a BCA is in theory a more efficient approach to
through supporting charging infrastructure, alongside investment in zero carbon
addressing carbon leakage and competitiveness impacts, it is technically and
public transport and accessibility.
diplomatically challenging, and vulnerable to possible World Trade Organisation
Underpinning sectoral polices should be significant innovation support for key (WTO) legal challenges.⁴⁰ Either approach could be phased in over time – aligned
technologies and vectors, such as CCS and hydrogen. Cross-cutting coordination with the phasing out of free allowances – targeting key industrial sectors in the first
should begin to develop, particularly through the rollout of instance before expanding coverage. We plan to explore these options in further
local area energy planning³⁶ and ensure the necessary detail through our advisory work on industrial decarbonisation.
infrastructure attracts private sector investment and
The building carbon credit scheme is fully rolled out with trading of carbon
demand begins to grow.
credits providing new revenue streams to incentivise new business models and
consumer offerings that unlock deep decarbonisation of residential energy
services.

The GGR marketplace could continue to expand to include technology-based

negative emissions, from technologies such as direct air capture and bioenergy
with carbon capture and storage.

30 31
 Significant work is required to develop a set of universal monitoring approaches Figure 4 Sectoral carbon policies can be linked by trading via carbon credit market
across GGR methods, including better understanding the permanence of natured- mechanisms to enable an integrated economy-wide framework of incentives.
based removals. This will determine the value and risk associated with each
negative emissions carbon credit. A mature GGR marketplace could be linked with
hard-to-treat sectors, such as aviation and heavy industry, which begins to build
towards an economy-wide carbon policy framework. Electricity Industry Aviation
UK Emissions
With the end to the sale of new petrol, diesel, and hybrid cars and vans in Trading System
2035 (or potentially sooner⁴¹), the role of fuel and vehicle taxation remains as an
important tool for emissions reduction, with electricity use covered by the other
mechanisms described above. This does, however, raise questions with regards to
raising revenue for the public purse with significant fuel duty contributions set to
Electricity Trading via Carbon Greenhouse Gas
decline.
Decarbonisation Credit Market Removals
Obligation Mechanisms Marketplace

Long-Term: Reaching Net Zero (Mid 2030s

Onwards) Building Carbon
Credit Scheme
All major emitting sectors and activities of the economy are covered by Buildings AFOLU
comprehensive carbon policies aligned to Net Zero, backed by arrangements
for robust monitoring and verification of emissions reduction and removal. This
unlocks the potential to link and deepen carbon credit markets both within the
UK and internationally. This could eventually yield an economy-wide carbon
policy framework (see Figure 4), which harnesses markets to help reveal least-
cost combinations that delivers Net Zero by 2050. This is particularly important for
maintaining Net Zero beyond 2050, where emissions from hard-to-treat sectors
must be at least matched by robustly verified negative emissions.

There will need to be careful consideration when linking carbon credit markets that
include both emissions and negative emissions. For example, there is a risk that
treating them as entirely fungible may encourage substitution and fail to ensure
negative emissions deliver the necessary additional carbon removal.⁴²

32 33
 Recommendations for Next Steps

Policymakers
During 2020-21, through the Net Zero Carbon Policy thought leadership project,
we will be carrying out deeper dives into:

• Industrial Decarbonisation – Advisory work for the Committee on Climate

Our Rethinking Decarbonisation Incentives project clarified the low and uneven Change, focusing on carbon policy options to mitigate carbon leakage and
current pattern of effective carbon prices across the UK’s major sources of competitiveness impacts.
emissions, while highlighting the difficulties experienced in many jurisdictions in • Developing Carbon Credit Markets – Exploring how tradeable carbon credit
introducing economy-wide carbon pricing. This suggests that there is significant market mechanisms could provide a pathway to a more coherent economy-wide
merit in taking a sector led approach to accelerate the transition to Net Zero. effective carbon price.
• The Case for a Carbon Regulator – Discussing how to improve emissions
The following recommended actions could initiate such a sector led approach, as monitoring, reporting, and verification to provide a firm basis for emissions
part of a pathway to an economy-wide carbon policy framework in future. reduction regulation and incentives.
If you would like to work or collaborate with us in any of these areas, please
contact Dr. Danial Sturge, Energy Policy Advisor (danial.sturge@es.catapult.org.uk).
Key departments including BEIS, Defra, DfT, and HMT should work with the
CCC, to clarify options for aligning the UK ETS, sectoral carbon standards,
1 and sectoral policy packages with carbon budgets, in particular the Sixth
Carbon Budget.

Develop the required scientific and regulatory oversight to ensure that

sectoral carbon standards and decarbonisation incentives are driving
2 genuine emissions reduction, including removals, particularly in agriculture,
forestry and other land use sectors.

For industry, develop policy options to improve or replace allocation of free

allowances within a UK ETS to mitigate carbon leakage and competitiveness
3 impacts for energy-intensive, trade-exposed industries, including both
performance standards and border carbon adjustments.

For electricity, design a sectoral decarbonisation obligation to reinforce,

complement, or potentially replace a UK ETS in driving complete
decarbonisation of the sector in line with the Sixth Carbon Budget pathway.
4 Policy design work needs to be completed as part of the consultation on
the appropriate trajectory for the UK ETS’s cap, which the Government plans
to complete within nine months of the CCC’s advice on the Sixth Carbon
Budget.

For negative emissions, develop a marketplace for nature-based greenhouse

gas removals using the proposed framework provided by the Environmental
5 Bill 2020. In addition, explore options for future integration of such a
marketplace with a UK ETS.

For road transport, bring forward the end to the sale of new petrol, diesel,
6 and hybrid cars and vans to at least 2035 as part of a comprehensive phase-
out plan that enables earlier phasing out for targeted vehicle/user categories.

For buildings, phase in minimum carbon performance requirements and

7 introduce a building carbon credit scheme to reward low and zero carbon
choices through energy bills.

For carbon markets, develop the necessary regulatory requirements to

8 enable linkages between sectoral policies within the UK and use COP26 to
progress agreement of Article 6 rules to better enable international linkages.

34 35
 Endnotes
20
Ibid. see 15.

21
Ibid. see 1.

¹ ESC (2019). Rethinking Decarbonisation Incentives: Future Carbon Policy for Clean Growth. https://
22
Ricardo (2018). RDI Policy Case Studies. https://es.catapult.org.uk/wp-content/uploads/2018/10/RDI-
es.catapult.org.uk/rethinking-decarbonisation-incentives-future-carbon-policy-for-clean-growth Policy-Case-Studies-FINAL.pdf and Ricardo (2018). RDI Policy Case Study – New Zealand Emissions Trading
Scheme. https://es.catapult.org.uk/wp-content/uploads/2018/10/New-Zealand-ETS-Case-Study-FINAL.pdf
² ESC (2020). Rethinking Electricity Markets. https://es.catapult.org.uk/rethinking-electricity-markets
23
Ricardo (2018). RDI Policy Case Study – Interaction of Climate Policies in California. https://es.catapult.
³ ESC (2020). Towards an Enduring Policy Framework to Decarbonise Buildings. https://es.catapult.org.uk/ org.uk/wp-content/uploads/2018/10/California-Climate-Policies-Case-Study-FINAL.pdf
policy-framework-to-decarbonise-buildings
24
EV Energy Taskforce (2020). Energising our Electric Vehicle Transition. https://es.catapult.org.uk/
⁴ See, for example: energising-our-electric-vehicle-transition

» UCL (2020). A net-zero emissions economic recovery from COVID-19. https://www.ucl.ac.uk/ 25

Ibid. see 2.
public-policy/sites/public-policy/files/cop26_universities_network_briefing_-_economic_
recovery_from_covid-19_final.pdf 26
Ibid. see 3.
» Oxford Smith School of Enterprise and the Environment (2020). A net-zero emissions
economic recovery from COVID-19. https://www.smithschool.ox.ac.uk/publications/wpapers/
27
Jaccard, M. (2020). The Citizen’s Guide to Climate Success. https://www.cambridge.org/core/books/
workingpaper20-01.pdf citizens-guide-to-climate-success/49D99FBCBD6FCACD5F3D58A7ED80882D

» E3G (2020). Regulating the new energy paradigm. https://www.e3g.org/wp-content/ 28

BEIS (2020). The Future of UK Carbon Pricing – UK Government and Devolved Administrations’
uploads/11_6_20_E3G_Regulating-the-new-paradigm.pdf Response. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/
» University of Exeter. IGov. https://projects.exeter.ac.uk/igov/ file/889037/Government_Response_to_Consultation_on_Future_of_UK_Carbon_Pricing.pdf

⁵ CCC (2020). Reducing UK Emissions: Progress Report to Parliament. https://www.theccc.org.uk/ 29

ICAP (2020). Emissions Trading Worldwide: Status Report 2020. https://icapcarbonaction.com/
wp-content/uploads/2020/06/Reducing-UK-emissions-Progress-Report-to-Parliament-Committee-on- en/?option=com_attach&task=download&id=677
Cli.._-002-1.pdf
30
Ricardo (2018). RDI Policy Case Study – California Low Carbon Fuel Standard. https://es.catapult.org.uk/
⁶ BEIS (2019). Updated Short-Term Traded Carbon Values. https://assets.publishing.service.gov.uk/ wp-content/uploads/2018/10/California-LCFS-Case-Study-FINAL.pdf
government/uploads/system/uploads/attachment_data/file/794186/2018-short-term-traded-carbon-
values-for-appraisal-purposes.pdf 31
For more details on this work: Ibid. see 3.

⁷ Ibid. see 5. 32
For more details on this work: Ibid. see 2.

⁸ BEIS (2020). Average Annual Domestic Gas Bills by Various Consumption Levels. https://assets.publishing. 33
Ibid. see 28.
service.gov.uk/government/uploads/system/uploads/attachment_data/file/875746/table_235.xlsx
34
Defra (2020). Farming for the Future: Policy and progress update. https://assets.publishing.service.gov.
⁹ Ibid. see 5. uk/government/uploads/system/uploads/attachment_data/file/868041/future-farming-policy-update1.pdf
10
Barnes, J. and Bhagavathy, S. (2020). The Economics of Heat Pumps and the (Un)intended Consequences 35
Green Alliance (2020). The Flight Path to Net Zero: Making the most of natured based carbon offsetting
of Government Policy. https://www.sciencedirect.com/science/article/abs/pii/S0301421519307839 by airlines. https://www.green-alliance.org.uk/resources/The_flight_path_to_net_zero.pdf
11
CCC (2017). Energy Prices and Bills. https://www.theccc.org.uk/wp-content/uploads/2017/03/Energy- 36
ESC (2020). Towards an Enduring Policy Framework to Decarbonise Buildings: Step 2 – Rolling Out Local
Prices-and-Bills-Committee-on-Climate-Change-March-2017.pdf and Blyth, W. (2018). Current Economic Area Energy Planning. https://es.catapult.org.uk/six-steps-to-zero-carbon-buildings-step-2-rolling-out-
Signals for Decarbonisation in the UK. https://es.catapult.org.uk/wp-content/uploads/2018/07/2018-07-20- local-area-energy-planning
RDI-WP1-Current-Economic-Signals-for-Decarbonisation-in-the-UK.pdf
37
Poyry (2019). Towards a New Framework for Electricity Markets. https://es.catapult.org.uk/towards-a-
12
Ibid. see 5. new-framework-for-electricity-markets
13
Green Alliance (2019). Going Electric. https://www.green-alliance.org.uk/resources/going_electric_how_ 38
Carbon Pulse (2020). Carbon pricing alone won’t decarbonise EU heavy industry, say researchers.
everyone_can_benefit_sooner.pdf https://carbon-pulse.com/101046
14
ESC (2020). Innovating to Net Zero. https://es.catapult.org.uk/innovating-to-net-zero 39
Fischer, C. (2019). Market-Based Clean Performance Standards as Building Blocks for Carbon Pricing.
https://www.brookings.edu/wp-content/uploads/2019/10/PP_Fischer_FINAL-1.pdf
15
CCC (2019). Net Zero: The UK’s contribution to stopping global warming. https://www.theccc.org.uk/wp-
content/uploads/2019/05/Net-Zero-The-UKs-contribution-to-stopping-global-warming.pdf 40
Ibid. see 39.
16
Ibid. see 14. 41
ESC (2020). Consultation Response to Ending the Sale of New Petrol, Diesel and Hybrid Cars and Vans.
https://es.catapult.org.uk/ending-the-sale-of-new-petrol-diesel-and-hybrid-cars-and-vans-consultation-
17
Ibid. see 14. response
18
Ibid. see 1 and 3. 42
Grantham Research Institute (2020). Negative Emissions Under a Net Zero Target: Navigating the
Controversies and Pitfalls. https://www.lse.ac.uk/GranthamInstitute/news/negative-emissions-under-a-net-
Ibid. see 14 and E3G (2020). Regulating the new energy paradigm. https://www.e3g.org/wp-content/
19
zero-target-navigating-the-controversies-and-pitfalls
uploads/11_6_20_E3G_Regulating-the-new-paradigm.pdf

36 37
 Energy Systems Catapult supports
innovators in unleashing opportunities from
the transition to a clean, intelligent energy
system.

For further information please contact:

Dr. Danial Sturge, Energy Policy Advisor
danial.sturge@es.catapult.org.uk

7th Floor, Cannon House, The Priory

Queensway, Birmingham, B4 6BS

© 2020 Energy Systems Catapult

Published August 2020

38