UK targets 78% cut in GHG emissions by 2035, to include aviation, shipping

The UK government is to enact a new climate change law targeting a 78% cut in greenhouse gas emissions by 2035 compared to 1990 levels, the Department for Business, Energy and Industrial Strategy said April 20.

In line with Climate Change Committee recommendations, for the first time the UK is to incorporate its share of international aviation and shipping emissions in its new carbon budget, BEIS said.

"We want to continue to raise the bar on tackling climate change, and that's why we're setting the most ambitious target to cut emissions in the world," UK Prime Minister Boris Johnson said in the statement.

In a planned address to the US Leaders' Summit on Climate April 22, the prime minister would urge world leaders to join the UK in setting targets to reduce emissions by 2030 that align with net-zero, BEIS said.

"This is definitely world-leading, the UK is the first major economy to do it," Matt Finch, UK policy manager at NGO Transport & Environment, told S&P Global Platts.

In December 2020 the CCC's Sixth Carbon Budget (2033-2037) concluded UK emissions needed to fall by almost 80% by 2035 in order to align with global efforts to limit warming to 1.5 degrees Celsius.

Cutting emissions to this extent would require all UK electricity production to be net-zero, and all new cars, vans and replacement boilers to be zero-carbon by 2035.

The government had been working towards a commitment to reduce emissions in 2030 by at least 68% compared to 1990 levels through its latest Nationally Determined Contribution.

The new target would enter into law by the end of June 2021, with legislation setting out the government's commitments due to be laid in Parliament on April 21.

The Climate Change Committee is an independent statutory body established under the Climate Change Act 2008.

Gas plant challenge

S&P Global Platts Analytics' 2035 UK generation mix foresees just 3.169 GW average gas generation on the system by then.

"At the moment there are no large scale projects with Final Investment Decisions that can deliver the scale needed to fully decarbonize the UK power sector (which in essence means displacing unabated gas), but there are projects afoot, such as SSE/Equinor's plans for both CCS and hydrogen at Keadby," said Glenn Rickson, Platts Analytics' head of European power analysis.

The government's hydrogen strategy (among other policies) would need to deliver an investment framework for projects like Keadby, he said.

The UK's new Emissions Trading System would also play a role, but until now both the EU's ETS and the UK's own Carbon Price Support had been too volatile or too short term in nature to give the long term certainty needed to make the large scale investments required, he said.

Demand for offsets

UK-based carbon reduction project developer ClimateCare said companies would have to act quickly to align with the UK's increased ambition.

"It's encouraging to see the UK government has ramped up its climate ambition and acknowledged the vital role of offsetting emissions through tree planting and carbon removal technologies to meet net-zero," said ClimateCare CEO Vaughan Lindsay.

The company noted recent inflation in carbon credit prices, with businesses already implementing plans to manage this price and supply risk in future.

CORSIA-eligible carbon (CEC) credit prices assessed by S&P Global Platts rose as high as $2.34/mt in March, up from $0.80/mt in January. The CEC was assessed at $2.20/mt April 19.

Meanwhile European carbon allowance prices hit an all-time closing high of Eur44.48/mt ($53.59/mt) April 12, amid bullish sentiment as the EU's decision-making bodies worked to agree a stronger 2030 emissions reduction target of at least 55% below 1990 levels.

The UK announcement has implications for the jet fuel market, as aviation could become a large consumer of carbon offsets. The UK is Europe's second-biggest economy and air travel to and from the UK is a key proxy for European jet fuel demand. The UK's demand for jet and kerosene slumped to 178,400 boe/d due to the pandemic last year, down from 334,900 boe/d in 2019, according to Platts Analytics.

Almost all EU jet fuel is imported, while UK production of jet fuel and kerosene for heating covers almost half the country's needs.

The UK's announcement comes as the European Union prepares for a review in June of its emissions trading scheme. The review presents a chance for the bloc to look at the aviation sector, with environmentalists saying long-haul flights, which are not covered by the EU ETS, and tougher pricing are key issues to address.

The UK's April 20 announcement also comes amid wider calls for shipping to be considered in European carbon pricing. The EU ETS does not currently cover shipping at all.