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CCA at 10 - 'The regulator' - Views from Alistair Buchanan CBE
To coincide with the tenth anniversary of the Climate Change Act receiving Royal Assent in the UK in November 2008, the Energy Institute convened a ‘virtual panel’ of ten figures who were in leading positions at the time - six of them now Fellows of the EI - to reflect on how it came to pass, what it has meant for the UK and the prospects for the future. The result, part of the EI Views series, is a social history from diverse perspectives of one of the most ground-breaking pieces of environmental legislation of its day.
The following is the individual perspective of Alistair Buchanan CBE, who in 2008 was Chief Executive of the Office for Gas & Electricity Markets (OFGEM) and is now Non-Executive Director at Thames Water.
Reflections on 2008
1. How significant was the passing of the Climate Change act in your view, and why?
The timing of the Climate Change Act (CCA) could not have been more helpful to my ambition at that time - as CEO of the GB energy regulator (Ofgem) - of overhauling the antiquated regulatory structure that had existed for the previous 20 years. My first speech alerting the need for change to move to the new ”RIIO model” of regulation was the 2008 Beesley Lecture…and it took the next two years of hard graft and consultation to get the radical changes delivered. What both RIIO and the CCA had in common was the need for environmental issues to be “hardwired into the industry processes”. For the first time in network regulation we had environmental incentives and environmental innovation explicitly recognized (represented by the I and I of RIIO).
2. What were the factors that led to its overwhelming adoption by Parliament? Did parliamentarians fully understand its implications?
Lord Turner - the first Chairman of the Climate Change Committee - was very helpful to me as he stated clearly where duties and responsibilities for the CCA lay: “The CCA commits the UK Government to establishing legally binding limits on carbon emissions…The Government will be breaking the law if we emit more than that. There is a very very strong political commitment to setting targets and then sticking to them - they are legally binding targets”. (December 2008). As you can imagine this was very helpful for me when certain lobby groups were perhaps trying to suggest that responsibility lay with Ofgem and not HMG!! I genuinely believe that in Parliament there was cross party agreement on the package but maybe some haziness on the detail.
3. Did you have any misgivings at the time? Either about the level of the 2050 target or the framework or process designed to achieve it?As I was running a statutory body with a strong market based bias to economic regulation I was naturally concerned that we address issues taking full cognizance of the law! Perhaps Ofgem was helped in this regard as almost as soon as I arrived in 2003 we were being given environmental obligations. The 2003 Sustainable Act required Environmental Impact Assessments (EIA) to be done and Ofgem had formal duty to consider 'environmental and social impacts’. Even still some commentators felt that we were walking too far away from acceptable “Austrian school” market based economics. The best example I can remember was the intensely argued ‘Project TransmiT’. In this Project, Ofgem argued that the long standing transmission charging regime (long run marginal) that encouraged the building of power sources near to demand centres (to reduce costs) had to be updated as so many new ‘renewable/green’ power sources, were miles away from anywhere (think remote wind farms).
The view from 2018
4. Marks out of ten please! Ten years on, has the CCA lived up to its ambition? Has decarbonisation to date progressed as you expected? Where have we been successful and where is progress disappointing?
Irrespective of the individual policy decisions I would argue that the real success lay in the intangible…the CCA went into the DNA of the policy makers and key industry stakeholders. There will be some who are disappointed (the White Rose CCS scheme?), but the policy makers just about got the market disturbances - caused by generous subsidies - right.
5. How strongly has the Climate Change Act influenced changes in behaviour and decision making by government, industry and consumers?
Without doubt the Regulator has been hugely impacted by the need for serious consideration to be given to environmental or sustainable development issues - the CCA in a way is a totem for this. The range of topics that now have active consideration in a price control is extraordinary compared to pre RIIO. In addition to using RIIO a specific scheme that really put ‘ jump leads’ on the networks involvement was in 2010, via Ofgem’s Low Carbon Network Fund (LCNF). This provided substantial innovation funds for co-operative schemes: such as UKPN’s EV research work in London (with Imperial College, Sainsburys etc). We also created a “special situation product” which companies could seek Ofgem support for - the best example I can remember being SSE’s project on the Shetlands Islands (the “nines” project). Again it was not without some critics who argued that companies should be innovating themselves and not needing encouragement. However, time and again, MP’s and Ministers made very clear that they supported this policy of regulatory engagement.
6. To what extent has the UK maintained its position as a global climate leader since the Act was set?
In 2013 I was invited as a keynote speaker to the WEC tri-annual conference in South Korea. In preparation for that I became aware that the WEC had just completed a ranking of all member countries in the world - which very much included progress on sustainable goals. The UK was in the top 5 (AAA category). This interested me as it told me that however much we may grumble in the UK if you go to a ‘30,000 ft’ view we are actually doing quite well.
Lessons for 2028 and beyond
7. As the carbon budgets tighten and the ‘lower-hanging fruit’ of easier emissions reduction measures run out, how can popular buy-in to the Climate Change Act’s goals be maintained?
Personally I would like to see another focus on arguing the merits for energy efficiency. I would also urge policy makers to keep it simple - the ”Green Deal” initiative was just too busy and complicated.
8. Is the Climate Change Act consistent with the Paris Agreement? In the context of 1.5C, should we be increasing ambition to net-zero emissions by 2050? And what about accounting for emissions from sources with less clear jurisdiction (aviation, imports, etc.)?
As an ‘energy person’ I would always want to look at the ‘load’ that other sectors carry in cutting carbon. However, I would suggest that the energy sector is still coming up with some fascinating ideas for progress - two in the gas sector really stand out: the ‘hydrogen’ project in Leeds and the CNG Lorry scheme in Leyland. Both of these pilot schemes are using more friendly gases - that could herald a breakthrough in that sector. A Regulator that carefully supports innovation could be cutting the costs for future consumers - both in cash terms and carbon.
9. How could Brexit affect the UK’s continued progress towards its CCA targets?
Regulators will have to react to the policy makers on this topic. All I would say is that Ofgem has been a lot easier to run since HMG issued the SPS (Strategic Policy Statement) in 2013. This provides the policy ‘umbrella’ under which Ofgem can operate.
10. What would your advice be to other countries now thinking about legislation to meet similar climate change goals?
The National Audit Office has been huge power for good in this area: time and again in the last 10 years they have highlighted how HMG could have saved customers and taxpayers costs from the various schemes we have launched. Other countries can learn from us through these NAO observations - for example about how to run cost effective auctions, or the early introduction of profit clawback mechanisms if the subsidies are too big.