Dustin Benton looks at the details of the UK’s 7th carbon budget, assessing both its economic and political effects.
| For a 90% cut in emissions, the 7th carbon budget is remarkably unradical in its analysis and propositions. Its strategy is to electrify everything possible (more so than in previous UK Climate Change Committee (CCC) analyses) and provide policy flexibility around difficult-to-decarbonise sectors like aviation and farming. It addresses demand reduction directly, but in a way that is subtle and technocratic: the focus is on more efficient engines and sustainable aviation fuel (SAF) rather than flying less, and on new woodland rather than eating less meat. But this is largely a change in emphasis, not the underlying analysis. The carbon budget’s economic analysis has become more compelling: the cost of climate action is down to 0.2% of GDP – a fall from around 1% a decade ago. Its analysis of energy price spikes – household price exposure to a 2022-style gas price spike would fall by roughly an order of magnitude by 2040 – will support the Government in this decade’s main task: decarbonising power and surface transport. The evidence, combined with the Government’s decision to give itself as much as a year and a half to set the 7th carbon budget, gives the UK a reasonable prospect of avoiding a climate culture war. The headlines The CCC is proposing an 87% reduction in emissions on 1990 levels by 2040, including international aviation and shipping. If these sectors were excluded, it would be a 90% target for domestic emissions, matching that proposed by the EU. The strategy to achieve this, in a nutshell, is to electrify most energy use and build the (mostly renewable) supply to make this possible well before 2040. By 2040, clean electricity will power three-quarters of cars and vans and two-thirds of HGVs. Half of homes and nearly two-thirds of non-residential buildings will use heat pumps, with no role for hydrogen heating. Electricity will supply over 60% of industrial energy demand – not just for heat pumps but also for currently expensive high-temperature heat. Electrification represents 60% of emissions reductions between now and 2040, and the CCC projects the electricity system (excluding tax) will cost less than 10p/kWh by 2040, down from around 14p/kWh today. Technologies that can’t be electrified – aviation, shipping, ceramics, cement and chemicals – will use carbon capture and storage (CCS) for process emissions, hydrogen for heat or electrofuels, and biomass for SAF. Within this, green hydrogen will supply 54% of the demand, with blue hydrogen supplying most of the remainder. The absolute volumes are, however, very low: 60TWh of hydrogen demand, compared to the 250-460TWh suggested in the UK’s 2021 hydrogen strategy. Decarbonised fuels represent 10% of emissions reductions between now and 2040. Expected changes to demand represent 22% of emissions reductions, half of which comes from efficiency – insulation, the circular economy, and better jet engines, for example – and half from ‘low-carbon choices’ like driving and flying less or eating less meat. The CCC has tried hard to depoliticise the tricky issues The CCC’s framing and underlying analyses are designed to prevent its recommendations from being politicised. This reflects the risk that comes from being more definitive about the pathway to the carbon budget, and not just its level. This is clear in the treatment of aviation: the CCC says that the aviation sector should pay for SAF or engineered carbon removals to offset continued kerosene emissions, including from increased demand. This allows the CCC to be relaxed about aviation expansion, but the high cost of SAF and carbon removals hides the fact that more flying with less carbon means ticket prices will rise. The CCC’s cost analysis accounts for lower demand as a cost-saving, which is both analytically true and politically questionable. A similar approach has been applied to farming and land. Agricultural emissions fall only very gently, and methodological choices mean the assumed level of farming emissions is much lower in the CCC’s 2021 analysis. Similarly, new assumptions since 2021 see land use sequestration increase exponentially after 2040. These assumptions could shift in the future. This helps the CCC estimate that meat consumption needs only fall by a quarter by 2040, requiring only a continuation of the current trend in UK meat consumption. The CCC has been much clearer that they see alternative proteins (e.g., plant-based burgers) as replacing some meat consumption – a sign that technology, which they think will cut food bills, rather than pure behaviour change remains the overall approach. New types of analysis: distribution, security and sectoral economics The CCC has previously done economic and distributional analysis, but this is much expanded in the 7th carbon budget. Overall, the cost of net zero has fallen to no more than 0.2% of GDP – much lower than OBR’s 2021 estimate of 0.8% of GDP. In 2020, the CCC thought net zero would cost less than 1% – below the level Parliament accepted in setting the Climate Act in 2008 (for an 80% cut in emissions) and below the 2006 Stern Review’s assessment of 1% of global GDP to stabilise climate change at between 2-3°C above preindustrial levels. This positive story is matched by the CCC’s analysis of distributional effects: it sees home energy bills falling by around 45% by 2050, offset by higher investment costs in heat pumps. Here, the CCC has been very pessimistic about cost reductions. EVs are a clearer story, cutting the total cost of transport by three-quarters. A breakdown by household archetypes suggests that only car-free households with electric resistive heating are likely to be worse off in terms of total bills (for heating, electricity, and transport). The CCC’s sectoral analysis points out that services – comprising 80% of UK GVA but only 46% of its exports – are low-carbon and that within manufacturing, a sizeable group (4% of GDP, 23% of exports) also have low emissions intensity: pharmaceuticals, electronics and machinery included. The most exposed sectors are livestock and oil and gas, which are tiny in employment terms but politically important. Finally, the CCC has done some analysis about energy security, finding that half of UK recessions were caused by fossil fuel price shocks since 1970. By 2040, the UK’s exposure to these shocks will fall substantially. In a gas price shock equivalent to 2022, a household’s bills would rise by between 4-9% in 2040, compared to a 28-59% rise in a counterfactual in which the UK failed to meet its 7th carbon budget goals. Conclusion The 7th carbon budget provides the Government with analysis that should help it avoid the difficult politics of decarbonising heavy industry, aviation and farming. Two next points at which carbon budgets will be politically salient, potentially prompting a backlash, are the publication of the Government’s net zero plan before May and legislation to set the 7th carbon budget, which could come as late as next year. |
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