LJ: What does Energy Systems Catapult (ESC) do?
Danial Sturge: Our remit is to accelerate the transformation of the UK's energy system, ensuring that businesses and consumers capture the opportunities of clean growth in the transition to net zero. We're an independent, not-for-profit organisation, bridging the gap between innovators with industry, government, and academia.
Our USP is that we take a whole systems approach to the challenges of decarbonising the energy sector. I sit in the Markets, Policy and Regulation team and lead on our carbon policy and industrial decarbonisation policy work, but we also have experts on electricity and buildings policy.
As well as policy, we have a whole host of other teams all working towards the same goal. For example, we have specialists in infrastructure and engineering that look at all the various technologies; a data and digitalisation team, a key component of achieving net zero, especially from an energy perspective; a consumer insights team that helps us understand what consumers need and want from decarbonisation; and many more.
We can model the future energy system from the national level right down to the type of heating systems and energy used in individual households. This work helps stakeholders such as government, local authorities, industry, and consumers understand and plan for net zero.
For instance, we do a lot of work around local area energy planning – working with local or combined authorities or local enterprise partnerships to help them plan for and deliver on their climate emergency declarations and net zero goals.
We also give wider consideration to infrastructure; for instance, as part of the government's EV Energy Taskforce, we collaborated with key transport sector partners to model what will be required of the UK's public charging network to meet the future needs of drivers, investors, and the energy system.
Another example of our work is the Modern Energy Partners project, in conjunction with the Department for Business, Energy & Industrial Strategy, Parliamentary Business, Energy & Industrial Strategy Committee and the Cabinet Office. This project looks at how to decarbonise the public sector, ranging from hospitals through to military bases and prisons.
It's these important areas of work that – as well as contributing to and challenging the developing energy policy landscape – have been a focus for the Catapult as the UK's transition towards net zero gathers pace.
LJ: What can you tell us about carbon pricing?
DS: I lead on our carbon policy work, which includes carbon pricing. Our focus is on developing policy proposals that ensure its implementation not only seeks to resolve the challenges of individual sectors, but does so in a way that joins up various parts of the economy. Moving away from the largely siloed approach taken to decarbonisation in the past will be key for the success of net zero.
At ESC, our main remit is to support innovators, to get low-carbon and zero-carbon technologies, business models, and service offerings into the market. But this requires a coherent carbon policy framework that works in favour of a low-carbon rather than a high-carbon economy.
In some cases, policy still tilts in favour of the high-carbon choices. For example, heating your home using electricity is far more expensive than gas, but gas is the high-carbon option that we want to move people away from. While we see households beginning to shift away from gas, for the majority change will only occur when the incentives are aligned with our emissions reduction targets.
Part of my work is to help government think about how to design the necessary policies to help the transition. And it's not just energy; you also have to consider the knock-on effects, for example, what does it mean for the way we use land or the way people travel?
At the start of 2021, the UK had set up its own emissions trading system having left the EU's, which presents an opportunity to bolster policy towards net zero. But the UK Emissions Trading Scheme (UK ETS) currently only covers a third of UK emissions. It covers the big emitters, namely power generators, heavy industry, and domestic aviation. These are arguably the easiest sectors to put a carbon price on because there are relatively few operators.
Where things get difficult is how to turn the discussion towards heat and buildings, road transport, and eventually land use and agriculture. This would potentially involve millions of people going about their lives who have no interest in participating in a carbon market.
How do you ensure that citizens and businesses see the incentives to make that switch to low-carbon options? When we first started thinking about this more than four years ago, we looked at existing carbon policy in the UK, as well as what other jurisdictions around the world had done.
What we learned can be broken down into three areas:
Firstly, a blanket carbon tax does not work. While this approach is ideal in theory, in reality it is not politically salient. A great example of this is fuel duty, which has been frozen for the past ten years and more recently reduced: so if you attempted to put a carbon price on road transport the chances are it would not rise in line with what is required to meet carbon budgets. It is politically unpopular, particularly in the context of current cost of living crisis.
Therefore, you need a more nuanced approach. For example, when it comes to heat and buildings, you've got to consider wider impacts such as fuel poverty and personal decisions related to people's homes. Our proposal to tackling such challenges is by taking a sector-led approach, through designing policies that deal with the specific challenges unique to each sector. Sector-specific carbon policies can be supported by complementary policies that deal with challenges such as fuel poverty. They can also enable access to finance, innovation support, and everything necessary to get us over those initial barriers to decarbonisation.
Finally, in the longer term, you can start thinking about linking sectors. We think the UK ETS could be an important policy to enable that. Instead of just expanding the UK ETS to cover all sectors, as is currently under discussion, we can develop sectoral approaches that then link with the ETS as it continues to evolve, when they're ready.
We are already seeing this approach used internationally, for example, Germany recently introduced a separate trading scheme for road transport and heating buildings. Its longer-term ambitions are to link with the EU's wider carbon market. This enables the transition in a way that is not only politically feasible, but deals with those challenges and opportunities. Policymakers must recognise that we do not live in an ideal economy and decisions are not always made rationally.
LJ: How can carbon policy work in agricultural land use?
DS: From a policy perspective, we've been thinking how to leverage the new Environmental Land Management Scheme (ELMS) that replaces the EU's Common Agricultural Policy and how to link it with the wider sector-led approach I've mentioned.
When Michael Gove was Secretary of State for Environment, Food and Rural Affairs, he proposed that we should be rewarding the provision of public goods, which importantly for net zero includes carbon sequestration and the general decarbonisation of land use.
Because not all sectors will be able to decarbonise by 2050, including farmers, it is important to understand how can we support and give them incentives to do so? For example, we think there are potential ways to create a market for removing greenhouse gases that allows farmers to be subsidised by the government to plant trees or grow crops for bioenergy and carbon capture and storage (BECCS).
The negative emissions that can be realised from land use could then be sold as credits into a greenhouse gas removals (GGRs) marketplace, which over time will become an enduring source of income over and above these farmers' usual agricultural business.
Ultimately, this could be linked to the UK ETS, where heavy industry and aviation are the other two main sectors that will still be emitting in 2050 and will need access to negative emission credits. As a result, there is going to be a consistent demand to 2050 and beyond for landowners and farmers to provide these credits.
Of course, planting trees and growing energy crops are not the only options. The challenge for all land use options is that measuring, reporting and verifying emissions reduction or removal is incredibly difficult to do well. Soil management, for instance, can in theory be done in a way that reduces its overall carbon footprint, and sequesters carbon, but how can that be quantified? That's the immediate challenge.
Therefore, the final part of the jigsaw of a sector-led approach, in which these markets can be connected, will be a carbon regulator. This may be one body, or multiple parties working together, but it will ensure the emissions from, for example, growing energy crops or tree planting are truly additional, and measured, reported and verified coherently across the economy then accounted for appropriately.
It's fine to be seen reducing emissions on a spreadsheet, but it's meaningless if it's not happening in the real world. When all these sectors are accounting emissions in the same way, investors will have the confidence that emissions reductions and removals are being achieved and that they're doing so in line with carbon budgets.
LJ: What is the role for surveyors in carbon budgeting?
DS: If we think about how to monitor, report and verify emissions across the sector, do we just send people around with clipboards to every farm and measure every single tree? This doesn't seem feasible, although we will need to have spot checks in the same way we do for industry.
Perhaps there's a role for surveyors to support the verification process for a carbon regulator. Once we understand how we are going to do it, and the processes, the framework, and the science have been updated to ensure they are robust, then we will need people to enact those processes and ensure the information is transferred to the regulator. And that may be a role for some surveyors.
At the moment the Environment Agency is the regulator for the UK ETS. But the agency contracts accredited verifiers to ensure reporting is correct. Maybe surveyors could fill that gap.