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EnergyWhitePaper2/21/034:01 PMPage 8Gulf Stream or melting of the West Antarcticice sheet, which although they may have avery low probability of occurring, would havedramatic consequences.1.9 We cannot escape some climate change.But the worst effects can be avoided ifgreenhouse gases in the atmosphere arestabilised instead of being allowed to go onincreasing. The UNFCCC3 and its KyotoProtocol demonstrate that it is possible toreach global agreement on action, but farmore needs to be done. The UK will continueto show leadership but it cannot solve thisproblem alone. UK emissions of carbondioxide currently account for only about 2%of the global total. Our own actions will haveno impact on climate change unless theyare part of a concerted international effort.A wider effort is also necessary, for examplein bringing forward technological changes,to keep down costs to the UK and to avoidcompromising our competitiveness.We will therefore continue to work withother countries to establish both aconsensus around the need for change andfirm commitments to take action to reducecarbon emissions world wide within theframework of the UNFCCC. A key objectiveof the UK’s foreign policy in future will beto secure international commitment to thisambition. We also need to continue todevelop our understanding of climatechange, so that we can forecast withgreater precision the effects which mustbe mitigated. We are investing in climatechange research and recognise that thisis a crucial underpinning of the knowledgebase which informs our energy policies.4United Nations Framework Convention on Climate Change.8ENERGY WHITE PAPER Our energy future - creating a low carbon economy1.10 Our ambition is for the world’s developedeconomies to cut emissions of greenhousegases by 60% by around 2050. We thereforeaccept the Royal Commission onEnvironmental Pollution’s (RCEP’s)recommendation that the UK should putitself on a path towards a reduction incarbon dioxide emissions of some 60%5from current levels by about 2050 .Until now the UK’s energy policy has not paidenough attention to environmental problems.Our new energy policy will ensure thatenergy, the environment and economicgrowth are properly and sustainablyintegrated. In this white paper, we set outthe first steps to achieving this goal.1.11 We can get to a 60% cut in emissions by 2050in a number of ways. But leaving action untilthe last minute is not a serious option. If wedo not begin now, more dramatic, moredisruptive and more expensive change will beneeded later on. We need early, well-plannedaction to provide a framework within whichbusinesses and the economy generally,including the jobs and skills base, can adjustto the need for change. This will for exampleallow business to plan to act in the course ofnormal capital replacement cycles. It will alsoencourage new technologies to come forwardto help to meet the challenges we face.1.12 We have analysed carefully the likely impactson the UK economy of cutting emissions by60% by 2050. A good deal of caution isneeded in looking at economic changes oversuch a long period and given the sensitivity5RCEP’s recommendation of putting the UK on a path to ‘reducing carbondioxide emissions by some 60% from current levels by about 2050’ wasbased on a more detailed calculation of 58% reductions from 1997 levels.This would lead to 2050 emissions of 64 million tonnes of carbon (MtC).The Kyoto Protocol, and the UK’s current domestic targets, use 1990 as abaseline. A precise reduction of 60% in emissions from 1990 would resultin emissions of 65.8 MtC in 2050. As the RCEP recommendation implies,absolute precision five decades before 2050 is not possible. This whitepaper uses ‘around 65 million tonnes’ to describe the level of carbonemissions which a 60% cut would deliver by 2050.

EnergyWhitePaper2/21/034:01 PMPage 9Section OneOverviewChapter 1: Cleaner, smarter energyof the analysis to the assumptions made.But an extensive review by theIntergovernmental Panel on Climate Changesuggests that action aimed at stabilisingcarbon dioxide atmospheric concentrationsat no more than 550ppm would lead to anaverage GDP loss for developed countries6of around 1% in 2050 . This figure should,however, be more than offset by the reductionin the risks, eg of flooding, associated withclimate change. The outcome of our UKanalysis is consistent with that review,assuming that the world’s leading industrialnations act together. It suggests that the costimpact of effectively tackling climate changewould be very small - equivalent in 2050 tojust a small fraction (0.5-2%) of the nation’swealth, as measured by GDP, which by thenwill have tripled as compared to now.Chart 1.3Primary Energy Demand in 2002, UKNuclear9%6Report of Working Group III of Intergovernmental Panel on Climate Change,Mitigation, 2001.Coal15%Gas39%Oil35%Source: DTI provisional 2002 data based onDigest of UK Energy Statistics, table 1.1necessarily make it harder to achieve energy7reliability . Of the world’s leading industrialnations only two - Canada and the UK - arenet energy exporters. The others have allachieved economic growth as energyimporters. We will be able to do the same just as we did before North Sea oil and gas.The best way of maintaining energy reliabilitywill be through energy diversity. We needmany sources of energy, many suppliers andmany supply routes. Renewables andsmaller-scale, distributed energy sources - egmicro-CHP8 and fuel cells - will help us avoidover-dependence on imports and can makeus less vulnerable to security threats.1.13 The second challenge is the decline of theUK’s indigenous energy supplies - oil, gas,nuclear and coal. Our current demand forprimary energy (ie before transformation, eginto electricity) is shown below. Already weimport nearly half the coal we use. Much ofthe UK’s economically viable deep mined coalis likely to be exhausted within ten years.By around 2006 we will also be a netimporter of gas and by around 2010 of oil.By 2020 we could be dependent on importedenergy for three quarters of our total primaryenergy needs.1.14 As we shift from being a net energy exporterto being once again a net energy importer wemay become potentially more vulnerable toprice fluctuations and interruptions to supplycaused by regulatory failures, politicalinstability or conflict in other parts of theworld. But being an energy importer does notOther2%1.15 Norway will be a major source of our gasimports over the next decade. But we willalso need to look for supplies from elsewhereeg from Russia, the Middle East, North Africaand Latin America. This trade in energy willinvolve relationships of mutual dependence -7The phrase energy reliability is used in this white paper to encompass allaspects of energy security of supply.8Combined Heat and Power plant.ENERGY WHITE PAPER Our energy future - creating a low carbon economy9

EnergyWhitePaper2/21/034:01 PMPage 10their energy being as important to us as theirincome from us is to them. Our growinginterdependence also means that securingreliable energy supplies will need to be anincreasingly important part of our Europeanand foreign policy. We will workinternationally to promote regional stability,economic reform, open and competitivemarkets and appropriate environmentalpolicies in the regions that supply most of theworld’s oil and gas - Russia, the Middle East,North Africa and Latin America. We havealready secured a commitment to energyliberalisation in the European Union forindustrial customers by 2004 and overall by2007. This is vital not only to improve ourown access to diverse sources of supply butalso to allow UK companies to compete inwider markets.1.16 Our third challenge is the need to updatemuch of the UK’s energy infrastructure overthe next two decades. During the 1990sthere was significant new investment ingenerating capacity, especially for gas-firedplant. This was a response to the highelectricity prices and market structure of thetime. Some generating capacity has sincebeen mothballed and interest in building newplant, other than renewables, has declined.But looking ahead, there are further changesin prospect. European measures to limitcarbon emissions and to improve air qualityare likely to force the modernisation orclosure of most older coal-fired plant. In theabsence of new build or life extensions,nuclear power’s share of electricity productionwill shrink from its current level: there wouldbe only one plant still operating by 2025.And renewables will become a moresignificant source of electricity as we seek totackle climate change. Our current generationmix is shown in chart 1.4 below.10ENERGY WHITE PAPER Our energy future - creating a low carbon economyChart 1.4Electricity Generation in 2002, UKRenewables3%Nuclear23%Gas38%Coal32%Oil andOther4%Source: DTI estimates for 2002 on gross supplied basis,based on Digest of UK Energy Statistics, table 5.6.1.17 Over the coming years, substantialinvestment will also be required in otherparts of our energy infrastructure. Theelectricity distribution networks - designed forone-way transmission from large, centralisedpower stations to consumers - will need toadapt to more renewables often in peripheralparts of the country or offshore and to smallscale, decentralised power generation inhomes and businesses, sometimes drawingfrom the grid, sometimes contributing to it.As we adapt to becoming a net gas importerwe will need additional connections tosupplies of both piped and liquefied naturalgas (LNG) from a range of sources. In thelonger-term, as we potentially move todifferent fuels for vehicles (eg compressednatural gas or hydrogen), major investmentswill be needed in the fuel deliveryinfrastructure.

EnergyWhitePaper2/21/034:01 PMPage 11Section OneOverviewChapter 1: Cleaner, smarter energyThe goals of ournew energy policy.1.18 As we address these three challenges, wewill have four goals for our energy policy: to put ourselves on a path to cut the UK’scarbon dioxide emissions - the maincontributor to global warming - by some60% by about 2050, as recommendedby the RCEP, with real progress by 2020; to maintain the reliability of energysupplies; to promote competitive markets in theUK and beyond, helping to raise the rateof sustainable economic growth and toimprove our productivity; and determining the relative ‘weights’ of differingobjectives. But our approach is guided by thefollowing considerations: significant damaging climate change is anenvironmental limit that should not bebreached. We need to keep the UK on apath to 60% cuts in carbon dioxideemissions by 2050; reliable energy supplies are fundamental tothe economy as a whole and to sustainabledevelopment. An adequate level of energysecurity must be satisfied at all times inboth the short and longer term; liberalised and competitive markets willcontinue to be a cornerstone of energypolicy. Where the market alone cannotcreate the right signals (for example onthe environment) we will take steps thatencourage business to innovate anddevelop new opportunities to deliver theoutcomes we are seeking; and our policies should take account of impactson all sectors of society. Specific measureswill be needed for particular groups of people(for example to support those for whomenergy bills form a disproportionate burden).to ensure that every home is adequatelyand affordably heated.1.19 We believe these four goals can be achievedtogether. As far as possible we will ensurethat the market framework and policyinstruments reinforce each other to achieveour goals. Energy efficiency is likely to bethe cheapest and safest way of addressingall four objectives. Renewable energy willalso play an important part in reducing carbonemissions, while also strengthening energysecurity and improving our industrialcompetitiveness as we develop cleanertechnologies, products and processes.1.20 There will inevitably from time to time betensions between different objectives.For example, extremely high energy priceswould undoubtedly promote energy efficiencyand thereby help to reduce carbon emissions.But they would also have a negative effecton people on low incomes and on business.There is no simple mechanism forThe fuel mix.1.21 We do not propose to set targets for theshare of total energy or electricity supply tobe met from different fuels. We do notbelieve Government is equipped to decidethe composition of the fuel mix. We preferto create a market framework, reinforced bylong-term policy measures, which will giveinvestors, business and consumers the rightincentives to find the balance that will mosteffectively meet our overall goals.ENERGY WHITE PAPER Our energy future - creating a low carbon economy11

EnergyWhitePaper2/21/034:01 PMPage 121.22 We recognise, however, that this approach isnot enough on its own. In particular, specificmeasures are needed to stimulate thegrowth in renewable energy that will allow itto achieve the economies of scale andmaturity that will significantly reduce itscosts. In January 2000 we announced ouraim for renewables to supply 10% of UKelectricity in 2010, subject to the costs beingacceptable to the consumer. We introducedthe Renewables Obligation (which requiressuppliers in England and Wales to obtain anincreasing proportion of electricity fromrenewables year on year) in April last year.We also exempted renewable generationfrom the Climate Change Levy. By 2010these measures will provide the renewablesindustry with support worth around 1 billiona year. This is designed to deliver therequired expansion in renewables by then.In this white paper we set the ambition ofdoubling renewables’ share of electricitygeneration in the decade after that. In orderto achieve this and to ensure that renewablesmake a growing contribution to the fuel mixin the longer term it will be essential tomaintain a healthy research base.1.23 In reducing carbon dioxide emissions, ourpriority is to strengthen the contribution ofenergy efficiency and renewable energysources. This white paper sets out thepolicies we believe are necessary to achievethat. They mean energy efficiency andrenewables will have to achieve far more inthe next 20 years than they have until now.We believe that such ambitious progress isachievable. But it is uncertain.1.24 Nuclear power is currently an importantsource of carbon-free electricity. However, itscurrent economics make it an unattractiveoption for new, carbon-free generatingcapacity and there are also important issues12ENERGY WHITE PAPER Our energy future - creating a low carbon economyof nuclear waste to be resolved. These issuesinclude our legacy waste and continued wastearising from other sources. This white paperdoes not contain specific proposals for buildingnew nuclear power stations. However we donot rule out the possibility that at some pointin the future new nuclear build might benecessary if we are to meet our carbontargets. Before any decision to proceed withthe building of new nuclear power stations,there will need to be the fullest publicconsultation and the publication of a furtherwhite paper setting out our proposals.1.25 Coal fired generation will also have animportant part to play in widening thediversity of the energy mix provided wayscan be found materially to reduce its carbonemissions. We will continue to supportrelevant research projects, includinginternationally, to develop options for cleanercoal technologies and for carbon capture andstorage. Domestic coal production is likely tocontinue to decline as existing pits reach theends of their geological and economic lives.1.26 However, where there is the potential for coalcompanies to make worthwhile investments,they have to date been prevented by EUrules from seeking government help in doingso. In 2002 we negotiated the flexibility werequire at an EU level to correct this anomaly.We now propose to introduce an investmentaid scheme to help existing pits develop newreserves, where they are economically viableand help safeguard jobs.How we willachieve our goals.1.27 To achieve our goal of reducing carbonemissions we need to continue to decoupleeconomic growth from energy use andpollution. Since 1970, overall energy

EnergyWhitePaper2/21/034:01 PMPage 13Section OneOverviewChapter 1: Cleaner, smarter energyconsumption in the UK has increased byaround 15%, while the size of the economyhas doubled. In future we need to continueand accelerate this trend.1.28 Discussions under the UNFCCC to tackleclimate change beyond 2008-12 will start soon.On the basis of existing policies, includingthe full effect of our current Climate ChangeProgramme, we would expect UK carbondioxide emissions of some 135 million tonnesof carbon (MtC) in 2020. To be consistent withdemonstrating leadership in the internationalprocess, we expect to aim for cuts in carbonof 15-25 MtC below that by 2020.Chart 1.5Final Energy Consumption in 2002, UKBY SECTOROther13%Industry21%Domestic30%Transport36%BY END USE1.29 We believe it is possible to achieve this goalby reducing the amount of energy weconsume, together with a substantialincrease in renewable energy. Our currentenergy use is illustrated in chart 1.5 below.By making our intentions clear we aim toprovide the signals needed for firms to invest- and to help British manufacturers to beahead of the game in developing the greentechnologies that we expect to play a largepart in the world’s future prosperity. In thiswhite paper, we set out measures toimplement the objectives for 2010 set out inthe existing Climate Change Programme, andto provide a foundation for the further carboncuts we will need by 2020.1.30

accompanied by changes in the world around us: ice caps are retreating from many mountain peaks like Kilimanjaro; global mean sea level rose by an average of 1-2mm a year during the 20th century; summer and autumn arctic sea ice has thinned by 40% in recent decades; global snow cover has decreased by 10% since the 1960s;