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The Increasing Cost of CO2 Emissions Reductions in the United Kingdom

A reduction in the use of coal and a rise of gas for generating electricity has slashed the UK grid emissions factor to around 0.26 tonnes of CO2 per MWh.  This has the economic consequence of increasing the subsidy cost of saving emissions through increased use of renewables.  It now costs around £169 to save a tonne of CO2 through use of onshore wind, and £267 for offshore wind. This is 6-10 times the estimated cost of environmental damage caused by a tonne of emitted CO2 and demonstrates how expensive and ineffective the UK renewables policy is in abating greenhouse gas emissions.

In 2004, shortly after its founding, REF published a discussion of the emission savings potential of renewables by the chemical engineer David White, Reduction in Carbon Dioxide Emissions: Estimating the Potential Contribution from Wind-Power

Although over ten years old, this document is still relevant, and its principal conclusion remains true, namely, that “the relationship between renewables and CO2 reduction in the power generation sector does not appear to have been examined in detail, and the likelihood, scale, and cost of emissions abatement from renewables is very poorly understood”.

REF has returned to this topic in various documents and blogs, for example in 2013 we commented  on the fact that for some years applicants for planning permission to build wind power stations often estimated their lifetime emissions savings - a crucial benefit - by referring to the displacement of coal generators, rather than a grid average emissions factor which was more reasonable. The blog demonstrated that in fact Combined Cycle Gas Turbine generation was being displaced by wind power, so the CO2 emission savings were significantly less than coal, and lower even than the grid average. Coal fired generation produces about 0.9 tonnes of CO2 equivalent per MWh (tCO2e/MWh) generated whereas modern Combined Cycle Gas Turbines (CCGT) produce less than half of that.

The UK grid average emissions factor used at the time of that blog posting was the 2011 figure of 0.45 tCO2e/MWh, but the trend since that time has been steadily downwards, though there was a sharp rise in 2012, when the unfortunate and apparently unforeseen interaction of the UK Government’s Carbon Price Floor policy and the EU’s Large Combustion Plant Directive (LCPD) drove an increase in coal generation at the expense of gas.

The recent publication by the government of the annual Digest of United Kingdom Energy Statistics (DUKES) for 2016 gives the latest estimate, using 2015 data, for the average CO2 emissions factor for UK electricity supplied at about 0.33 tCO2e/MWh. This is very remarkable, and results from a decline in coal generation and the return of gas, and an increase in renewables. The following table taken from DUKES 2012 TO 2016 shows how the emissions from UK electricity have declined since 2009.

Table 1. UK electricity grid emissions factors 2009 to 2016. Source: Department of Business Energy and Industrial Strategy (BEIS), Digest of United Kingdom Energy Statistics (DUKES), and a REF estimate for 2016 based on fuel mix data for 2016 to end September 2016.

Year Emissions (tonnes of carbon dioxide per MWh electricity supplied)
2009 0.45
2010 0.46
2011 0.44
2012 0.48
2013 0.45
2014 0.40
2015 0.33
2016 (REF Estimate) 0.26

The rapid recent decline is entirely unsurprising given the closure of the UK coal stations opted out under the LCPD in March 2016. The following chart demonstrates the very significant reduction in coal fired-generation in the UK electricity mix over the period.

Figure 1: GB Electricity Fuel Mix, 2009–2016 (TWh). Source: Renewable Energy Foundation, BM Reports.


The UK system is now fundamentally a nuclear and natural gas system, with remaining coal generators guaranteeing security of supply, at a very high price, as described in our last blog.

While in many senses welcome, it is important to bear in mind that a reduction in emission factor significantly increases the subsidy cost per tonne of any further emissions saving through renewables. Onshore wind, for example, receives about £44/MWh in subsidy and offshore wind approximately double that amount. Thus, in 2009 the emissions factor of 0.45 tonnes per MWh implied that consumers paid £98 in subsidy to save a tonne of CO2 via deployment on onshore wind, and £196 for offshore wind.

However, now that the grid emissions factor has dropped to around 0.26 tCO2e/MWh, this subsidy cost rises to £169/tCO2e for onshore wind and £267/tCO2e for offshore wind. The figures for small scale solar are even higher.

These costs are well in excess of most estimates of the Social Cost of Carbon (SCC). For example, the US Environmental Protection Agency’s central estimate of these costs is $36 (2007 rates) or about £32 per tonne of CO2 in today’s money. Indeed, the EPA’s extreme estimate is only equivalent to £105 per tonne. 

An OECD report published on 26 September 2016 estimated the damage from climate change at EUR 30 or £26 per tonne of CO2 emissions, and while this is explicitly described as a ‘conservative’ estimate, it is only 15% of the cost of abating emissions by onshore wind the UK at present.

Perhaps the most important point to take from this line of reasoning is that the marginal cost of emissions reduction will rise still further as coal disappears completely from the UK system, and as CCGT efficiencies improve, and as new nuclear generation is introduced.

Consequently, it will become progressively harder to justify public support for further emissions savings in the UK electricity industry, rather than in other industries and/or jurisdictions. If the goal is to achieve rapid emissions savings in large volumes, then it would make sense to redirect UK consumer levies to other sectors and perhaps even other countries. Climate change, after all, is a global problem, not a local one. In fact, it is almost certainly already far more effective and cheaper for UK consumers to pay for emissions reductions by subsidising the construction of CCGTs instead of coal-fired generators in the developing world, than through the subsidised expansion of renewables, or nuclear, in the UK electricity grid at the current very high subsidy rates.