Climate Change and CO2 Reduction

The issue of climate change and its potential implications are areas of great concern to the public, industry and policy makers alike. As a result some leading industrialised nations signed up to the Kyoto Protocol and made a commitment to reduce greenhouse gas emissions. The Protocol ended in 2012.

Against this background, the Climate Change Bill was introduced to Parliament in November 2007 and became law on 26th November 2008. This creates a legal framework to ensure the UK meets the Government’s ambitious target of at least 80% reductions in greenhouse gas emission by 2050, and reductions of at least 26% in CO2 emissions by 2020 (to be reviewed to reflect the move to all greenhouse gases), against a 1990 baseline. This would be achieved by setting 5 yearly carbon budgets, with progress on meeting these goals being reported annually to Parliament.

The passing of the Bill also saw the creation of the Climate Change Committee, an independent expert body advising the Government on setting carbon budgets and making carbon savings.

Along with security of supply, these reductions in carbon dioxide are likely to be a key driver in UK energy policy over the next few decades. However it is important not to ignore the impact of climate change measures on economic, social and other environmental policy targets such as fuel poverty, energy demand, international competitiveness, air quality and security of energy supply.

Meeting the Targets

Improvements in conventional technology and energy efficiency behaviour changes could help meet the short-term reduction targets and should be encouraged. It makes sense that the most cost effective greenhouse gas emission reductions should be made preferentially, wherever they occur.  As climate change is a global problem, all barriers to making cost-effective emissions reductions should be identified and removed, so that emissions reductions occur at the lowest cost to society.

Barring a radical technological breakthrough, in order to meet the longer term targets and future increases in energy demand, it will be necessary that all of society accepts and contributes to the required reductions. This will require a change in attitude to energy use, which will be brought about through public education, imposing societal constraints and highlighting the impact of personal choices to a more informed public.

It is important that the costs of greenhouse gas emissions reductions are kept proportionate for industry to avoid damaging the UK’s competitive position and to maintain secure fuel supplies in the future - it is impossible to accurately forecast future energy reduction needs and costs and the international energy supply markets are well known for their volatility. There is also no global environmental benefit in displacing manufacturing abroad and importing products if these are made in less carbon efficient plants.

A significant reduction in greenhouse gas emissions can only be achieved through global cooperation. The UK is responsible for roughly 2% of global carbon dioxide emissions and therefore cannot achieve significant reductions independently. Measures to move the UK to a low carbon economy using ambitious targets may present UK business with an opportunity to exploit new markets for low carbon technologies, but will also expose existing UK industry to higher energy costs.

All sectors will have to adapt over time to a low carbon future. The strategy to meeting the Government’s targets is likely to include:

  • Quickly identifying and implementing the lowest cost carbon reduction options
  • Improving energy efficiency – a key target for the short term
  • Investigating and developing new low carbon fuels and technologies
  • Developing policies to implement these low carbon fuels and technologies
  • Raising awareness of the importance of carbon reduction
  • Guiding society so that behaviour is influenced and changed
  • Learning best practice from other countries
  • Working with other countries to develop international plans to reduce greenhouse gas emissions and to introduce new fuels and technologies

UKPIA and the downstream oil industry are committed to playing their part in assisting Government to identify the best ways to achieve these targets. For more information, please see UKPIA’s publication on Fuelling the UK's future.

In addition, UKPIA plays an active role within the Low Carbon Vehicle Partnership. The LowCVP is an action and advisory group, established in 2003 to take a lead in accelerating the shift to low carbon vehicles and fuels in the UK and to help ensure that UK business can benefit from that shift.

Sign up to the LowCVP free monthly e-newsletter by clicking here.

Emissions Trading

Emissions trading is one route to reducing greenhouse gas emissions, and has particular application to large organisations or plants.

Such schemes are often referred to as ‘cap and trade’. The concept of trading is to ensure that reductions in emissions take place where the cost of the reduction is lowest, thus reducing the overall costs of combating climate change and not severely affecting those sectors or businesses where the nature of their activity makes reductions difficult to achieve.

This allows regulatory authorities to limit the amount of emissions produced in aggregate by setting the overall cap for the scheme whilst giving companies some flexibility in determining how to achieve reductions. Participants in a scheme can also trade allowances so that overall reductions are achieved in the most cost-effective way.

Participating companies in a scheme are allocated allowances for the greenhouse gas emissions that they make. The concept of trading allows companies to emit in excess of their allocation and purchase allowances in the market, or if they emits less than their allocation, to sell the surplus allowances. In this way, companies have the flexibility to decide the best way of meeting their targets, for example by investing in new plant or processes or other methods of reduction, or by buying allowances from other companies. Emission of CO2 is not affected because the amount of allowances allocated is fixed.

The EU Emissions Trading Scheme (EU ETS) has been established across Europe, and began as a two-phase scheme initially covering CO2 emissions, the first phase running from 2005-2007 and the second phase from 2008-2012, coinciding with the first Kyoto Commitment Period. Under the rules of EU ETS, EU Member State governments are required to set an emission cap for all installations covered by the scheme (ranging from large combustion plants, to refineries and other energy intensive processes), which is set out in a published National Allocation Plan. Phase III of the EU ETS  commenced on 1 January 2013 and runs until 31 December 2020. Under Phase III a single EU-wide cap on European Union Allowances (EUAs) applies. This will be reduced by 1.74% (based on the 2010 cap) annually, limiting the number of EUAs available to 21% below the 2005 level by 2020. For sectors determined to be exposed to international competition  - and therefore at risk of carbon leakage, including refining - a transitional system is introduced for free allocation of EUAs based on stringent sector benchmarks. 

UKPIA considers that emissions trading has a valuable role to play but the limitations of such schemes need to be recognised. In particular the compliance costs for companies associated with monitoring and verifying emissions are considerable and therefore participation is not suitable for smaller enterprises or indeed the retail and general transport sectors.

View the UKPIA Briefing paper on Emissions Trading (pdf format)


The climate change that we are expected to experience in the coming decades will be due in part to our past emissions of greenhouse gases - we are locked in to an increase in atmospheric CO2 levels due to emissions made over the last few decades. It is likely therefore that we will have to adapt to the consequences of increased levels of CO2, which may include a warmer climate and more extreme weather events.

A warmer climate may have implications for industrial sites, which may require more air and water cooling streams to allow continued operation. The impact of more extreme weather events on key national infrastructure must be planned for. For example, drought could put increased pressure on water supplies, with possible shortages for industrial applications. Adaptation plans to allow sites which supply vital secure supplies of energy will need to be in place to allow them to continue to function.

It is also important that consumers have sufficient emergency protection in place should the supply of oil and oil products to the UK be disrupted. Currently the UK holds 67.5 days worth of oil stocks, as agreed under EU law and by the IEA. In the event of a 10% supply disruption, this would equate to 22 months worth of stocks.

The Government set up an Adapting to Climate Change Programme and in July 2008 the “Adapting to Climate Change in England: a Framework for Action” was published. A framework for building the UK’s ability to adapt to future climate change is also outlined in the Climate Change Act. It establishes a national adaptation programme, along with a UK wide climate change risk assessment to take place every five years. It also establishes the creation of an Adaptation Sub-Committee of the Independent Committee on Climate Change to oversee progress on the Adapting to Climate Change Programme and advice on risk assessment. Further information can be found on the DEFRA’s website by clicking here.

It is important that adaptation in one sector does not compromise other sectors and that key national infrastructure assets are properly protected. Any action to tackle climate change should consider adaptation alongside mitigation.




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