As part of the UK’s target to achieve net-zero carbon emissions it has set the target of achieving a reduction in greenhouse gas (GHG) emissions by 61% in 2030, compared to 1990 levels (Table 1). Between 1990 and 2021 (latest year available), we have seen a strong reduction in emissions (73%) from the electricity sector but a lesser reduction (9%) in heating[1] and (13%) transportation (Table 1). The 9% reduction in emissions from heating over the last 30 years is far from the 27% reduction required over the next nine years. In the transport sector, where 2021 figures are likely depressed due to COVID-19, targets require a 33% reduction over the next nine years. This underperformance is not surprising given the difficulties in decarbonising transport and heating, particularly through electrification, vis-à-vis electricity (Clinton et al., 2021).
Table 1 – GHS emissions (1990-2021) and 2030 target
| 1990 | 1995 | 2000 | 2005 | 2010 | 2015 | 2019 | 2021 | 2030 | |
| GHG Emissions (MtCO2e) | |||||||||
| Total^ | 806 | 755 | 718 | 692 | 609 | 508 | 448 | 427 | 316 |
| Electricity sector~ | 204 | 164 | 159 | 174 | 157 | 104 | 57 | 55 | 17 |
| Transport Sector | 152 | 158 | 170 | 178 | 165 | 165 | 166 | 132 | 111 |
| Surface transport | 113 | 115 | 119 | 122 | 113 | 114 | 113 | 102 | 62 |
| Aviation | 21 | 24 | 34 | 40 | 36 | 36 | 40 | 16 | 33 |
| Shipping | 18 | 19 | 17 | 16 | 17 | 15 | 14 | 14 | 16 |
| Heating Sector* | 106 | 108 | 114 | 113 | 98 | 90 | 91 | 96 | 66 |
Decarbonising electricity
The electricity sector has seen a transformation since 1990, with emissions falling by 73%, driven by switching from coal to gas, the increased use of renewables, and reduced energy demand driven by increased efficiency of appliances (Table 1).
Whilst emissions from coal usage have fallen by 95% since 1990, contributing to a significant decline in sectoral emissions, they still represent 6% of the UK’s emission from electricity generation, so the phase-out from October 2024 will further contribute to the 2030 target, albeit less than historically (CCC, 2020; BEIS, 2021). Nonetheless, despite natural gas’ lower emissions relative to coal, it will be necessary for the UK to also reduce reliance on natural gas, generating around 40% of UK’s electricity, going forward and further embrace renewable energy if it is to meet 2030 targets.
In renewables, we have seen a fivefold increase in yearly electricity generated between 2010 and 2021, following a sharp reduction in costs: solar price fell from $300/MWh in 2014 to $65/MWh in 2022 (Net Zero Review, 2023). Solar and wind now produce electricity at lower costs than fossil fuels, providing a direct incentive to decarbonise. This contrasts with the transport and heating sectors where heavy subsidies and regulation are still required to meet decarbonisation targets. However, given uncertainty in renewable energy production, it would not be possible for the UK to rely solely on renewables without investing sufficiently in battery technology or nuclear power for baseload. Nuclear has a long construction lead time whilst batteries are high cost with a limited viable business proposition and which risk cannibalising each other (Pollitt, 2023b), thereby highlighting a fundamental risk in the UK’s electrification strategy: renewables can be less reliable than coal/gas and reliability is fundamental if we are to electrify the transport and heating sectors.
Additionally, there are concerns that further growth of renewables projects are constrained by the limited capacity of the electricity network. It is therefore important to continue investment in network infrastructure to ensure this does not hold back investment in renewables and jeopardise future progress.
Since 2005, electricity demand has fallen, driven by improved efficiency of household appliances and devices. Nonetheless, with the additional energy demands from transport and heating, it is estimated that total annual electricity demand could increase from 330TWh in 2020 to 350TWh in 2030 and between 570-770TWh by 2050 (Energy UK, 2016; BEIS, 2022). It is therefore vital for the UK to upgrade its energy transmission and distribution network, using low emission sources, to ensure it can handle increased volume without increasing emissions from electrification.
Finally, environmental levies need to be rebalanced to ensure that final prices for electricity are below that of oil and gas to incentivise the use of electrification. There is little point in having a decarbonised electricity sector if large swathes of the economy still rely on cheaper oil and gas energy, particularly where gas faces fewer levies.
Decarbonising transport
The transport sector is the largest source of emissions in the UK (31%, Table 1), so it is vital to decarbonise this sector if the UK is to meet its net zero strategy. A key tenet of this plan is to increase the use of electric and hybrid vehicles (EVs), where electrification is relatively easy given light vehicles which tend not to travel far. To achieve this, a sales ban on pure fossil fuel cars and vans applies from 2030 and all new cars and vans must be zero emission by 2035. However, the UK is not on track to achieve its 2030 decarbonisation targets in this sector. In fact, emissions in 2019 (pre-Covid) were 9% higher than in 1990, and far off the 2030 target (Table 1).
To date, one million EVs have been registered in the UK out of a total of 31.7 million cars in the UK, with the National Grid predicting a maximum of 13 million EVs by 2030, demonstrating the degree of progress required (Net Zero Review, 2023; Pollitt, 2023a). The key challenges with respect to EVs are the high cost of EVs and lack of charging facilities. The availability, cost and ease of charging is currently limited, and off-site fast charging is not economically viable, limiting the appeal of electric cars for longer journeys when charging at home is not possible (Pollitt, 2023c). Moreover, EVs have limited mileage ranges and slower refuelling times, perhaps explaining reluctance for consumer up-take (Platchkov and Pollitt, 2011).
Whilst, the use of EVs is likely to increase demand for electric energy, this could be offset by smart metering which will spread the demand for electricity and can better meet the supply of renewable electricity (Marsden and Hess, 2011). Moreover, EVs can operate as a storage point for electricity which can be fed back into the grid (Marsden and Hess, 2011). In fact, if all cars were electric, then it would be possible for batteries to power the entire grid for almost a day (Pollitt, 2021). This can aid in decarbonisation by balancing electricity demand across the network.
For other modes of transport, such as heavy goods vehicles, aircraft, and shipping, there seems to be little prospect of electrification through battery-power due to the weight, power, and range requirements of these vehicles (Marsden and Hess, 2011). Instead, other low emission technologies are required, such as hydrogen, and other low carbon fuels, which are at early stages of development (Net Zero Review, 2023).
An “easy win” to decarbonise transport would be to increase the electrification of the rail network and to attract more rail journeys, substituting away from road. With every tonne of freight transported by rail producing 76% less carbon than by road, rail electrification can cause significant reductions in the emissions of transport sector (Net Zero Review, 2023). Further electrification can effectively be achieved by leveraging private investment by setting appropriate incentives (Department for Transport, 2021). A key obstacle to achieving this is sunk costs in rolling stock which limit the incentives for rail companies to demand electrification (Marsden and Hess, 2011).
To meet decarbonisation targets, it is therefore important for funding and support to be maintained to encourage adoption of EVs, reductions in emissions from existing vehicles, substitution towards electric rail, and development of EV charging points. Rebalancing of the tax system to maintain public finances could have a negative incentive effect of electrification in transport and so needs to be considered carefully (Platchkov and Pollitt, 2011). Further regulatory work is required to ensure incentives with charging are aligned and that smart charging is possible to reduce the burden on electric networks.
Decarbonising heating
Heating targets, especially the electrification of the sector, are perhaps the most far off track. Currently, around 74% of the UK’s heating and hot water demand is met by natural gas and a further 10% by petroleum (CCC, 2020). To reduce emissions from this sector, the UK’s targets require electrification of swathes of the network such as phasing out gas boilers by 2035, replaced by electric heat-pumps. Yet only 57,000 heat-pumps were installed in 2021, compared to the balanced pathway target of 161,000, demonstrating the slow progress towards reaching targets (CCC, 2020). By 2030 the targets require a cumulative take-up of 5.5 million heat-pumps (UK Parliament, 2022).
From the consumer perspective, heat-pumps are very expensive and require high capital costs and significant running costs which could be more expensive to run than a gas boiler (Platchkov and Pollitt, 2011). Additionally, the UK has an old housing stock, with retrofitting of homes being costly, with currently limited financial support. It is estimated that the total cost of decarbonising an existing house is on average £10,000 (UK Parliament, 2022). Further, a large proportion of households will have relatively new gas-fired boilers, which are highly efficient, and will not wish to replace them until they reach the end of their working lives. This explains the slow progress towards electrification of the sector and suggests further efforts need to be made to bring down costs and incentivise take-up if the UK is to meet targets.
Fundamentally, electrification of the heating sector is challenging given that demand can be several times that of electricity demand at peak times (up to 300 GW), with both seasonal and daily fluctuations. As a result, electrification would require extra ramping capacity which would be costly, given seasonal demand for heating (Pollitt, 2021). Not only does this necessitate reliable supplies of electricity but also increases in capacity and transmission. One interesting policy solution is to partially electrify heating only in certain regions, such as the South West, where it is warmer and there is less demand for gas, which would allow decarbonisation at a lower cost (Pollitt, 2023c).
Other proposals outside of electrification include improved insulation and efficiency, hydrogen/biogas, and district heating. Improving insulation can limit the need for heating, reducing the need to burn fossil fuels or to increase the burden on the electricity supply (Houses of Parliament, 2016).
Conclusion
The UK is broadly on target to meet its goals to decarbonise the electricity sector by 2030 but is far from decarbonisation targets in heating and transport. The technology exists to decarbonise transport using EVs but is not ready to electrify other types of vehicles. Electrification of the heating sector relies on reliable energy sources and may not be economically sensible, so other options need to be pursued.
Fundamentally, market incentives for decarbonisation are aligned in the electricity sector, where renewable energy is more price effective than fossil fuel energy, but not in transport and heating, where EVs and heat-pumps are costly for consumers. Consequently, the economic insight from this essay is that incentives need to be aligned to ensure the market delivers on the government’s objectives, including ensuring that cost-effective technologies are promoted to provide the motive to decarbonise.
Electricity capacity and transmission needs to be improved (in a low carbon way) to facilitate increased electrical demand that will come from electrifying transport and heating. This requires ensuring reliability which can be somewhat at odds with renewable energy, although, intermittency problems of renewables may be overstated, with the UK observing a strong correlation between wind and electricity demand (Pollitt, 2023b).
Finally, ensuring that electricity is cheaper than oil or gas is vital to encourage people to switch to low carbon technologies such as EVs and heat-pumps. Currently, gas is under-priced relative to electricity, encouraging the use of gas appliances, and limiting private financial motives to electrify (Pollitt, 2023c). By aligning incentives, the UK puts itself on a better track to meet its overall decarbonisation strategy by 2050, even if this might not be more immediately possible by 2030.
[1] Standalone heating emissions data not available. Includes other emissions from buildings but buildings sector “emissions are mainly the result of burning fossil fuels for heating” (CCC, 2020).