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March 10, 2025
What are greenhouse gas emissions limits and carbon budgets?
Why do we need them, who sets them, and how are they used for energy system modelling?
Summary
The reduction of greenhouse gas emissions is the focus of global climate policy.
TransitionZero's energy system modelling platform, Scenario Builder, can help answer questions about the impact of emissions reduction targets on the future of our energy grids.
Emissions limits can be set by a range of stakeholders — asset owners, governments, or international bodies. A national emissions limit is often referred to as a carbon budget.
This is part one in a three-part series on emissions. Part two goes deeper into country-level emissions reduction targets, while part three provides more detail on Nationally Determined Contributions (NDCs).
A fundamental question of energy policy
TransitionZero's energy system modelling platform, Scenario Builder, allows us to ask hypothetical questions about our future energy systems, helping to plan for cleaner, and more reliable power grids. Today, many energy planners are preoccupied with a very important question: how can we reduce emissions from power generation while ensuring reliability and affordability?
While exploring our platform, you’ll come across terms and concepts relating to emissions.
How do we define and measure carbon emissions? Is the concept of ‘net zero’ as simple as it sounds? How do carbon budgets inform net zero plans, and who is setting these budgets?
To begin, let’s define what we mean by emissions.
Greenhouse gases and emissions limits
Greenhouse gases (GHGs) such as carbon dioxide (CO2) trap heat in the atmosphere and drive climate change. The stated goal of climate policy is to limit, and decrease, the emission of greenhouse gases. Limiting global warming from greenhouse gas emissions to stay below an average of 1.5°C above pre-industrial global temperatures is widely accepted as a ‘safe’ target for our planet.
Greenhouse gases are emitted from both human and natural systems. While most human-induced emissions are from the combustion of fossil fuels, emissions from land-use and land-use change are also important sources.
Emissions limits are a tool used by a range of energy transition stakeholders to push for reductions in GHG emissions. A national government may set emissions limits to mitigate the health impact of dirty air, while intergovernmental organisations like the UN set emissions limits with the hope of mitigating the worse impacts of climate change.
Emissions limits set an upper boundary on the amount of GHGs that can be released into the atmosphere by an emitter. That emitter may be a country, local authority, or private sector stakeholder such as an energy utility or energy-intensive manufacturer.
Depending on the goal, emissions limits can range in granularity. For example, they can be set at the asset level — perhaps by the owner of a coal power plant or blast oxygen furnace (BOF) for steel production.
They are also set at a national or global level, by country governments or intergovernmental bodies like the UN. Emissions limits may be annual or cumulative, taking into account emissions over multiple years.
When emissions limits are set at a national and transnational scale, they can also be referred to as carbon budgets.
What is a carbon budget?
A carbon budget refers to the total net amount of carbon dioxide (CO2) that can be emitted by human activities in the future while limiting global warming to a specified level. It aims to mitigate the long-term impact of climate change by setting clear targets for human-made emissions of greenhouse gases. As such, they tend to be reported in cumulative and probabilistic terms, reflecting that it is not just gross annual emissions driving climate change, but also the cumulative concentration of CO2 in the atmosphere, which is measured and reported in parts-per-million (ppm).
A real-world example: the Intergovernmental Panel on Climate Change (IPCC), a UN intergovernmental body, released a Special Report on 1.5°C in 2018 (also referred to as ‘SR15’) and Assessment Report 6 in 2023 (also referred to as ‘AR6’).
These reports use integrated assessment models (IAMs) to run hundreds of scenarios with cumulative carbon budgets up until the year 2100. The probability of staying below specific temperature thresholds, such as the 1.5°C average mentioned earlier, is based on how many of these scenarios project temperature outcomes within those limits.
The IPCC modelling work on carbon budgets suggested that for a 50% probability of the planet’s temperature remaining below the critical 1.50C average limit, the cumulative global carbon budget for 2020-2100 was just 500 gigatonnes CO2. This budget will be exceeded in less than 10 years if annual global GHG emissions remain equivalent to those from 2020.
Who sets carbon budgets?
The IPCC estimates the remaining global carbon budget to keep within certain temperature thresholds, but as an apolitical, international body, it doesn’t suggest how that budget should be allocated between countries.
Therefore, it is up to national governments to submit emissions limits in the form of emission reduction targets. The targets are usually for certain years, such as 2030 or 2050. Some national governments — including the UK and Republic of Ireland — also set cumulative carbon budgets over a fixed (e.g. 5-year) period with the intention of reducing the budget in each subsequent budget. The following table provides an overview of some regional and national bodies that establish emissions limits and carbon budgets.
No two countries have the exact same emissions profiles or are at the same stages of economic development. In the United Nations Framework Convention on Climate Change (UNFCCC), industrialised economies are known as Annex I, with developing and emerging economies listed as non-Annex I. Rich, industrialised Annex I countries have historically emitted far more GHGs than non-Annex I countries but are better positioned financially to adapt their energy systems. International climate negotiations account for these differences via a framework called ‘common but differentiated responsibilities and respective capabilities’, or CBDR.
CBDDR means that a wide range of emissions reduction targets are put forward at climate negotiations, with an observable gap between richer and poorer nations. As of publication, some countries, including Member States of the European Union, have pledged rapid, absolute reductions by 2030. This means that a defined amount of GHG emissions will be removed from the energy system within a certain timeframe. Other, less developed nations may only commit to modest, relative reductions. As we’ll see in our next explainer, this can actually end up allowing for emissions growth.
Emissions targets are incorporated into a climate policy mechanism for country-level emissions limits called Nationally Determined Contributions (NDCs), which will be the focus of our next explainer.
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