Transcript Carbon Price@30

Carbon pricing in buildings and transport
Paradoxes and possibilities
Michael Grubb
Prof. International Energy and Climate Change Policy, UCL
Chair, UK government Panel of Technical Experts on Energy Market Reform
Contribution to Belgian National Debate on Carbon Pricing,
Brussels, 25th Jan 2017
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•
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The “classical” reasoning and its paradox
The wider reality
The energy efficiency gap
The infrastructure challenge
Carbon pricing – integrating ‘old’ and ‘new’
Carbon Pricing outside the norms …
The classical economic reasoning
• People and companies optimise based on costs and benefits
• Markets are efficient way of devolving decisionmaking, given
cost-reflecting pricing
• CO2 emission are an ‘external cost’: a carbon price is the most
efficient response to ‘harness the power of markets’
… and the paradoxes:
• People and companies do not appear to optimise existing energy
use
• The kind of carbon prices being considered seem ineffective in
buildings and transport
• The prices required to drive substantial change seems untenable
• The challenges are often behavioural, organisational, and/or
transformative
Carbon pricing for buildings: the bad news ..
Even at a carbon price five times EU ETS prices over past few years
.. (5x6 = c. €30/tCO2, similar to British Colombia carbon tax)
- negligible addition to household gas prices or compared to taxes
Residential
35
30
25
€/GJ
20
15
10
5
0
Basic Price
Taxes & Levies (inc. VAT)
Carbon Price@30
Also in commercial and industrial sectors ..
- small compared to variations between countries
Commercial
Industrial (Band I5)
18
16
16
14
14
12
12
10
€/GJ
10
€/GJ
8
8
6
6
4
4
2
2
0
0
Basic Price
Taxes & Levies (inc. VAT)
Carbon Price@30
Basic Price
Taxes & Levies (inc. VAT)
Carbon Price@30
Whilst for transport …
… gasoline taxes in EU (& Japan) already equate to several
hundred $/tCO2
2
Gasoline prices per litre US$ (April 2010)
1.8
Tax
1.6
Impact of
$100/tCO2
carbon price
1.4
1.2
1
0.8
0.6
0.4
0.2
0
PE Figure 6-3 Automotive Gasoline Prices and Taxation rates
Raw Data Source: IEA (2011)
652 grammes carbon / 2392 gCO2 per liter of petrol
Carbon pricing in buildings and transport
Paradoxes and possibilities
Michael Grubb
Prof. International Energy and Climate Change Policy, UCL
Chair, UK government Panel of Technical Experts on Energy Market Reform
Brussels, 25th Jan 2017
•
•
•
•
•
The “classical” reasoning and its paradox
The wider reality
The energy efficiency gap
The infrastructure challenge
Conclusions
But .. It ain’t so simple
… there are different domains of decisionmaking with
different characteristics, theoretical foundations, and scales
DOMAIN
T
I
M
E
H
O
R
I
Z
O
N
Satisficing
Optimising
Transforming
Characteristics
Habits, risk aversion to change or
new investment, short-termism /
myopia, inattention to incidental /
intangible costs;
endemic ‘contractual failures’,
principal-agent failures …
Economic optimisation based on
relative prices,
‘representative agents’
with ‘rational expectations’, stable
preferences and tech trends
Technology, structure,
institutional and behavioural
change, typically from
strategising, innovation,
infrastructure investment
Theoretical
foundations
Behavioural
and
organisational
economics
Neoclassical
and welfare
economics
Evolutionary
and
institutional
economics
S
O
C
I
A
L
S
C
A
L
E
Helps to explain apparently huge technical potentials for energy /
emission reductions at ‘negative cost’ from efficiency improvements
Annual abatement in 2030 GtCO2e
5
0
Cost $USD/tonne of CO2e
10
Iron & Steel - Energy
efficiency and cogeneration
-10
Chemicals - General
-20
Waste - Other
Cement -Clinker
substitution
-30
-40
Other industry
Domestic buildings thermal
A.
ECONOMIC
SCEPTICISM
Waste - Landfill
Transport - Cars and
vans (efficiency)
Commercial buildings thermal
-50
Cement - Alternative
fuels
Petroleum & Gas General
-60
Commercial buildings electric
Hidden &
Implement
-ation costs
B.
Default
BUILDINGS (inefficient)
EXPERTS
baselines &
holistic solutions
Warmer homes,
D.
more driving
REBOUND
with lower
energy costs
Health,
energy
subsidies,
environmen
tal benefits
C. COBENEFITS
-70
Domestic buildingselectric
Source: Authors, with data from McKinsey Pathways to a Low Carbon Economy (2009)
Whilst huge fall in PV and battery costs
opens new possibilities for distributed generation and elec transport,
with integration of electricity with transport & urban systems
PV: New record installed power prices
Chile
Masdar
Abu Dhabi
= $30/MWh
= $25/MWh
= $24/MWh
Module costs: -29% in 2016 to $0.39/Watt
http://www.bloomberg.com/features/2016-ev-oil-crisis/
http://www.bloomberg.com/news/articles/2016-07-27/elon-musk-says-it-s-pencils-down-for-tesla-s-model-3
https://www.bloomberg.com/gadfly/articles/2016-11-23/solar-industry-makes-feast-of-price-famine
http://reneweconomy.com.au/how-the-jaw-dropping-fall-in-solar-prices-will-change-energy-markets-55160/
Carbon pricing in buildings and transport
Paradoxes and possibilities
Michael Grubb
Prof. International Energy and Climate Change Policy, UCL
Chair, UK government Panel of Technical Experts on Energy Market Reform
Brussels, 25th Jan 2017
•
•
•
•
•
The “classical” reasoning and its paradox
The wider reality
The energy efficiency gap
The infrastructure challenge
Carbon pricing – integrating ‘old’ and ‘new’
Electricity revolution – distributed services
Source: Prof Jun Dong, North China University of Electric Power
Tackling old inefficient housing and realising the modern
vision both require major infrastructure investment
• Public money – carbon revenues?
– A carbon price of €30/tCO2 applied across EU
buildings sector (not including ETS, ie. electricity or
cement-related) would raise c. €15bn/yr across EU
– (very much more if also auctioned to power &
cement production)
– Same applied to gasoline would raise > €50bn/yr
• A predictable and rising carbon price would
also attract low carbon private investment
Carbon pricing in buildings and transport
Paradoxes and possibilities
Michael Grubb
Prof. International Energy and Climate Change Policy, UCL
Chair, UK government Panel of Technical Experts on Energy Market Reform
Brussels, 25th Jan 2017
•
•
•
•
•
The “classical” reasoning and its paradox
The wider reality
The energy efficiency gap
The infrastructure challenge
Carbon pricing – integrating ‘old’ and ‘new’
UK - Carbon floor price impacts coal
Dramatic (80%) fall since 2012: first hours without coal power for over a Century
Driven as declining gas price meets rising carbon price, and renewables
Falls 2012-15 offset by rising renewables; increased gas in 2016
16
14
UK Electricity Generation from coal (TWh),
2012-16
C-Price
support
doubled to
£18/kWh
12
10
8
6
4
C-price
support
introduced
2
0
2012
2013
2014
2015
2016
.. And once coal out of the power system, a carbon price has
much lower impact on electricity price, facilitating growth to
levels that could have more direct impacts across other sectors
• Scenarios include measures available at lower cost than Government carbon values
• And reflect need to ensure that measures required to meet 2050 target are available
to be deployed when needed
15
An integrated package
POLICY PILLARS
Standards &
Engagement
Markets &
Prices
Strategic
Investment
Values, pull & preferences
Need to integrate across all
three pillars of policy:
• Efficiency policies,
particularly for poorer
households & deeper
retrofits
• Carbon price
• Innovation and
infrastructure
Manage bills,
increase
responsiveness
Attention,
products &
finance
Revenues,
revealed costs,
strategic value
Technology
options &
competitiveness
Education, access & control
Planetary Economics Chapter 12: Figure 12-4 Potential joint benefits in energy and climate policy
Strategic aim….
To rise up the price curve without increasing energy bills:
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Higher efficiency and innovation policies compensate
•
Countries with higher energy prices have not ended up spending more, but those that that
seriously underpriced energy to keep it cheap have ended up spending more
Average end-use energy prices ($/t)
1000
Italy
900
If energy prices kept too low (as with
former Soviet), waste / ‘satisficing’
behavior leaves countries with high bills
when subsidies cannot be sustained
Sweden
Japan
800
UK
Germany
700
600
EU 15
France
Korea
500
Australia
Netherlands
400
Hungary
Czech Republic
Slovak Republic
USA
300
Poland
Line of constant energy
expenditure as % of GDP
200
100
“Bashmakov-Newbery constant”
0
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
Average energy intensity (kgoe / GDP)
PE Figure 6-1 The most important diagram in energy economics
Note: The graph plots average energy intensity against average energy prices (1990-2005) for a range of prices. The dotted line shows the line of constant energy
expenditure (intensity x price) per unit GDP over the period. Source: After Newbery (2003), with updated data from International Energy Agency and EU KLEMS
Planetary Economics:
Energy, Climate Change and the Three Domains of Sustainable Development
1. Introduction: Trapped?
2. The Three Domains
• Standards and engagement for smarter choice
Pillar 1
Pillar II
Pillar III
• 3: Energy and Emissions – Technologies and Systems
• 4: Why so wasteful?
• 5: Tried and Tested – Four Decades of Energy Efficiency Policy
• Markets and pricing for cleaner products and processes
• 6: Pricing Pollution – of Truth and Taxes
• 7: Cap-and-trade & offsets: from idea to practice
• 8: Who’s hit? Handling the distributional impacts of carbon pricing
• Investment and incentives for innovation and infrastructure
• 9: Pushing further, pulling deeper
• 10: Transforming systems
• 11: The dark matter of economic growth
12. Conclusions: Changing Course
Published Routledge 2014
http://climatestrategies.org/projects/planetary-economics/
for further information #planetaryeconomics
6-page ‘Highlights’ paper available