Contribution to Belgian National Debate on Carbon Pricing, Brussels, 25th Jan 2017 Michael Grubb

Carbon pricing in buildings and transport
Paradoxes and possibilities
Contribution to Belgian National Debate on Carbon Pricing,
Brussels, 25th Jan 2017
Michael Grubb
Prof. International Energy and Climate Change Policy, UCL
Chair, UK government Panel of Technical Experts on Energy Market Reform

• The “classical” reasoning and its paradox
• The wider reality
• The energy efficiency gap
• The infrastructure challenge
• Carbon pricing – integrating ‘old’ and ‘new’

• 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

The classical economic reasoning
Carbon Pricing outside the norms …
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
- small compared to variations between countries
Also in commercial and industrial sectors ..

… gasoline taxes in EU (& Japan) already equate to several hundred $/tCO2

PE Figure 6‑3 Automotive Gasoline Prices and Taxation rates
Raw Data Source: IEA (2011)
652 grammes carbon / 2392 gCO2 per liter of petrol
Impact of $100/tCO2 carbon price
Whilst for transport …
Carbon pricing in buildings and transport
Paradoxes and possibilities