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

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
• Conclusions

… there are different domains of decisionmaking with different characteristics, theoretical foundations, and scales

Satisficing

Habits, risk aversion to change or new investment, short-termism / myopia, inattention to incidental / intangible costs; endemic ‘contractual failures’, principal-agent failures …

Behavioural and organisational economics

DOMAIN
Theoretical foundations
Characteristics
S
O
C
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A
L

S
C
A
L
E
T
I
M
E
H
O
R
I
Z
O
N

Optimising

Economic optimisation based on relative prices, ‘representative agents’ with ‘rational expectations’, stable preferences and tech trends

Neoclassical and welfare economics

Transform-ing

Technology, structure, institutional and behavioural change, typically from strategising, innovation, infrastructure investment

Evolutionary and institutional economics

But .. It ain’t so simple
Source: Authors, with data from McKinsey Pathways to a Low Carbon Economy (2009)
Helps to explain apparently huge technical potentials for energy / emission reductions at ‘negative cost’ from efficiency improvements