The costs of decarbonising the UK

By Dr Flora WhitmarshGrantham Institute
moneyThe costs associated with reducing emissions in the UK have been discussed recently in the press. In an article in the Mail on Sunday, David Rose made the claim that energy policies shaped by the so-called “Green Blob” –  a term coined by Owen Paterson for what he called “the mutually supportive network of environmental pressure groups, renewable energy companies and some public officials” – will cost the UK up to £400 billion by 2030, and that bills will rise by at least a third.

How much will action on climate change actually cost? The quoted figure of £400 billion equates to 1-1.5% of cumulative UK GDP over the next sixteen years. The most recent analysis to be carried out by the Intergovernmental Panel on Climate Change suggests that the costs of a low carbon economy would be around 1-4% of GDP globally by 2030. Analysis carried out by the AVOID consortium which includes Grantham Institute researchers found that the costs of staying within 2oC were 0.5-4% of global GDP, and a report on the costs of mitigation co-authored by the Grantham Institute put the costs at around 1% of global GDP. The figure quoted in the Mail on Sunday for the overall costs of decarbonisation is of the order of magnitude projected by experts, but these figures do not take into account the co-benefits of mitigation such as improved air quality and energy security. In fact a recent report by Cambridge Econometrics asserts that the UK’s decarbonisation pathway would lead to a net increase in GDP of 1.1% by 2030, due to structural changes in the economy and job creation resulting from the low-carbon transition.

Whilst these estimates relate to the economy-wide cost of using low-carbon energy rather than carbon-intensive sources such as fossil fuels, it is not immediately clear from them what this means for the cost of living. The rising cost of household energy is a key concern for people in the UK who have already seen significant increases in the average bill since 2004 mainly due to the rising cost of gas. In a report published in 2012, the Climate Change Committee concluded that support for low carbon technologies would add an average of £100 (10%) onto energy bills for a typical household by 2020 – where a typical household is one that uses gas for heating, and electricity for lighting and appliances. A further increase of £25 per household is projected by 2030, but this is less than in a scenario with high levels of investment in gas-fired power generation.

Furthermore, this could be partially offset by improvements in energy efficiency. The Climate Change Committee expects that by 2020 the replacement of old inefficient boilers will reduce bills by around £35 on average. The use of more efficient lights and appliances could reduce bills by a further £85, and improved efficiency in heating, mainly due to insulation, could save another £25 on average. However, making these savings would depend on having the right policies in place to encourage energy efficiency.

2 thoughts on “The costs of decarbonising the UK

  1. If you want to rebuff convincingly the “it is all too expensive” climate deniers, the caveats in the last para of this interesting piece must be addressed. Things had been moving in the right direction until recently : during the first 12 years of this century, overall consumption of energy in the UK dropped by 14%, whilst at the same time GDP grew in real terms by 18%. But subsequently the drive on energy efficiency has fallen right back, with enormous drops in the numbers of people installing energy saving measures and vast reductions (85% in some cases) in, for instance, the amount of insulation being installed. The evidence from PwC’s Energy 2020 Tracker is stark – as we stand in policy terms, there is little or no chance of stopping soaring household fuel bills given the collapse of government support programmes like ECO, Green Deal and Warm Front- precisely the scenario painted in your final para.

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  2. Thanks for your comment. Of course, I was not completely rebuffing the Mail article – their overall figure of £400 billion is probably in the right ballpark as a proportion of GDP compared to studies looking at the global costs of decarbonisation. In terms of household energy bills, I agree with you that energy efficiency is key to keeping bills down and having the right policy framework is vital.

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