CBI climate change report underestimates consumers

The CBI climate change task force published its report yesterday. In a change of direction, it promises full commitment to the targets in the Climate Bill and explores how business can be incentivised to make its contribution. Consumers, being responsible for 60% of the UK’s emissions through their lifestyles and shopping, are identified as the drivers of investment in clean technology.

Proposals in the report are based on research into the cost of abating greenhouse gas emissions, which is summarised in a UK version of McKinsey’s cost curve (see diagram below). The research is based on current lifestyles. It asks the question: if we continue behaving as we are now, how can we implement energy efficient technologies so that greenhouse gas emissions are reduced by 60% in 2050?

As most of the technologies are available but not commercially viable, the answer is that we will have to pay up to EUR90 per ton of carbon-dioxide equivalent in 2020, stabilising at around EUR40 in 2030 when the technologies are more tested (EUAs closed yesterday on ECX at EUR23.92). This would be passed on to customers at a cost of £100 per household per year, on average, by 2030.

The CBI identifies consumers as the drivers of investment and assumes that they will only behave as they are now and simply pay more for low carbon goods and services. What would the cost curve look like if we decide to consume less instead? It would look the same, but the y-axis (which shows the cost or savings of different abatement technologies per unit of emissions) would contract. To keep the carbon price high and maintain investment in clean technology, the supply of carbon credits would have to be reduced.

A possible reason why the CBI task force did not consider this type of scenario is that a world where targets are met through lower consumption is not particularly exciting for big business.