Rethinking Decarbonisation Incentives – Phase 1

Published: 22 May 2018

Phase 1 – Current Economic Signals for Decarbonisation in the UK

Decarbonisation incentives (i.e. the price paid per tonne CO2e) vary in different sectors of the UK economy, even though the value of reducing emissions in the mitigation of climate change is the same.

This report (along with the supporting spreadsheet containing underlying calculations and assumptions) summarises the current pattern of economic signals in the UK for decarbonisation in different economic sectors and activities.

The aim is to quantify and compare the effective carbon prices which arise from current tax, subsidy and other policy instruments across different economic sectors and activities. This provides a baseline from which to assess in more detail the different sector drivers, and future options for policy reform.

Download a summary of the full report.

Find out more about our Rethinking Decarbonisation Incentives project.

Key Findings

The analysis shows that the effective carbon prices arising from current UK policies vary widely across different sectors and activities. In simple terms, this suggests we may be over-rewarding some kinds of emissions reducing activity, while under-rewarding it in other activities or sectors.

Some big sources of carbon emissions, including natural gas usage and agriculture, have effective carbon prices which are too low, compared against the estimated range for carbon prices calculated by Government as being required by 2030 to keep the UK on track to achieve 2050 decarbonisation targets.

This table summarises how effective carbon prices for emitting activities (and low carbon alternatives) compare against the government’s estimated range for carbon prices consistent with meeting targets.

 

Sectors where current effective carbon prices are broadly aligned with expected target prices for 2030 include:

  • Solar PV and the most recent offshore wind bids of CfD auctions
  • Possibly road transport (if the value of congestion and other externalities is offset against tax receipts)

The report’s findings suggest there is significant scope to improve the current framework of price signals for decarbonisation.