Carbon price as an investment incentive for private households
The MCC calculates when households should switch to fossil-free technologies to avoid or reduce financial burdens.
The carbon price as the core instrument of the energy transition is intended to discourage emission-intensive behavior. What does this mean for private individuals who use oil and gas heating systems or drive a combustion engine car? Is it financially worth their while to invest in climate-neutral heatings and cars? And for whom could the accompanying payment of a climate money result in a financial plus? This is analysed in a new study conducted by the Berlin-based climate research institute MCC (Mercator Research Institute on Global Commons and Climate Change).
A team led by Matthias Kalkuhl, head of the MCC working group Economic Growth and Human Development, has examined how the costs of continuing to operate fossil technologies are rising steadily due to the carbon price. The researchers have calculated an ambitious scenario: the carbon price is aligned with the goal of EU climate neutrality in 2050 – and it becomes the core instrument, i.e. other measures such as subsidy programmes, bans, or standards, are not used on a large scale as an instrument to reduce CO2 emissions. This will result in a price increase of as much as 400 euros per tonne of CO2 by 2040, requiring a mean urban familiy of four to pay an additional 15,300 euros from today over the next 20 years for gas heating, 18,500 euros for oil heating, and 12,600 euros for a combustion car.
This magnitude can incentivise private households to avoid or at least reduce the burden of the carbon price: by investing in thermal insulation and emission-free heating and mobility technologies. When calculating the swich, for example from gas heating to a heat pump or from a combustion car to an electric vehicle, the CO2 costs avoided must be taken into account.
For households that cannot switch quickly to alternative technologies or insulation, or significantly save energy, the carbon price eventually results in a financial burden that is hard to bear. These households in particular should be supported by the payment of a climate money. For the short term, the research team recommends a differentiation according to income as well as accompanying relief measures for hardship cases.
Further informationen (in German):
- The study: Kalkuhl, M., Kellner, M., Bergmann, T., Rütten, K., 2023, CO2-Bepreisung zur Erreichung der Klimaneutralität im Verkehrs- und Gebäudesektor: Investitionsanreize und Verteilungswirkungen, MCC-Arbeitspapier (here)
- Corresponding article in the German weekly “Welt am Sonntag” of 16. April 2023: “Alles hängt am Klimageld” (“It’s all about climate money”) (here)
MCC (Mercator Research Institute on Global Commons and Climate Change) 2023