Factoring carbon pricing into consumption can support climate change

02 February 2017 Consultancy.uk

Transforming the global economy to meet global climate goals, to limit global average temperature rise to well below 2.0°C and to pursue efforts to keep it under 1.5°C, has now reached implementation stage for many economies globally. One way forward is setting a price on carbon, whereby the externality costs of carbon are factored into its consumption. A new report highlights some of the effects of such an endeavour on consumer prices.

Late last year the Paris Agreement, hammered out at the end of 2015, was ratified. The agreement lays out a framework for a global move away from polluting and climate changing forms of energy consumption towards sustainability. The agreement, while a key step forward, places considerable onus on countries, business and citizens globally to transform their respective value chains and behaviours in line with the stated target of the agreement – to limit global average temperature rise to well below 2.0°C above pre-industrial levels, and to pursue efforts to keep it under 1.5°C.

One key element cited by more than two thirds of signatories to the Paris Agreement, of which 40 countries, 20 cities and around 1,200 businesses have concrete plans, is to price carbon consumption into the cost of products and services. Pricing carbon can take a number of forms, including emission trading systems (ETSs)—both cap-andtrade and baseline-and-credit systems, carbon taxes, offset mechanisms and results-based climate finance mechanisms. The effects of carbon pricing are not, however, well understood on the final cost of consumption.

Methodology of research

In a bid to better understand possible outcomes from setting a price on carbon, The Generation Foundation and Ecofys entered into partnership. One of the resulting reports, titled ‘Impacts of a Global Carbon Price on Consumption and Value Creation’, explores the costs, and benefits, of a global carbon price.

The cost of carbon

One way to understand the current relationship between carbon intensity and economic output, as well as model long-term change to meet global goals, is the measurement of greenhouse gas (GHG) productivity. The relationship considers in how far greenhouse gasses uses are able to generate economic value in different segments, and for different types of goods and services. According to the firm’s analysis – and only in relation to economically tracked value – global The global average GHG productivity equals $1.7/kgCO2e.

Overview of final consumption categories

Considerable disparity exists between sectors however. In fuel use for heating and cooking, productivity stands at around $0.2/kgCO2e, generating only a tiny fraction of global economic value while creating a significant GHG burden. Electricity use is equally unproductive. Mobility, which generates around two eights of global emissions has a relative productivity of $0.8/kgCO2e. Services, such as education, medical care, public and other services are the most effective at turning GHG used into economic value, at $3.6/kgCO2e.

The research also considers how much more productive GHG consumption needs to become to meet key global targets. The firm assumes global growth at around 3% annually until 2050, for which global emission reductions of up to 70% compared to 2010 are required to meet the 2.0°C target, altogether requiring a productivity of around US$9-18/kgCO2e by 2050. Global GHG productivity of between 4%-6% each year is required to meet a 2.0°C target and even more for a 1.5°C target.

Affect of carbon pricing on respective sectors

Given the ubiquitous nature of climate as such, the firm focused on cross jurisdiction efforts to achieve long-term climate goals by including the externality cost of carbon into the price of goods and services. The research therefore considers the wider horizontal value chain and how setting a global carbon price of $100/tCO2e, cited by the research as sufficient to incentives the required transformation, would affect consumer prices in a range of sectors.

The biggest impact, the research finds, would be on very low-value to carbon cost industries, where prices would see significant increases relative to the current level. Particularly the energy sector would see considerable increases in costs, reflecting the current reliance on legacy generation technologies – particularly coal and gas. Increased prices in these sectors would begin to affect consumer behaviour, from increased utilisation of public transport to electrification. Since the cost of carbon is subsequently collected – the firm notes that higher costs in certain categories and, particularly for, lower income groups, can be offset by redistributing collected incomes.

Other sectors, such as mobility and food, would see considerably more modest increases of around 6% and 3% respectively. The only category to see cost improvements from a price on carbon are services, whose carbon footprint is relatively small in any case.

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Project management industry adds £156 billion of value to UK economy

15 April 2019 Consultancy.uk

Project management has grown into one of UK’s largest areas of business over the past decade, amid the increasing ‘projectification’ of work. With the gross value added to the UK economy by project management estimated to be £156 billion, this trend is likely to continue in the coming era.

Despite the huge success of project management in recent years, until now there has been relatively little data available on the size of project activity. As a result, there has been a great deal of debate on things like the number of people involved in the sector, the number of projects, and how it contributes to economic output. Due to this need for clarity, APM, the UK’s professional body for project management (the largest organisation of its kind in Europe, with 28,000 individual members) commissioned economists from PwC to shed light on the industry's economic impact.

The research concluded that the profession makes a more significant contribution to the UK economy than the financial services sector. 2.13 million full-time equivalent workers (FTEs) were employed in the UK project management sector, generating £156.5 billion of annual gross value added (GVA). In comparison, the financial services sector contributes £115 billion, and the construction industry adds £113 billion.

Gross value added to UK economy

Commenting on the discovery, Debbie Dore, Chief Executive of APM said, “Project management runs as a ‘golden thread’ through businesses, helping to develop new services, driving strategic change and sector-wide reform.”

Who is a ‘project manager’?

To reach these estimates, PwC’s researchers used detailed models to map out the value of project management activity. They ultimately defined relevant ‘projects’ as “temporary, non-routine endeavours or rolling programmes of change designed to produce a distinct product, service or end result… [with] a defined beginning and end, a specific scope, a ring-fenced budget, [and] an identified and potentially dedicated team with a project manager in charge.”

Building on this, they then went on to define what the act of project management actually is. The job consists of applying “processes, methods, knowledge, skills and experience” so that clients can meet their objectives and bring about planned outputs or outcomes. The analysts added that this includes “initiating the project, planning, executing, controlling, quality assuring and closing the work of an identified and dedicated team according to a specified budget and timeframe.”

Importantly, it should be noted that the profession is not exclusive to only roles explicitly labelled as ‘project manager’, but to any role where specialist project management skills are used. This means that across sectors these roles can have very different titles, from the self-explanatory contract managers of procurement, or the campaign managers of advertising, to the likes of festival co-ordinators in the events sector, and many more. The roles in question also span all strategic levels of the profession, from strategic to tactical and operational positions.

Gross value added of project management profession

From a sector perspective, the financial and professional services, construction and healthcare industries make up almost two-thirds of the total project management GVA. At the same time, understandably, the UK Government has a huge project portfolio, which further drives the size of the GVA the sector contributes, thanks to megaprojects like HS2 and Crossrail.

Commenting on this to the report’s authors, Oliver Dowden, Minister for Implementation remarked, “Project delivery is at the heart of all Government activity, whether it’s building roads and rail, strengthening our armed forces, modernising IT or transforming the way government provides public services to citizens. Getting these projects right is essential if we are to ensure that we build a country that works for everyone.”

Throughout 2019, 26 major government projects were delivered, representing a fifth of the overall Government Major Projects Portfolio (GMPP) of 133 projects. According to the IPA annual report 2017-18, these represented a whole life cost of £423 billion. In addition to this were a plethora of smaller scale projects, and those in early development.

Elsewhere, with the increasing digitalisation of the economy impacting entities of all shapes and sizes, IT and digital transformations tended to dominate the projects of the UK scene alongside new product development projects, with a respective 55% and 46% of organisations in the research sample having undertaken these types of project in the past year. At the same time, this varied across sectors, and unsurprisingly, in the construction and local government sectors, fixed capital projects were the main project type undertaken.

Outlook

Looking to the future, 40% of business leaders expect project management will grow in the coming years due to the increased use of projects – or the ‘projectification’ of the UK. In a trend that has been witnessed elsewhere, organisations have to rapidly and continuously change in the digital age of business, driving the need for project management.

Outlook for project management services

An increased focus on value over cost – especially in the construction sector – and a forecast increase in the number of international projects are predicted to be key drivers of growth, according to the expert contributors. However, this will not happen in the absence of challenges; more than half of organisations expressed concern over the perceived impact of political uncertainty in the UK. Skills and capability shortages were also cited as a potential barrier by a third of organisations.

With regard to budgets, meanwhile, a third of those surveyed by PwC said they expect the size of project budgets will increase in the coming three years, while 40% anticipate a growth in project size. As the profession continues to mature, and as the recognition of the importance of good project management grows, it is expected that a greater proportion of project work will gain more distinct attribution to the profession itself, giving more recognition and appreciation to the role of the project manager.

Speaking on the findings of the study, Sandie Grimshaw, a Partner at PwC, concluded, “The project management profession is relatively new compared to some other professions, such as lawyers, teachers and doctors. However, as project management is a core competence vital to organisations in the UK, the profession is critical and will continue to grow in stature.”