Important caveats and limitations of the costs analysis
There are a number of important caveats to bear in mind when interpreting results from the 2050 Costs Calculator:-
- Not impact on energy bills. Results from the 2050 Costs Calculator are presented as £/person/year, but this should not be interpreted as the effect on energy bills. The impact on energy bills of, say, building more wind turbines will depend on how policy is designed and implemented (e.g. via tax, subsidy, regulation, etc). Taxes and subsidies are not captured in the 2050 Costs Calculator so we cannot use the tool to examine these effects. The Government uses other, more sophisticated models to examine the effect of specific policy interventions on electricity and energy prices.
- Pathway costs should be understood relative to other pathways. The total cost of pathways is presented in the 2050 Costs Calculator but for these to be meaningful they should be compared to the costs of another pathway. This is because there is no “zero cost” option (unless the UK were to stop using energy altogether).
The costs exclude important benefits associated with the move to a low carbon economy. Specifically:
- avoided damage costs associated with climate change. The Stern Review (2006) calculated these at up to 20% of global GDP annually
- energy security benefits
- wider resource efficiency savings. 
The costs exclude important costs associated with the move to a low carbon economy. Specifically:
- welfare costs such as inconvenience of living in buildings with less comfortable temperatures and potential inconvenience of travelling less
- wider macroeconomic costs
- R&D costs
- the cost of most existing infrastructure (e.g. the capital and finance costs associated with existing power stations)
- the policy costs associated with regulating and enforcing future policy
- opportunity cost (e.g. the opportunity cost of investing in low carbon technologies rather than, say, better schools or hospitals, is not captured)
- public safety risks (perceived or actual) associated with incumbent technologies e.g. oil extraction, nuclear, CCS
- costs associated with embedded emissions. The 2050 Calculator does not include embedded emissions because it is designed to reflect the UK's 2050 target and embedded emissions are not included in this. 
- Long term, not short term analysis. The Calculator is best suited to long term analysis of the energy system in 2050 rather than policy implications over the 2010s and 2020s.
- User driven model, not market based. The 2050 Costs Calculator costs the combination of technologies chosen by the user . Consequently it does not take into account price interactions between supply and demand. For example, if the cost of, say, electricity generation increases then the Calculator does not capture any elasticity of demand response from the electricity user. Cost optimising models better handle such price responses.
- Costs are exogenous. Technology costs do not vary depending on the level of technology roll out. However if the user has beliefs about how they would expect the unit costs of particular technologies to change in their pathway, they can sensitivity test the effect of varying these assumptions.
- International aviation and shipping emissions are not currently included in the UK’s 2050 target because of the lack of an internationally agreed methodology for assigning these international emissions to individual countries. They have been included in the Calculator to enable the user to consider emissions across all sectors. The Government will take a decision on whether international aviation and shipping emissions should be included in the 2050 target next year (2012).
The 2050 Calculator should be used to answer questions such as:
- What are the capital, operating and fuel costs of pathway X relative to pathway Y?
- What are the biggest component costs of pathway X?
- How might the capital, operating and fuel costs of pathway X change when, say, renewables costs are as cheap as credible experts believe possible, and nuclear costs are expensive?
But it should not be used to answer questions such as:
- What is the effect on energy demand of, say, switching to more expensive forms of electricity generation? (Because the 2050 Calculator does not have a price feedback.)
- What is the impact of policy X on energy bills? (Because the 2050 Calculator cannot say what the impact on an electricity or heating bill will be - this is mostly because we would need to make an assumption about the policy used to implement this change.)
- What is the expected cost of policy X over the next 10-20 years? (The Calculator is best suited to 2050 analysis, not short/medium term analysis.)
- What are the wider macroeconomic costs or welfare costs of policy X? (These impacts are excluded from the Calculator.)
- What’s the optimal, least cost means of meeting the 80% target? (The Calculator cannot automatically work this out but the user can work out least cost pathways for themselves.)
Caveats to the air quality analysis:
to be completed
- Stern et al point out the wider benefits not captured by economic models such as MARKAL and the 2050 Calculator. See: Stern et al (2011) The Basic Economics of Low-Carbon Growth in the UK, policy brief, Grantham Research Institute on Climate Change and the Environment and the Centre for Climate Change Economics and Policy. http://www2.lse.ac.uk/GranthamInstitute/publications/Policy/docs/PB_economics-low-carbon-growth_Jun11.pdf.
- Note: international aviation and shipping are not included in the UK's 2050 target but they are included in the 2050 Calculator until the Government makes its final decision on whether or not to include them in the 2050 target.