Like most worthwhile pursuits, reducing carbon pollution comes with costs. If it did not, climate change would not be a problem in the first place — at least not from a narrow economic perspective — but climate change, and what it demands of us, is also a deeply political issue. Now that the direct economic costs of climate action have declined, the debate is shifting to the political and social difficulties of moving away from fossil fuels and toward a low-carbon, high-efficiency world.
On the matter of economic costs, climate action is becoming more affordable across the board. The costs of solar photovoltaic (PV) panels have plummeted by more than 85 percent in less than a decade, and by more than 99 percent since the first panels found their way onto people’s roofs in the early 1980s.
As a result, solar PV generation has increased rapidly, with projections pointing to a further quadrupling by the end of the decade. Solar is the fastest-growing source of electricity generation, and wind generation is not far behind.
Illustration: Constance Chou
There is still a long way to go. Worldwide, coal remains king for total electricity generation, as does oil for total energy use (which includes driving, flying and shipping). This, in a nutshell, is the climate challenge: The costs of renewables are reaching new lows, but older, dirtier forms of energy are still in use, and in demand, everywhere.
The eventual outcome is clear, and so are the trends: The green transition will happen. The only question is whether it will proceed quickly enough to contain the risks of climate inaction.
It is clear that looking only at the costs of reducing carbon pollution is not enough; they must be compared to the costs of unmitigated climate change. Moreover, neither cost is, nor ever would be, distributed equally.
Coal miners and manufacturers of internal combustion engines would necessarily bear more of the costs of climate action, whereas poor and vulnerable communities would bear the brunt of climate inaction. Overall, there is no comparison: The costs of inaction far outweigh the costs of cutting carbon emissions.
To see why, it helps to think in terms of the “social cost of carbon,” which captures the lifetime cost of each tonne of carbon dioxide emitted today to the economy, the environment and society. Calculating this figure is not simple, which is why it has been described as the “holy grail” of climate economics — the one number that captures the big picture.
Two key factors in the calculation are an estimate of the actual climate damage caused by each tonne of carbon dioxide, and a conversion of this estimate into dollars using a discount rate.
Highly conservative estimates of the social cost of carbon put it at about US$50 per tonne. I say “highly conservative” because this figure comes from a US government interagency working group using methods that were largely devised more than a decade ago. Climate economics have advanced considerably since then, such that recalculating the number would almost certainly produce a price of more than US$100 per tonne.
This implies that for a country like Hungary — which emits about 50 million tonnes of carbon per year — the damage caused by keeping emissions at their current level amounts to more than US$5 billion per year, about one-sixth of the budget in 2019.
Although there are large uncertainties about estimates of the social cost of carbon, the true costs are all but certainly higher than current estimates, implying that we need even more ambitious climate policies. At the same time, the uncertainties about the cost of cutting carbon pollution point in the opposite direction. Energy modelers perennially overestimate the costs of renewables like solar PV, and thus underestimate their rate of deployment.
The reason is that there is a crucial distinction between fossil fuels and renewables. While oil, coal and gas are commodities with fluctuating market prices, solar, wind and batteries are technologies whose prices can only decrease over time. Yes, solar panels and batteries, in particular, rely on scarce metal inputs that carry political risks of their own, but these scarcities would only become more manageable as a result of technological improvements.
Public policy would play a central role in these dynamics, because it affects both the demand and supply sides of low and zero-carbon technologies, offering both carrots and sticks, domestically and internationally. Those who act early could reap massive rewards. For good reason, the green transition is viewed as a matter not just of energy, but of geopolitics. We are undergoing a historic shift from petrostates to “electrostates.”
That is why China has eagerly supported the rapid expansion of its renewables industries, particularly the manufacture of solar PV panels, batteries and wind turbines. Although this state sponsorship comes with costs of its own, China’s industrial policies have undeniably enabled it to achieve global dominance over some of the key technologies of the future. The country produces more than 70 percent of all solar PV panels, about 70 percent of lithium-ion batteries, and almost half of all wind turbines.
The EU has been more focused on demand-side measures, both by pricing and regulating carbon and other greenhouse gases, and by subsidizing the deployment of low-carbon alternatives. These two approaches are intimately linked, with subsidies often leading to more ambitious pricing policies down the road.
The green transition comes with costs, but they are well worth it, and they pale in comparison to the costs of inaction. The ever-falling costs of renewables have not eliminated the politics of climate change, but they certainly have made our choices much easier.
Gernot Wagner is an associate professor at New York University, coauthor of Climate Shock, and author of But Will the Planet Notice?
Copyright: Project Syndicate
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