A climate tipping point we want
Like most worthwhile activities, reducing carbon pollution has costs. Otherwise, climate change wouldn’t 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 diminished, the debate is shifting to the political and social challenges of moving away from fossil fuels and towards a low-carbon, high-efficiency world.
In terms of economic costs, climate action is becoming increasingly affordable in all areas. The costs of solar photovoltaic (PV) panels have fallen by over 85% in less than a decade, and by well over 99% since the first panels found their way onto people’s rooftops in the early 1980s. As a result, global solar PV production has grown rapidly, with projections pointing to a further quadrupling by the end of this decade. Solar energy is the fastest growing source of electricity generation; and wind power is not far behind.
But there is still a long way to go. Worldwide, coal remains the king for total electricity production, as does oil for total energy use (which includes driving, flights and transportation). That is, in a nutshell, the climate challenge: Renewable energy costs are reaching new lows, but older, dirtier forms of energy are still in use and in demand everywhere. The end result is clear, as 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.
Clearly, it is not enough to just look at the costs of reducing carbon pollution; they must be weighed against the costs of absolute climate change. In addition, none of the costs are, or ever will be, evenly distributed. Coal miners and manufacturers of internal combustion engines will necessarily bear more of the costs of climate action, while poor and vulnerable communities will bear the brunt of climate inaction. Overall, however, there is no comparison: the costs of inaction far outweigh the costs of reducing carbon dioxide emissions.
To understand why, it helps to think in terms of the “social cost of carbon”, which captures the lifetime cost of each tonne of CO2 emitted today for the economy, environment and society. Calculating this number is not straightforward, 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 CO2 and a conversion of that estimate to current dollars using a discount rate.
Very conservative estimates of the current social cost of carbon put it at around $ 50 (1,570 baht) per tonne. I say “very conservative” because that figure comes from a US government interagency task force using methods that were largely devised over a decade ago. Climate economics have grown significantly since then, so recalculating the number would almost certainly produce a price well over $ 100 per tonne. This implies that for a country like Hungary – which emits around 50 million tonnes of CO2 per year – the damage caused by keeping emissions at their current level amounts to well over $ 5 billion per year, or about one sixth of the budget in 2019..
While there are great uncertainties about estimates of the social cost of carbon, the real costs are almost certainly higher than current estimates, implying that we need even more ambitious climate policies. At the same time, uncertainties about the cost of reducing carbon pollution point in the opposite direction. Energy modelers constantly overestimate the costs of renewable energies like solar PV, and thus underestimate their deployment rate.
The reason is that there is a crucial distinction between fossil fuels and renewables. While oil, coal and gas are commodities whose market prices fluctuate, solar, wind and batteries are technologies whose prices can only drop over time. Yes, solar panels and batteries, in particular, rely on scarce metal inputs that carry their own political risks; but these shortages will only become more manageable with technological advances.
Public policies will play a central role in this dynamic, as they affect both the demand for and supply of low and zero carbon technologies, offering both carrots and sticks, nationally and internationally. Those who act early could reap huge rewards. For good reasons, the green transition is seen not only as a matter of energy but of geopolitics. We are in the process of moving from petrostats to “electrostats”.
That is why China has enthusiastically supported the rapid expansion of its renewable energy industries, especially the manufacture of photovoltaic solar panels, batteries and wind turbines. While this state sponsorship has its own costs, China’s industrial policies have undeniably enabled it to globally dominate some of the key technologies of the future. The country now produces more than 70% of all solar photovoltaic panels, around 70% of lithium-ion batteries and almost half of all wind turbines.
The European Union, on the other hand, has focused more on demand-side measures, both by setting prices and regulating CO2 and other greenhouse gases, and by subsidizing use. low carbon alternatives. These two approaches are linked, with subsidies often leading to more ambitious pricing policies later on.
The green transition has costs; but they are well worth it, and they pale in comparison to the costs of inaction. The steadily declining costs of renewables have not eliminated the policy of climate change. But they certainly made our choices a lot easier.© 2021 Project union