Apr 24th 2018

The Low Costs of a Zero-Carbon Economy

by Adair Turner

 

Adair Turner, Chairman of the Institute for New Economic Thinking and former Chairman of the UK Financial Services Authority, is Chair of the Energy Transitions Commission. 

 

LONDON – When you buy your next automobile, would you pay $100 extra to ensure that the steel in it was made without producing carbon dioxide emissions?

My guess is that most readers will say yes. Most people in most countries, including the United States, accept the overwhelming scientific evidence that human-induced greenhouse-gas emissions are causing potentially harmful climate change. Most people with decent incomes are willing to pay some price to achieve the zero-carbon economy needed to reduce the risks posed by climate change. And there is growing evidence that the total costs of that transition will be far less than the 1-2% of GDP suggested by Nicholas Stern in his seminal 2006 report The Economics of Climate Change. But, despite low costs, change will not happen fast enough without forceful new policies.

Renewable electricity costs have fallen faster than all but the most extreme optimists believed possible only a few years ago. In favorable sunny locations, such as northern Chile, electricity auctions are being won by solar power at prices that have plummeted 90% in ten years. Even in less sunny Germany, reductions of 80% have been achieved. Wind costs have fallen some 70%, and battery costs around 80%, since 2010.

As the Energy Transition Commission set out in its April 2017 report Better Energy-Greater Prosperity, power systems that are 85-90% dependent on intermittent renewables will be able by the 2030s to produce power at an all-in cost – including storage and any flexible back-up required – below that of fossil fuels. For power supply, Stern’s estimate that the cost of going green will be very small has proved too pessimistic – the cost will actually be negative.

These dramatic cost reductions did not happen in a vacuum. They are the result of deliberate and initially expensive public policy. Public expenditures over several decades supported basic research into photovoltaic technology, and large subsidies for initial deployment, particularly in Germany, enabled the solar industry to reach sufficient size for learning-curve and economy-of-scale effects to kick in.

Contrary to simplistic economic models, the pace of innovation and cost reduction is not an exogenous given; it is strongly determined by governments’ long-term objectives. On the cost curves economists use to rank carbon-reduction technologies, solar PV was, a mere ten years ago, one of the most expensive options. On the latest cost curves, however, it shows up as one of the cheapest. Strong policy support drove it there.

At the higher end of most published cost curves, we now find actions to decarbonize economic sectors where electrification seems impossible, difficult, or expensive. Emissions from the chemical reaction of cement production would remain even if the heat input were electrified: and installing carbon capture and storage (CCS) will add significant additional cost. Battery-powered flight may be possible over short distances, but for many decades – and perhaps forever – international aviation will require the energy density of a liquid hydrocarbon, and delivering that density with biofuels or by synthesizing hydrogen and air-captured CO2 will probably always be more expensive than deriving it from oil.

Likewise, steel production can be decarbonized by applying CCS or using hydrogen produced by electrolysis as the reduction agent, rather than coking coal. But unless low-carbon electricity costs fall much further, the hydrogen route will remain more expensive than today’s technology. And, by definition, adding CCS at the back of the process adds cost.

But not that much more cost. Estimates suggest that with already achievable renewable electricity costs, steel produced via hydrogen-based direct reduction might cost an additional $100 per ton – in turn adding $100 to the cost of a one-ton car. And these costs could fall significantly if, as is likely, hydrogen emerges as a major route to decarbonization across many sectors – including aviation (via synfuels), shipping (by using ammonia derived from green hydrogen instead of heavy fuel oil), and long-distance trucking (where hydrogen fuel cells may play a significant role).

Large-scale development of a hydrogen economy could drive the cost of electrolyzers onto a downward path similar to that observed with solar panels and batteries. And the cost of CCS could also fall significantly if government policies supported large-scale deployment.

The challenge is to replicate the stunning success we have seen in renewable power and batteries in the “harder to abate” sectors such as trucking, shipping and aviation, steel, cement, and chemicals. That will require a mix of carbon pricing, regulation, and government support for research and initial deployment.

Some of the policies require international coordination, but some could be pursued by countries acting alone. A requirement that all cars sold in either Europe or China had to meet a certified “green steel” standard, with the share of steel sourced from zero-carbon production increasing gradually toward 100% over the next few decades, would provide a strong stimulus toward steel decarbonization. If several major countries could agree on such a standard, or on the imposition of a significant carbon price, progress would occur even faster.

The technologies to decarbonize even the harder-to-abate sectors are now available, and the estimated costs are not daunting. If strong policies were introduced, the technological innovations and learning-curve effects unleashed would probably, as with renewable energy, prove the initial cost estimates to be pessimistic. If you are willing to pay $100 extra for your green car today, within a few decades the cost will probably be lower, but only if public policy forces the pace.


Adair Turner is the Chair of the Energy Transitions Commission.

Copyright: Project Syndicate, 2018.
www.project-syndicate.org

 


This article is brought to you by Project Syndicate that is a not for profit organization.

Project Syndicate brings original, engaging, and thought-provoking commentaries by esteemed leaders and thinkers from around the world to readers everywhere. By offering incisive perspectives on our changing world from those who are shaping its economics, politics, science, and culture, Project Syndicate has created an unrivalled venue for informed public debate. Please see: www.project-syndicate.org.

Should you want to support Project Syndicate you can do it by using the PayPal icon below. Your donation is paid to Project Syndicate in full after PayPal has deducted its transaction fee. Facts & Arts neither receives information about your donation nor a commission.

 

 

Browse articles by author

More Current Affairs

Mar 19th 2019
Last week, a far-right extremist killed at least 50 people – including a three-year-old child – worshiping at two mosques in the New Zealand city of Christchurch. Neither white supremacy, nor racially motivated terrorist attacks carried out in its name, are new phenomena. Yet the response to far-right terrorism remains thoroughly insufficient.
Mar 12th 2019
Allegations of Russian meddling in the affairs of Western countries have been a persistent feature of Western politics since the Cold War. Claims of Russian interference in the 2016 US presidential election are only the most recent in a long series of suspected conspiracies across the past century or so. But Russian political discourse is also riddled with conspiracy theories. Everything bad that happens in Russia is traced back by some to one or another anti-Russian plot hatched in the West.
Mar 10th 2019
My Soviet school built a mesh fence around its yard. Every week, tardy kids who wanted to cut through the yard tore a hole in the fence. Every weekend, the administration fixed it. But the hole would reappear the morning after. This went on forever. I wish US President Donald Trump, the fence builder of the West, had gone to my school. The Soviet Union was a country of fences, barriers, and walls. Everything was prohibited, locked, and guarded. Warning signs were phrased in no uncertain terms: “Do Not Enter: Death!” “Strangers Are Forbidden.” “The Border Is Closed.” Barriers didn’t stop people from ignoring the warnings. But they complicated things.
Mar 8th 2019

 

WASHINGTON, DC – It seems that every time I write about Donald Trump’s presidency, I pronounce it to be in more trouble than ever. This time is no different: he and his presidency are indeed in more trouble than ever. And yet that may not prevent him from winning again in 2020.

Mar 7th 2019
The Brexit process has exacerbated many of the disunities within the UK’s territorial constitution................polling in England suggests that many people think breaking up the UK is perhaps a price worth paying to deliver Brexit.......... At the referendum, only two of the four component parts of the UK – England and Wales – voted to leave the EU. This was enough to swing an overall UK-wide majority in favour of leave, but it went against the will of the Scottish and Northern Irish electorate. In both these parts of the country, significant majorities voted to remain – 62% and 55.8%, respectively.
Mar 6th 2019
Watching Michael D. Cohen, US President Donald Trump’s former lawyer and self-described “fixer,” testify to the House Committee on Oversight and Reform was a remarkable spectacle to behold. Here was a man who was hired by Trump to behave like a gangster. And he did that to perfection. When The Daily Beast was about to report on allegations by Trump’s first wife, Ivana, that her husband had raped her, Cohen barked at the journalist working on the story: “So I’m warning you, tread very fucking lightly, because what I’m going to do to you is going to be fucking disgusting. You understand me?” That journalist was hardly alone. Cohen’s job was to threaten anyone who got in the way of his old boss. He lied to congressional committees, paid off prostitutes to stop them from talking about their affairs with Trump, and much else. Cohen, who will soon begin serving a three-year prison sentence, has become what Mafiosi (and Trump) call a “rat.”
Feb 27th 2019
Extracts: "Some political catastrophes come without warning. Others are long foretold, but governments still walk open-eyed into disaster. As the possibility of a no-deal Brexit looms, most analysts agree that there will be severe economic and political consequences for the UK and the EU. And yet a no-deal Brexit still remains an option on the table....." ".......Although the consequences of a no-deal Brexit will be much less terrible, there are similarities in certain patterns of thinking and political behaviour, from the few who embrace disaster to the systemic pressures which prevent compromise. Avoiding disaster in 1914 would have required framing the stakes of the July crisis in less zero-sum ways and refusing to rationalise a general European war as an acceptable policy option. It required leaders with enough courage to compromise, even to accept defeat, and for states to offer rivals the prospect of long-term security and future gains in exchange for accepting short-term setbacks."
Feb 25th 2019
US President Donald Trump’s administration has underestimated China’s resilience and strategic resolve. With the Chinese economy slowing, the US believes that China is hurting and desperate for an end to the trade war. But with ample policy space to address the current slowdown, China’s leadership has no need to abandon its longer-term strategy. While a cosmetic deal focused on bilateral trade appears to be in the offing, the sharp contrast between the two economies’ fundamental underpinnings points to a very different verdict regarding who has the upper hand.
Feb 21st 2019
Extracts: "......after three years of referendum-induced turmoil, there is finally a new move, a brave move, by the eight Labour MPs and three Conservative MPs (and counting)......There are no policy announcements, no real statement of principles, and there is no leader or political platform. And yet, this policy-free political movement is of incredible political importance........this is an act of direct action, based on the concept of prefiguration. That is, the actual policy statement at the heart of the formation of this movement is the formation of the movement itself. There is no need for grand policy statements right now."
Feb 21st 2019
There is a fascinating chapter toward the end of Alexis de Toqueville’s Democracy in America titled “What Kind of Despotism Do Democratic Nations Have to Fear?” in which the author attempted something truly extraordinary – to describe a social condition which humankind had never before encountered. We find him trying to put his finger on something which does not yet exist, but which – in his extraordinary political imagination – he was able to foresee with startling clarity.
Feb 20th 2019
From Trump’s very inauguration day speech, written for him by the fascist gadfly Steve Bannon and man still without a prom date Stephen Miller, it was apparent that the 45th president was a constitutional crisis waiting to happen. And now, without our realizing it for the most part, the constitutional crisis is here.
Feb 11th 2019
The first step to defending Europe from its enemies, both internal and external, is to recognize the magnitude of the threat they present. The second is to awaken the sleeping pro-European majority and mobilize it to defend the values on which the EU was founded. Otherwise, the dream of a united Europe could become the nightmare of the twenty-first century.
Feb 7th 2019
Watching a sophisticated democratic society knowingly walk into a predictable and avoidable national disaster is a rare and alarming experience. Most British politicians are well aware that leaving the European Union with no agreement on the post-Brexit relationship will cause enormous damage to their country. They are not sleepwalking into the abyss; their eyes are wide open. A minority of deluded ideologues doesn’t mind the prospect of Britain crashing out of the EU with no deal. A few chauvinist dreamers on the right, egged on by sections of the press, believe that the bulldog spirit of Dunkirk will overcome early setbacks and Great Britain will soon rule the waves again as a great quasi-imperial power, albeit without an empire. Neo-Trotskyists on the left, including Jeremy Corbyn, the leader of the main opposition Labour Party, seem to think that catastrophe will spur the British people to demand true socialism at last.
Feb 4th 2019
We’re off to the races - the 2020 presidential races, that is. Since the beginning of the year, at regular intervals, new candidates have been coming forward to announce their intention to compete for the presidency. Some are interesting and/or exciting, while others frankly leave me scratching my head and asking “What are they doing? How on earth do they think they’re going to be elected?”      
Jan 29th 2019
Extract: "As it happens, on that Friday night when Trump buckled, I was at a restaurant where Pelosi and her husband, Paul, were dining with another couple. When the House Speaker left her table, customers and staff alike applauded her. A waitress standing beside me was nearly in tears. She choked out, “We need someone who will fight for us.” "
Jan 28th 2019
Recognizing that opinion in Parliament is moving strongly against leaving the EU on the terms proposed by May, with a growing number of members even in favor of a second referendum to test whether we should leave at all, some right-wingers have flirted with the idea of trying to close down the House of Commons for a time. They want the government to be able to get its own way without any democratic opposition. It is a sign of their desperation to get Britain out of the EU whatever the constitutional or economic cost. Is May prepared to get to grips with this? If she runs away from the task, despite growing Parliamentary unease about the path we are on, Britain is in big trouble.
Jan 25th 2019
At the end of last year, Russian President Vladimir Putin announced that Russia had completed final testing of an “invincible” new hypersonic nuclear-capable missile, the “Avangard,” calling it “the best New Year gift” for his country. With Putin seeming to up the ante on his increasingly frequent doomsday rhetoric, should the world be bracing itself for a nuclear conflict?................In recent months, popular support for Putin in Russia has declined sharply, with his approval rating falling from over 76% to 66% in the second half of last year. At the same time, a kind of neo-medieval thinking, focused on the restoration of autocratic monarchy and the supremacy of the Orthodox Church, has been gaining prominence in Russia. Putin’s fire-and-brimstone rhetoric may actually reflect the mindset of these fundamentalists, who view nukes as a “practical solution” to the world’s problems.
Jan 24th 2019
Over the past three decades I wrote more than two hundred articles about Israel, envisioning it to be a democratic state, independent and free, a champion of human rights, a force of unity for world Jewry, united in its citizenry, admired by its friends, envied by its detractors, and above all at peace with the Arab states and especially with the Palestinians. My vision about Israel was founded on my deep sense of the Jews’ turbulent and tragic history and their yearning for a home of their own in which to live in peace and security. As the years went by, I became increasingly disillusioned with Israel’s endemic political disunity, its inability to resolve the conflict with the Palestinians, the growing public complacency, the loss of the country’s unity of purpose, and the abandonment of its moral responsibility.
Jan 22nd 2019
China’s strategy for economic growth has been a work in progress since Deng Xiaoping launched the country’s “reform and opening up” in 1978. While the last 40 years of reform have been far from error-free, the government has displayed a willingness to adapt, as well as a capacity for navigating complex transitions, supported by a healthy internal policy debate. But how is China’s development model likely to evolve in the future, as external conditions pose new challenges to economic growth? A defining feature of China’s four decades of reform has been the state’s evolving role in the economy, about which there is still significant domestic disagreement. Some argue that the state – and, by extension, the Communist Party of China (CPC) – must retain a prominent role, in order to uphold the social stability needed to sustain economic development. Others claim that spurring the innovation needed to reach high-income status requires the state to be less like a market participant and more like a referee, regulator, and arbiter of economic and social priorities.
Jan 16th 2019
Consumer studies academics have been picking up on changing habits for a number of years. This includes an increased ambivalence towards consumption itself: people are buying less often and less overall. This is particularly true in the clothing industry, where research shows that millenials are especially unforthcoming – even after you factor in the shift to online retail. A lack of bricks and mortar did not, for instance, prevent online fashion retailer Asos from shocking the City with a profit warning shortly before Christmas. The American car industry is another harbinger of generational change: sales are stalling because younger people seem less interested in ownership. The average age of a new car buyer in the US was 50 in 2015. Or to give one more example, witness Apple’s recent trading problems. People are not only opting for cheaper smartphones, but they are keeping them for longer. If the world’s first company to pass the trillion dollar value mark is showing signs of struggling, we ought to take note.