Even more guesswork is involved in estimating the costs that the countries of the world will bear to attain decarbonization by 2050. The International Energy Agency in 2021 projected that, to achieve a “clean energy pathway,” international public finance would have to provide about $40 trillion by 2030, and about $4 trillion per year from 2031 to 2050.
The political class obsession in the wealthy countries to lower emissions with subsidizing expensive and utterly unreliable breezes and sunshine to generate electricity, and divesting in fossil fuels, have already put the cost of electrical power and fuel out of the reach of the poorest in the developed first world countries. The richer countries that have gone “green” now have higher prices for gasoline per gallon and import crude oil to meet the demands of their country.
Perhaps the most widely-cited source of data on global climate finance is the Climate Policy Initiative. In its December 2021 report, it found that total climate “investment” has steadily increased over the past decade from $364 billion in 2011/12 to $632 billion in 2019/20. It lamented that this level of expenditure, while rising, would not be sufficient to achieve the “net-zero” goal globally by 2050, and that expenditures of $4.5 trillion to $5 trillion annually would be required.
While these numbers seem extraordinary, they pale in comparison of what some experts project as the cost of bulk energy storage in batteries to completely electrify the economies of the world. Ken Gregory, a retired Canadian electrical engineer, recently assessed the capital costs that would be required to electrify the USA’s economy by replacing all or part of fossil fuel use with wind and solar energy. His study found that the battery costs for replacing all current fossil fuel fired electricity with wind and solar generated electricity, using 2020 electricity data, would be US$433 trillion, or 20 times the US 2019 gross domestic product. It would cost every adult (18 years and over) a total of US$1.7 million! If one assumed instead that electrification of the USA’s economy is achieved using 50% fossil fuels and 50% solar and wind energy, then the net zero plan would cost the USA economy “only” US$24 trillion in capital costs, or an extra US$0.64 trillion per year in energy costs. That, however, would be far from decarbonization.
There are no estimates of the costs of decarbonizing the electricity generation systems of all countries. The electricity sector only accounts for about 20% of global energy production today, so the cost of completely decarbonizing the entire global economy would be at least five times higher. In other words, the cost would be almost unimaginably high.
To these costs must be added the costs of the hydrocarbon reserves that have been economically proven, but which for climate policy reasons would be shut in. One cannot estimate these costs without knowing whether, and by which schedule, production from these reserves would end. We can get a sense of the magnitude from current statistics about the size of the world’s hydrocarbon reserves at the end of 2020. According to the British Petroleum Statistical Review of World Energy 2021, there were proven oil reserves of 1.7 trillion barrels, natural gas reserves of 6,642 trillion cubic feet, and coal reserves of 1,074 billion tonnes. The gross value of these “stranded assets” would depend on the date they were shut in, but ballpark figures are $170 trillion for oil, $40 trillion for natural gas, and $332 trillion for coal.
As noted in Part 1 of what decarbonization would entail, one would have to almost completely replace the current infrastructure and equipment that support current patterns of energy consumption. In many cases, private companies would not be prepared to incur the associated costs and risks, so governments would either have to mandate them to do so or nationalize them. Similarly, many people would not readily accept the severe limitations on their freedom of choice as to what they purchased, how they moved and in which buildings they lived. Governments, through central planning and tight regulation of people’s lives, might be able to accomplish such a transition. We have no satisfactory way to place a dollar value on the loss of liberties involved. We also have no way to place a value on the lives that would be lost through starvation or loss of modern medical services.
The major unintended consequence of divesting in crude oil that was responsible for the world populating from 1 to 8 billion in less than 200 years is that efforts to cease the use of crude oil could be the greatest threat to civilization, not climate change.
Cost per Tonne of Carbon Dioxide Emission Avoided
While estimating the total cost of all the measures taken and proposed to achieve decarbonization remains an elusive task, we can get other insights from asking what is the dollar value of a single tonne of emissions avoided.
The Intergovernmental Panel on Climate Change (IPCC) has offered some estimates of the value of emissions avoided in 2030. In the SR15 report, published in 2018, the IPCC sought to assess the costs of emissions reductions so as to not exceed the target of 1.5-degree C rise in average global temperatures by 2100. According to its methodology, the cost could range from US $135 per tonne to $5,500 per tonne, with a median value of US $880 per tonne. Interestingly, the IPCC estimated the value of the benefit of emissions reduction to be only $15 per tonne.
The “social cost of carbon (SCC)” can serve as a practical standard when judging whether a new emission reduction measure makes sense or not. The social cost of carbon is the product of a benefit-cost analysis in which the social cost of emissions reduction is subtracted from the social benefits. Scientists estimate the social cost of carbon using models that represent our society, the world’s climate and the ways they interact. This is a marriage of physics and economics.
If the social cost of carbon is high, then the benefits of cutting CO2 are large, and costly climate actions will be justified. If the SCC is low, regulations might be more trouble than they’re worth. Estimates of the social cost of carbon vary because of different assumptions about future emissions, how climate will respond, the impacts this will cause and the way we value future damages.
The United States Environmental Protection Agency in 2015 estimated the social cost of carbon in 2030 to be $16 per tonne using a 5 percent discount rate and $50 per tonne using a 3 percent discount rate.
The calculation is done using an Integrated Assessment Model. There are two types of models often used. The IPCC used the DICE model, according to which the social cost of carbon in 2030 would be US $15 per tonne. To state that differently, a measure would serve the public interest if its cost were less than $15 per tonne, but should not be undertaken if the cost were more than $15 per tonne. In fact, the costs of many current climate measures exceed $1,000 per tonne, 67 times the maximum that would justify them.
It gets worse. The FUND model is increasingly being used instead of DICE because it takes into account the environmental and economic benefits of increased carbon dioxide fertilization of the biosphere. Using the same assumptions as the IPCC, those using the FUND model calculate the social cost of carbon to be only $3.31 per tonne. Further, If one uses the most recent empirical measures of CO2 fertilization effects, the FUND model produces a social cost of carbon in 2030 ranging from $1.67 per tonne to minus $0.19 per tonne. A negative social cost of carbon would indicate that the world is better off with increased, not decreased, CO2 emissions.
It would help to establish the terms of the policy debate over the feasibility and desirability of decarbonization if we could determine precise single numbers to illustrate the costs that have been incurred to reduce emissions up to now and those that may be incurred to reduce emissions in future. Unfortunately, we simply do not have the data to support such an analysis.
What we do have, however, is a good understanding of the market and infrastructure transitions that would be required and the limitations of current technologies to achieve those transitions. Based on that alone, we know that the costs would be immense. It would take another paper to explain why those costs are probably larger, by several orders of magnitude, than the benefits to humans from the emissions reductions. The most interesting question, perhaps, is how long it will take before this disparity between costs and benefits becomes evident to the general public and to western politicians.
Crude oil is useless unless it can be manufactured into something usable like the fuels for the heavy-weight and long-range transportation infrastructures of ships and jets and the derivatives that make the thousands of products that have made our lives more comfortable. But wind and solar cannot manufacture anything for society. Before we jump out of an airplane without a tested parachute (the junior authors hobby), we need to be able to support the demands of all the infrastructures that exist today that did not exist a few hundred years ago.
We predict that time period will be less than a decade as the general public around the world is beginning to suffer from the insane activities already being undertaken to prevent what they see as the end of the world but that we see is victory for Communism over all of civilization. It is sad to realize all poverty could have easily been eliminated and electricity brought to every man, woman and child on earth, had the billions already spent on the stupid concept of decarbonization been spent for the benefit of humankind.
Note: Robert Lyman is an economist who spent 38 years working with the. Canadian government.
Note: Ron Stein contributed to this article.