How Energizing Renewables can Spur Carbon Pricing

Photoy Jürgen from Sandesneben, GermanyTo avoid the worst effects of climate change, we must do more to reduce our greenhouse gas emissions. Yet, we still do not have a price on carbon, one of the most prevalent greenhouse gases in the world and the biggest contributor to climate change. Despite knowing that a carbon price creates broad incentives to cut emissions, the current average price of carbon globally (which is below zero, once half a trillion dollars of fossil-fuel subsidies are factored in) is much too low relative to the hidden environmental, health, and societal costs of burning a ton of coal or a barrel of oil.

Policies that comprehensively reform the energy sector—a sector designed around fossil fuels—are necessary even as the price of renewable energy declines. The cost of solar photovoltaics, for example, has declined 80 percent since 2008. Prices will continue to fall, but not fast enough to make a dent in the climate problem.

Policymakers are more likely to price carbon appropriately if renewables are competitive with (or cheaper than) fossil fuels. But reducing the cost of renewable energy requires substantial investment, and thus a carbon price. The best hope of resolution is through controlled policy experiments designed to drive down the cost of renewable power sources even further and faster than in the past five years.

In a Nature commentary published today, Push renewables to spur carbon pricing, several of my colleagues and leading climate and energy experts outline a plan for deepening solar and wind penetration levels and achieving the ‘holy grail’ of climate policy: an effective carbon price.

The group calls for policymakers to:

  • End fossil-fuel subsidies by breaking-up non-competitive arrangements around electric grid access;
  • Modernize our grid by funding the integration of renewable energy resources; and
  • Address the energy sector in its entirety by subsidizing key technologies — particularly battery storage — to quicken systemic change in transportation and electricity.

All of this makes a carbon cap or tax more likely.

The full comment is available on Nature.com and is co-authored by Environmental Defense Fund lead senior economist, Gernot Wagner, and economic analyst, Katherine Rittenhouse; Tomas Kåberger, professor industrial energy policy at Chalmers University of Technology and board member of Vattenfall; Susanna Olai, environmental economist at the University of Gothenburg; Michael Oppenheimer, professor of geosciences and international affairs at Princeton; and Thomas Sterner, professor of environmental economics at the University of Gothenburg and EDF senior contributing economist.

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