To address the world’s climate crisis, we must embrace equal parts realism and optimism.
The realism kicks in when you accept the reality that despite increasingly severe weather, rising oceans, and environmental disasters, it will be impossible to transition to a fully renewable energy portfolio in the next few decades. Renewables simply haven’t progressed enough, and the world’s population continues to show massive reluctance to do things like drive less, curtail flying, or eat vegetarian most of the time.
But the optimism comes from the knowledge that there is still time to act—if we move quickly and smartly. We can use the next 30 years to prepare for a largely carbon-free provision of energy in the second half of the century.
Why Abrupt Pivot to Renewables Isn’t Possible
Look at basic chemistry: Fossil fuels’ atomic structure makes them a great source of energy storage, with 2,000 pounds of Tesla batteries needed to store the energy of one barrel of oil. That’s why fossil fuels make commercial air travel possible, to say nothing of the production of an untold number of products.
Aside from a dip around the time of the Great Recession, worldwide energy consumption has increased steadily for a half-century, and only in this decade has the carbon emission rate of increase not quite kept pace. That’s because renewables and other efficiency technologies have emerged. But even so, carbon emissions are still rising.
With experts largely in agreement that fossil fuel use will continue at approximately current levels through the middle of the century, we must start planning now by turning to a combination of philosophical and practical solutions, all of which have deep political ramifications—and all of which are interconnected.
Step 1: Look for Solutions Beyond Traditional Markets
Private companies will play a huge role in the enormous task ahead of us, but assuming they can address climate change sufficiently without government help is just wrong.
Government involvement will have to be multifaceted, including helping the market to finance the huge capital expenditures that will be required. In that regard, the government should consider the equivalent of Ginnie Mae financing for renewables. By guaranteeing bonds related to energy investment, the government could play an important role without simply cutting checks. Significantly, this might encourage investment in such projects as an upgraded national electricity grid.
Such a grid is crucial to overcoming one of renewables’ biggest challenges: intermittency. Wind farms and solar farms generate electricity about 30 percent of the time, compared with up to 95 percent for conventional thermal power plants. Only a national grid could ensure that Texans get power on still days at their windfarms or that Californians’ lights don’t go out when clouds block their solar panels.
Government programs that encourage private investment in a national grid—and in a host of other projects—would go a long way toward a future less reliant on fossil fuels.
Step 2: A Carbon Tax
Any new tax is a tough sell, but a long-term carbon tax should be put in place as soon as possible. It is hard to say what the appropriate tax level would be, but predictability is paramount. Uncertainty would increase the risk-adjusted discount rates used to evaluate investments.
Beyond its impact on investors and entrepreneurs, a carbon tax would do two things: provide funds for the government to tackle big projects and deter personal and exorbitant energy use. A carbon tax might spur you to drive from Los Angeles to Palm Springs for your anniversary instead of flying to Hawaii. Instead of buying a large SUV, you might buy a crossover to get better mileage.
Some Americans chafe at this kind of thinking, but it’s not without precedent when enough public sentiment supports using taxes to modify behavior—think of the recent hikes in cigarette taxes in many places. As Nobel Prize winner William Nordhaus notes, climate change is the mother of all externalities, and we need prices to reflect the full social cost of using fossil fuels.
Step 3: America Needs to Lead
China has led the pack in total energy consumption for more than a decade. But if you look at per capita consumption, Americans far outstrip the Chinese.
The importance of this goes beyond trivia. The developing parts of Africa and burgeoning countries like India are far behind the United States in terms of total and per capita usage, and they have their sights set on fast growth—which will require energy. American leaders telling them that they should reduce emissions might not be well received—especially if they figure that the advice is only coming after the United States got in its carbon-fueled growth in previous decades.
That makes it even more important that the United States act as vocal leaders in combating the climate crisis while backing up words with actions. This includes individuals embracing things like public transit and energy-efficient technologies. Carbon tax that reflects the social costs of fossil fuels will make taking such steps more attractive.
However, larger and more structural steps are required as well—to avoid looking like (and being) hypocrites and show the world that the United States is committed to making meaningful progress.
A largely renewables future might be a way off. But the next few decades are a critical window when we can set the world on a smarter, long-term path toward a better and more sustainable future.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Bradford Cornell is an Emeritus Professor of Finance at UCLA and a managing director at Berkeley Research Group. He is a researcher and author and has acted as an adviser to investment firms and a financial consultant. Cornell has done work on the economics and financial implications of energy provision and climate change and will be teaching a new course on the subject at UCLA and UC San Diego in 2020.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group LLC or its other employees and affiliates.