World leaders are flooding New York this week for the 78th United Nations General Assembly and Climate Week NYC, less than two months before the landmark COP28, the UN Climate Change Conference, is set to begin in Dubai. With climate being at the top of the agenda and top of mind, I thought I’d use today’s newsletter to debunk a myth that pervades an annoying amount of climate doomerism.
Most climate change discussions frame the issue in cost-benefit terms. Would we rather save the planet or keep our living standards? Save the planet or increase profits? Save the planet or lift people out of poverty? In other words, how much are we willing to sacrifice to stop climate change?
In rich countries like the US, both sides of the aisle assume this tradeoff between climate action and economic prosperity exists. The difference between them is that most of the political right wants to prioritize growth at the expense of climate action, while the “de-growth” and anti-capitalist parts of the left want to halt growth for the sake of climate action.
Meanwhile, the consensus in developing nations – which today account for two-thirds of global carbon emissions but are only responsible for about one-fifth of historical emissions – is that poorer countries have the right (indeed, the obligation) to put economic development above climate action. This view is also premised on the assumption that economic growth can only be powered by fossil fuels, and therefore, that saving the planet requires economic sacrifice.
But that is a false dilemma. In 2023, there is no longer a systemic trade-off between decarbonization and economic growth.
A technological revolution in the making
The reason for this is that technological advances have made clean energy – especially solar power, wind power, and battery storage – cheaper than fossil fuels.
Until quite recently, high-polluting fossil fuels (especially coal) were by far the cheapest sources of energy available. Renewables didn’t come close. But in the past decade, the unsubsidized price of electricity from solar and wind declined by 89% and 69%, respectively. And the cost of lithium-ion batteries – which are needed to smooth out the intermittent supply of solar and wind energy – has declined by 90%. As a result, new solar power plants have gone from being 710% more expensive than the cheapest fossil-fueled plants in 2010 to being 29% cheaper now, and new onshore wind plants have gone from being 95% more expensive to being 52% cheaper than the cheapest fossil-fueled plants in the same period.
Today, when you compare the lifetime cost of building and operating new power plants, renewable energy sources like solar and wind are already the cheapest options for most of the world. In some places, building new solar and wind plants is even cheaper than keeping existing coal plants running!
This price advantage explains why the world’s largest carbon emitters are quickly moving away from coal and toward wind and solar power, and why renewable power has more than tripled as a share of global power generation in the last decade. In Europe, wind and solar generate more power than coal and gas. And solar, wind, and battery storage account for 82% of planned generating capacity additions in the US this year.
Interests trump politics
A common refrain is that these renewable technologies are being forced on unwilling Americans and Europeans by woke politicians and activists. But ask yourself, why would countries like China and India, states like Texas and Florida, and companies like BP and Total be building so much solar, wind, and battery storage capacity if not out of self-interest?
China and India certainly have little inclination to make national sacrifices for the planet’s benefit. Texas and Florida are Republican bastions — not exactly tree-huggers. And, like all corporations, BP and Total seek to maximize profits for shareholders. If you think Greta Thunberg is pushing developing countries as diverse as Brazil, Chile, Vietnam, India, and Morocco to deploy solar power at scale, I’ve got a coal mine to sell you…
The truth is that the world is adopting clean energy because it’s cheaper than the alternative. Even countries and companies that don’t care about climate change at all are finding it worthwhile to switch to renewables. And thanks to these technologies’ uniquely steep learning curves, the more they get deployed, the cheaper they’ll become, and the cheaper they become, the more they’ll get adopted everywhere.
At the same time that the increased adoption of renewables will reduce carbon emissions and deadly pollution, falling energy prices will lead to a rise in real incomes and standards of living. The advent of cheap, abundant, and widely available energy will free up income for people to spend on other things and allow poor countries to turbocharge their development while leapfrogging fossil fuels. If it sounds like a win-win, it’s because it is.
The invisible hand still needs a policy push
Although technological ingenuity and self-interest are making the energy transition an unstoppable reality, these forces alone aren’t enough to get the world all the way to net zero emissions in time to avoid some of the worst impacts of climate change.
For starters, there are still powerful vested interests and inertia holding back decarbonization, despite its increasingly obvious economic advantages. Many actors with political pull benefit from the carbon-intensive status quo, which generates up to $2 trillion in economic rents every year. These incumbents – ranging from petrostates and Big Oil to retail gas stations and fossil fuel workers – are fighting tooth and nail to slow down the energy transition and latch on to their power. Moreover, fossil fuels still make up 77% of the world’s energy production, and for now the cost of operating existing fossil fuel plants is lower than the cost of building new renewable plants in most (but not all) places. Absent policy action, that will remain the case for some years yet.
Then there’s the fact that electricity – the problem that solar, wind, and batteries solve – only accounts for about 40% of global carbon emissions. Cutting the remaining 60% will require addressing the other sources of emissions: transportation, commercial and residential buildings, and industrial processes. Some of this can be achieved by electrifying more of our energy use – like we are already doing by switching to electric vehicles, heat pumps, and induction stoves – while continuing to decarbonize electricity. But some – such as greening harder-to-abate, heat-intensive processes like cement and steel production – will require investment and incentives to invent, develop, and adopt new technological solutions.
Finally, while switching to renewables pays for itself in the long run, building new infrastructure while retiring fossil-fuel assets early can bring large upfront costs. This problem is especially acute for developing nations, which will generate most of the demand for new electricity in the coming decades but lack the fiscal space and access to long-term finance needed to meet the upfront costs of deploying clean energy systems. It’s in these countries’ economic interest to lock in low-carbon infrastructure now rather than get stuck with fossil-fuel assets that are already being phased out in the developed world and will be stranded in a matter of years. But they will need massive financing from rich countries to do that.
The bottom line is that although there’s a lot governments can do to help speed up the energy transition, even without government action the transition is most definitely happening. And it is happening without a reduction in our living standards. You don’t have to stop driving or ration electricity or eat bugs. Poor countries don’t have to stay poor. The opposite is true: stopping climate change will make most everyone richer.
That’s great news because if the fate of the planet depended on everyone agreeing to voluntarily impoverish themselves, you can bet your sweet bippy humanity would be 100% cooked.
