Review: How big do you think the challenge of achieving zero net emissions by 2050 will be? We will select 3 users with high message quality and give away "Green Economics" for free. (Interactive platform: "CBN" WeChat public account )
Since entering the Industrial Revolution, the average world temperature is gradually rising, and global warming has become the consensus of climate change. For human beings, how to curb or slow down global warming has become the most important problem for us humans to think about at present. Climate change is related to the future survival and development of mankind, and climate risk has become the biggest risk facing the world.
As the issue of climate change sharpens, climate governance has become a new lever for countries to enhance their global influence and demonstrate international leadership. Currently, 110 countries, including China, have made significant commitments to carbon neutrality by the mid-21st century in a bid to contain rising global temperatures. An international race to reshape the rules of a low-carbon economy has begun. In order to achieve the goal of carbon neutrality, countries have entered the fast lane to cope with climate change and develop a low-carbon economy, but the industry identification of emerging green and low-carbon industries, the formulation of various low-carbon standards including emission reductions, the provision of various green rules including carbon trading, and various market access thresholds, including green finance, are facing a new round of international games and negotiations.
Nobel laureate economist William Nordhaus points out in his new book Green Economics that the transition to a low-carbon economy faces a series of challenges, finding promising technologies that can promote the development of a low-carbon economy.
The challenge of a low-carbon economy
Let's start with the challenge of decarbonizing the economy, where one of the goals of climate policy in many countries is to limit global warming to 2°C. The calculations show that in order to achieve this goal, zero net global emissions of carbon dioxide and other greenhouse gases need to be achieved around 2050, which is a very ambitious goal. In fact, in recent years, global carbon dioxide emissions have been growing, not declining. 80% of the world's energy comes from fossil fuels, much of which is used for long-term capital such as houses and power plants. Can you imagine how big the challenge of achieving zero net emissions by 2050 will be?
The answer to the question is simple: this goal is highly unlikely and unfeasible unless we replace most of the world's capital stock in the next 30 years. A number of studies have assessed the economic impact of achieving these goals. A major study by the Energy Modeling Forum examined the cost of achieving the 2°C target with a series of models and different technical assumptions. Under the most optimistic and least optimistic technical assumptions, costs (discounting losses to present value in 2010) range from $40 trillion to $500 trillion. Other studies have also shown that the 2°C target would not have been achieved without drastic changes in global policy and extremely rapid technological change.
Promising technology
Given the enormous scale of transformation required to achieve a low-carbon economy, which low-carbon energy sources are truly promising? This is a major area of research for scientists and engineers today, and we can only have a few superficial discussions. However, a simple analysis can illustrate the nature of this transformation. We can start with the cost of different current and future power generation methods in the United States. Table 18.2 shows the Energy Information Administration's estimates, providing us with the best data on energy in the United States. The table shows the cost per 1,000 kWh of electricity under current and future technologies, and the three columns of figures are the cost of generating electricity that includes three different carbon prices (or carbon taxes). The first column shows the cost of generating electricity at $0 per tonne of carbon dioxide in the United States and most countries, which means no climate policy, while the latter two columns show the impact of low-carbon prices and high-carbon prices. The lower is the U.S. government-recommended price ($40 per ton of CO2), while the higher is the price that aligns with aggressive emissions reduction targets ($200 per ton of CO2).
There are three groups of scenarios to consider:
• The first group is the existing power plant. For these companies, capital is already a sunk cost, so the only cost is fuel and other current costs.
• The second group is the technology currently available.
• The third group is the technologies being developed. Some technologies are in the process of being developed (advanced combined cycles described below), while others require years of development and testing (such as advanced nuclear).
• The last line shows that the current average cost of generating electricity is $41 per 1,000 kWh.
Start by considering the most cost-effective existing technologies in the absence of a climate policy (a carbon price of $0). At the current average cost of $41, the four existing power generation technologies shown in Table 18.2 are cost-effective.
At a carbon price of $40, the first three technologies are more cost-effective in the new power plants in the second group and the current technology, but traditional coal has become uneconomical due to the impact of regulatory costs. The dominant technologies are natural gas (traditional combined cycle) and onshore wind. In fact, these are the fastest growing energy sources in the last few years.
Next, let's look at the last column, which shows the cost of electricity under strong climate policy and a $200 carbon price. Currently, the only mature low-carbon technologies are renewable wind and solar. If you take carbon into account, the cost of coal and natural gas electricity is 3 to 5 times the current cost. However, renewable energy generation is not only seriously flawed in technology (e.g. load curves) but also has limitations in its long-term supply. It should also be noted that replacing the current power mix with renewable energy generation will be an extremely difficult task, as renewables generate only a small fraction of total electricity generation, and in 2018, it only contributed about 10% of total electricity generation.
If we look at future technologies, we might consider two: combined natural gas cycles equipped with carbon capture, and advanced nuclear energy. Such technologies cost about twice as much to generate electricity as they do today, but in theory, they could meet the needs of an entire economy. In addition, they are still a long way from large-scale use. There are currently no large power plants using natural gas combined cycle technology equipped with carbon capture, advanced nuclear energy technology, so it will take time to introduce these technologies on a large scale.
Table 18.2 deserves careful study, as it simply shows the main challenges that must be overcome in the transition to a zero-carbon economy in the power sector. The main conclusions are as follows: First, under the future zero carbon target, energy costs will be much higher than today's production costs. Second, to achieve zero emissions, countries need to replace most of their electricity capital stocks. Third, the optimal long-term solution is to develop new technologies, but their high costs are bound to place a significant burden on the regulatory and economic systems of countries.
But in the end, we need to look at all of these estimates with caution, because we cannot foresee the distant future and the rapid development of science and technology in many fields. Therefore, we must be prepared for new possibilities. More importantly, we need to encourage basic and applied science research and ensure that markets provide reasonable incentives for inventors and investors to facilitate the discovery and introduction of new low-carbon technologies. Next, the last section of this article focuses on this, exploring the government's policies to promote low-carbon innovation.
Promote low-carbon innovation
Most decisions about energy and the environment are made by private businesses and consumers based on price, profit, income, and habits. Major energy decisions are made in the context of market supply and demand, and governments can only influence decisions through regulation, subsidies, and taxes.
When we think about energy and environmental decisions, we usually think of new cars, new appliances, or renovating our houses and factories, all of which happen under existing designs and technologies. However, as this section shows, in the long run, the shift to a green economy also involves key decisions about new technologies and currently untapped technologies. For example, rapid decarbonization requires major changes in our power generation technologies, including entirely new technologies such as carbon capture mentioned above.
How did technological change come about? The answer is often produced through the complex interaction of individual ingenuity and perseverance, financial incentives, corporate structures, and market needs. For example, solar energy is a good illustration of the tortuous history of most foundational inventions. The story begins in 1839, when the young French physicist Edmond Becquerel stumbled upon the photogenerated volt effect while experimenting with electrolytic cells. In 1905, Albert Einstein explained the physics behind the photoelectric effect and won the Nobel Prize for it.
More than a century after Becquerel's major discovery, photovoltaic cells received their first significant practical application. Scientists at Bell Telephone Laboratories developed solar cells in the mid-1950s, and many governments were involved as they realized the potential of solar energy in space satellites and remote areas. Since then, solar technology has flourished, being applied to space satellites, small solar panels on homes, and large solar power plants. By 2020, the efficiency of solar energy (lighting energy per unit of solar energy) will increase from 4% of the first solar cells to 47% of the current best applications. Since the first solar cells came out, their costs have fallen significantly. Figure 18.5 shows the price movement trend of photovoltaic modules, which have fallen at a rate of 10% per year since 1976. Looking back at Table 18.2, solar PV can compete with today's most cost-effective fuel generation at moderate carbon prices.
Let's return to the question of the dual externalities of green innovation. Investment in low-carbon technologies is discouraged because the private return on innovation is lower than the social return; Private returns are further suppressed as the market price of carbon is lower than its true social cost.
Our discussion of low-carbon technologies suggests that a low-carbon or zero-carbon world will require new technologies such as carbon capture. What exactly is carbon capture? The following description is based on a rigorous study by a team of MIT engineers and economists. The basic idea is simple. Carbon capture refers to capturing the carbon dioxide emitted by fossil fuels when they burn, then transporting and storing them somewhere, where they remain for hundreds of years, so that this carbon dioxide does not enter the atmosphere.
Let's take coal as an example, because coal is the most stocked fossil fuel and a major candidate for the large-scale use of carbon capture. Engineers believe that it would be cheaper to use natural gas equipped with carbon capture than the current price of natural gas in the United States, but the basic principles of coal are similar to natural gas.
We can assume that coal is pure carbon, thus representing the basic process as a chemical reaction:
Carbon + oxygen → energy as heat + carbon dioxide
As a result, fossil fuel combustion yields a desirable output (heat that can be used to generate electricity) and an undesirable by-product, carbon dioxide.
The key is to capture carbon dioxide molecules before they enter the atmosphere. At present, carbon dioxide separation technology has been put into use in oil and gas fields. However, existing technologies can only be operated on a small scale and are not yet sufficient for large coal-fired power plants. One promising technology is the Integrated Gasification Combined Cycle (IGCC) equipped with carbon capture. This process will start with pulverized coal, which will be gasified to produce hydrogen and carbon monoxide, then the carbon monoxide reaction will produce a high concentration of carbon dioxide and hydrogen, the carbon dioxide will be separated with a solvent, compressed, and then transported to a designated location for storage. These processes may seem cumbersome, but they are not much more complex than the coal-fired power generation technology currently in use.
The main issues with carbon capture are cost and storage. The impact of carbon capture on electricity costs is shown in the last set of technologies in Table 18.2. After the introduction of carbon capture, the cost of advanced combined cycles increased by 63% (from $41 to $68 per 1,000 kWh).
Carbon dioxide capture is a costly part of the overall carbon capture process, but transportation and storage can be more controversial. One issue is the size of the storage medium, and the most suitable storage site is the porous rock formations underground, such as depleted oil and gas fields. Another issue is the risk of leakage, which not only reduces the value of the project (because carbon dioxide enters the atmosphere), but also poses a threat to health and safety, I personally believe that the best option is to use gravity storage in the deep sea, where carbon dioxide that is heavier than water is deposited in the deep sea for centuries.
At present, there are still many obstacles to the large-scale use of carbon capture. To make a substantial contribution, tens of billions of tons of carbon dioxide need to be captured every year, but only 25 million tons are currently captured per year, which means that the current scale needs to be expanded by nearly 1,000 times. In addition, insufficient data on the performance of underground storage requires extensive experience to ensure scientific and public acceptability, otherwise people will continue to fear the enormous, unforeseen damage caused by captured carbon dioxide eruptions.
Like many other large-scale and capital-intensive technologies, carbon capture also seems to be caught in a vicious circle. Due to the vicious circle of reinforcing factors, companies will not invest heavily in carbon capture. It has financial risks, low public acceptance, and large-scale use not only faces huge regulatory hurdles, but also lacks experience. Breaking this vicious circle is a major dilemma for public policy, no different from other new large-scale energy systems.
The key point here is the impact of prices of externalities on incentives for innovation. Suppose that co2 can currently be eliminated at a cost of $100 per ton. If the price of carbon dioxide is zero, then the factory will lose money. Knowing that the price of carbon dioxide will always be zero, no profit-driven business will invest in eliminating carbon dioxide.
However, suppose a business believes that the global will implement an ambitious policy to combat climate warming, as shown in the last column of Table 18.2, in which the carbon price will rise to $200 per tonne in a few years. At this price, companies estimate that investing in carbon capture will be profitable. The company will capture carbon dioxide at a cost of $100 per ton, but can sell it to the government for $200 per ton. Businesses will proceed with caution and consider different approaches, but they will have an economic reason to invest in this technology. The same logic applies to investments in solar, wind, geothermal and nuclear. In fact, the same view can be more broadly applied to all types of green innovations.
This article draws two main conclusions. First, many of the green challenges facing today call for profound technological change, whether at the scientific, engineering, or institutional levels. We see this in our discussion of potential technologies for zero-carbon development in the power sector, an area where technologies that are in dire need of large-scale adoption have yet to be developed.
Second, the process of achieving green goals depends on the innovative behavior of profit-driven companies, which in turn requires the provision of appropriate incentives for companies to make their innovative activities profitable. This can be achieved by ensuring internalization of major externalities, such as pricing for pollution. For example, the price of carbon must be high enough for investments in low-carbon technologies to yield credible financial returns. Without a high carbon price, innovators and businesses have no incentive to invest in low-carbon technologies. Therefore, remedies for externalities can further promote the development of new green technologies in the future.
We can put these perspectives in a broader context. The United States probably has the best climate scientists who can develop the most technologically advanced climate change prediction models. It may also have the best materials scientists, who can work efficiently at all stages of the CO2 production process; It may also have the smartest financial wizards who can develop new financial derivatives to fund all these investments... But if the price of carbon is zero, promising but costly low-carbon technology projects will die before they get into board discussions for a profit-driven company.
Review: How big do you think the challenge of achieving zero net emissions by 2050 will be? We will select 3 users with high message quality and give away "Green Economics" for free. (Interactive platform: "CBN" WeChat public account )
Author: William Nordhaus
Publisher: CITIC Publishing Group