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Renewable energy is too expensive

What the science says...

When you account for the effects which are not reflected in the market price of fossil fuels, like air pollution and health impacts, the true cost of coal and other fossil fuels is higher than the cost of most renewable energy technologies.

Climate Myth...

Renewable energy is too expensive
"[Wind energy] is a more expensive way of producing energy than the alternative." (David Montgomery)

Due to its abundance and low market price, coal combustion is the largest source of energy production in the world, accounting for 40% of all electricity worldwide.  In the USA it accounts for 45% of electricity generation, and approximately 75% in Australia.

Unfortunately, coal combustion is a major contributor to global greenhouse gas emissions as well, accounting for 30% of total anthropogenic carbon dioxide (CO2) emissions worldwide, and 72% of CO2 emissions from global power generation.  In addition, non-power generation uses increase its contribution to global human CO2 emissions to a whopping 41% (as of 2005). 

Many people prefer coal combustion to renewable energy because it seems to be cheaper.  However, when accounting for the true costs of coal power, most renewable energy sources are actually significantly cheaper in the long-run.

Coal Externalities

A major problem with coal is that its full costs are not reflected in its market price, and thus while we may seemingly purchase and burn coal cheaply, in reality we are paying a much higher cost in the long run, if we look at the big picture.  Economists refer to the impacts on human and environmental health which are not reflected in the price of coal as "externalities".  Those who benefit from the seemingly cheap electricity don't pay for these externalities directly, but the public eventually has to pay in the form of medical bills, environmental cleanups, etc.

A 2013 report published by the International Monetary Fund concluded that global fossil fuel subisides amount to $1.9 trillion annually.  $1.4 trillion of this is due to externalities, $800 billion due to climate change.  This estimate is based on a conservative social cost of carbon of $25 per tonne of CO2 emitted.  An arguably more realistic estimate of $100 per tonne of CO2 would bring global fossil fuel subsidies to over $4 trillion per year, with $3.2 trillion due to climate change.

In a report published in the Annals of the New York Academy of Sciences, Epstein et al. (2011) do a full cost accounting for the life cycle of coal, taking these externalities into account.  Among the factors included in this analysis were:

  • government coal subsidies
  • increased illness and mortality due to mining pollution
  • climate change from greenhouse gas emissions
  • particulates causing air pollution
  • loss of biodiversity
  • cost to taxpayers of environmental monitoring and cleanup
  • decreased property values
  • infrastructure damages from mudslides resulting from mountaintop removal
  • infrastructure damage from mine blasting
  • impacts of acid rain resulting from coal combustion byproducts
  • water pollution

Most of these external factors do not apply to most renewable energy sources.  The majority of the externality costs come from reduction in air quality, contribution to climate change, and impacts to public health.  Epstein et al. find that the total cost of these externalities ranges from approximately 9 to 27 cents per kilowatt-hour (kWh) of electricity generated, with a median of approximately 18 cents per kWh.  The authors note that this is a conservative estimate, because they have not accounted for every associated impact. 

Figure 1: Coal externalized cost (cents per kWh) from Epstein et al. (2011)

Another study by economists Muller, Mendelsohn, and Norhaus (MMN11) looked at just the external costs associated with the damage done by air pollution, and arrived at a best estimate of 3.6 cents per kWh of external costs, despite being unrealistically conservative (Figure 2).

coal costs

Figure 2: Average US coal electricity price vs. MMN11 and Epstein 2001 best estimate coal external costs.

Cost Comparison

The US Energy Information Administration provides a comparison of levelized costs for different power generation sources.  Levelized cost represents the present value of the total cost of building and operating a generating plant over a period of time, and reflects overnight capital cost, fuel cost, operation and maintenance costs, financing costs, and an assumed utilization rate for each plant type.  To convert from dollars per megawatt-hour to cents per kWh, move the decimal point in the table below one spot to the left (for example, conventional coal is 9.48 cents per kWh on average).

energy costs from EIA

As you can see, the externalities are sufficient to triple the cost of coal power, if they were reflected in its price.  If we include the coal externalities, it increases the levalized costs to approximately 18 to 28 cents per kWh, which is more than hydroelectric, onshore wind, geothermal,  biomass, nuclear, natural gas, and on par with solar photovoltaic and solar thermal (whose costs are falling rapidly), and offshore wind.  Suddenly coal doesn't look like such a good deal.

Recommendations

Epstein et al. conclude by offering a number of recommendations:

  • Comprehensive comparative analyses of life cycle costs of all electricity generation technologies and practices are needed to guide the development of future energy policies.
     
  • Begin phasing out coal and phasing in cleanly powered smart grids, using place-appropriate alternative energy sources.
     
  • A healthy energy future can include electric vehicles, plugged into cleanly powered smart grids; and healthy cities initiatives, including green buildings, roof-top gardens, public transport, and smart growth.
     
  • Alternative industrial and farming policies are needed for coal-field regions, to support the manufacture and installation of solar, wind, small-scale hydro, and smart grid technologies. Rural electric co-ops can help in meeting consumer demands.
     
  • We must end mountaintop removal (MTR) mining, reclaim all MTR sites and abandoned mine lands, and ensure that local water sources are safe for consumption.
     
  • Funds are needed for clean enterprises, reclamation, and water treatment.
     
  • Fund-generating methods include: maintaining revenues from the workers’ compensation coal tax; increasing coal severance tax rates; increasing fees on coal haul trucks and trains; reforming the structure of credits and taxes to remove misaligned incentives; reforming federal and state subsidies to incentivize clean technology infrastructure.
     
  • To transform our energy infrastructure, we must realign federal and state rules, regulations, and rewards to stimulate manufacturing of and markets for clean and efficient energy systems. Such a transformation would be beneficial for our health, for the environment, for sustained economic health, and would contribute to stabilizing the global climate.

Real World Data

In the USA, there is no correlation between state renewable electricity production and electricity price (Figure 3) or renewable production and electricity price increase over the past two decades (Figure 4).

renewables vs price

Figure 3: State renewable (excluding hydroelectricity) electricity percentage of total electricity generation vs. electricity price (blue diamonds) with a linear trend (black line).  Data from EIA (here and here).

renewables vs electricity price increase 1990-2011

Figure 4: State renewable (excluding  hydroelectricity) electricity percentage of total electricity generation vs. the percent annual increase in electricity price 1990—2011 (blue diamonds) with a linear trend (black line).  Data from EIA (here and here).

If deploying renewable energy does not raise electricity prices, then clearly it is not an expensive proposition.

Bottom Line

Ultimately it's a significant problem that we rely so heavily on coal to meet our energy needs due to its artificially low market price.  It's like eating junk food for every meal.  It's cheap, it tastes good, but it's not healthy and eventually you'll pay the price through poor health, high medical bills, and a shortened lifespan.

We may not pay the costs of climate change, lost biodiversity, air and water pollution, adverse health effects, etc. up front, but we do have to pay them eventually.  We need to follow the recommendations of Epstein et al., transform our energy infrastructure, and move away from our dependence on coal and other fossil fuels.

Last updated on 2 April 2013 by dana1981. View Archives

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Comments

Comments 1 to 16:

  1. Very balanced view on Renewables. Often supporters of Renewables overlook the production costs at present. With increased efficiency and improved materials,solar energy will be cheaper in the coming years especially CSP.

    Dr.A.Jagadeesh Nellore(AP),India
    Wind Energy Expert
    E-mail: anumakonda.jagadeesh@gmail.com
  2. Also of interest, this IPCC SRREN 2011 figure : range in recent levelized cost of energy for selected commercially available RE technologies in comparison to recent non-renewable energy costs.



    It must be precised that this is the cost for producing electricity (or heat, or fuel) from RE local units, but a global energy transition will require additional costs : to transform the infrastructure of distribution (grid) and to electrify many final uses (for example public transport). That's why this transition must begin now and be as progressive as possible.

    As your article put it, the true cost of fossil sources is underestimated because externalities (climatic and non-climatic) are ignored by market. A pigovian tax on carbon would restore intergenerational equity and real price of carbon. Many economists agree on that point and it is unfortunate that policymakers delay their decision. All the more so that the actual dependency to fossil ressources threatens economy in case of high volatility.

    Climate-energy policy should be rational, cooperative and bipartisan.
  3. JagadeeshA, I had to google CSP. I assume you meant Concentrated Solar Power, and not Convenience Store Petroleum. Not all of us are familiar with all the acronyms.

    The question of how to implement policies that make perfect sense but don't match the party line is a political one, unique to each nation. Ones hopes that the politics will become more favorable as the climate becomes more unstable.
  4. Questions for the knowledgeable:


    Bjorn Lomborg has a column today in USA Today where he is promoting more fracking as the best approach to global warming.  In the column he claims that "German taxpayers have poured $130 billion into subsidizing solar panels, but ultimately by the end of the century, this will postpone global warming by a trivial 37 hours."  http://www.usatoday.com/story/opinion/2013/04/22/earth-days-good-news-column/2101327/  I have been reading extensively (at least for a layman) on the subject of global warming for about a year now, and this is the first I have heard of anyone speaking in terms of "postponing" global warming by a certain amount of time as a measure of the impact of an emissions reduction, and so I was immediately suspicious of the claim.  I tried googling "postponing global warming 37 hours" and only came up with hits to Bjorn Lomborg's statement itself (today's USA Today column was not the first time he had made the statement), with no analysis or explanation.


    Does anybody have a clue as to what Lomborg might even mean quantitatively?  Is he simply suggesting that the amount of emissions reductions in Germany due to solar panels, all other human activity remaining unchanged (my vague understanding is that the possibility of non-linear feedbacks would generally require assuming that all other countries' emissions remain fixed before one could hope to meaningfully predict the impact of one country's reduction in terms of a time lag at the end of the century), would theoretically only reduce the slope of the current long-term temperature trend so as to reach on January 1, 2100 the global average surface temperature that would have been reached 37 hours earlier if not for the reduction in German emissions?  Or perhaps that, integrating theoretical thermal disequilibrium curves in two most-likely scenarios projected out to the end of the century, one with the current German emissions reductions due to implementation of solar, and one without, and fixing all other human activity in both scenarios, it would take until January 1, 2100 for the Earth's total heat content to increase by the amount that it would have increased 37 hours earlier without the German emissions reductions?  


    Assuming he means one of those things, is there any merit to his claim?  


    Since I am not a climate scientist, but rather a patent attorney with a mechanical engineering background that is growing staler by the year, I hesitate to call BS on Lomborg's claim, but it smells very fishy to me, so I would be interested to hear what people here have to say.  


     

  5. @jdixon1940 #4:

    You have an excellent sense of smell. It is very disheartening to see that the USA Today choce to post an Op-ed by Bjorn Lomberg on Earth Day. That it and other MSM outlets in North America have done so illustrates the power and reach of the fossil fuel industry and its allies. (Think advertising revenues.)

    I'll let my more-learned SkS colleagues respond to your specific concerns about Lomberg's tome. Perhaps we can persuade Dana to crank out a formal critique article. 

  6. @jdixon1940 #4:

    The following letter-to-the-editor (LTE) was published by the New York Times yesterday (Apr 21, 2013). It rebutes an Op-ed previsously published by the Times that advocated for the replacement of coal by shale gas in China. The LTE is equally applicable to the Lonberg Op-ed in my opinion.

    To the Editor:

    In “China Must Exploit Its Shale Gas” (Op-Ed, April 13), Elizabeth Muller argues that shale gas can replace coal in China. However, China’s coal power capacity is already twice that of America’s, and will be triple by the time China begins to fully exploit its shale gas reserves in 10 years. By then it will be too late and expensive to replace these coal plants, most built in the last decade, as they will still be young, efficient and cheap. Gas in Asia is still expected to be two to eight times more expensive than coal.

    Gas is also a carbon-intensive fuel, even if less so than coal, and substituting it for coal will not get us the reductions necessary to stabilize the climate. Seriously attacking greenhouse gases in China, and globally, will require deploying carbon capture and storage for existing and new coal (and gas) plants. Otherwise, it’s game over for climate change.

    ARMOND COHEN
    Executive Director
    Clean Air Task Force
    Boston, April 15, 2013

  7. J Dixon @4, according to wikipedia, in 2008 Germany emitted 786.7 billion metric tonnes of CO2, or 2.63% of global emissions.  Also according to wikipedia, by 2008 Germany has reduced its emissions by 22.4% relative to 1990 levels.  So, without its renewable energy commitment, Germany's emissions would have been more than 28%, or 0.73% of global emissions, higher.  That means in each year, Germany's emissions reductions represent at least 64 hours of global emissions for that year.  Over the rest of the century, assuming German emissions remain constant relative to world emissions, that represents  5,500 hours of delay in global emissions.  That is, global warming will have been delayed by German emissions reductions, if they make no further reductions, by  7.5 months.

    According to an Australian Government report, photovoltaic cells represent 11% of Germany's total renewable energy production.  As Lomberg refers explicitly to PV production, that means the emissions reduction involved represents a delay of 605 hours.  To reduce that to 37 hours, Lomborg would need to assume an average global emissions over the course of the 21st century to be over 16 times current levels, or with a linear growth model model, emissions at the end of the century to be 32 times current levels.

    So, all Lomborg needs to do is assume:  

    1) Emissions growth will not be curtailed,  growth in global emissions at ten times the rate projected by the IPCC; and

    2) Emissions growth will in fact be about ten times greater than projected by the IPCC for a BAU scenario. 

  8. jdixon1980, basically when Lomborg says that global warming will be delayed by 37 hours, what he means is that 37 hours worth of emissions will be removed. However, as Tom Curtis shows, to get that figure he is assuming that neither Germany nor any other country makes any further efforts towards emissions reductions and future emissions grow to astronomical levels... and he then uses those hypothetical future emission levels, rather than actual current levels, to determine the offset from German solar PV.

    The same deceptive 'logic' could be applied to show similarly low impact from his suggested course of using natural gas... divide the current emissions reduction from just one country by huge hypothetical future emissions from the entire world and you get a small number.

    Note that, of course, he doesn't do an apples to apples comparison. Instead he says, "if fracking happened worldwide". So he describes the benefits of current solar PV in Germany alone vs the benefits of future fracking on a global level.

  9. Thanks John, Tom, and CB.  Tom and CB @ 7 and 8, the "hours of emissions" concept is a lot more intelligible than what I was thinking; I took his statement about "delaying global warming" too literally and thought he was purporting to have plugged the emissions reduction into a climate model to get the resulting change in warming.  

    Moreover, his claim being simpler than I thought also apparently makes it very easy to expose the assumptions on which it depends through basic arithmetic.  It's unsettling that Lomborg is apparently comfortable publicizing such a statement without qualification, especially when he is assuming 10 times the emissions growth rate projected by the IPCC.  

    I also think a lot of people reading USA Today (dare I speculate a vast majority!?) would make the same mistake I made and think he was literally talking about "delaying" warming.  Am I right to suspect that removing X "hours" (which is really a mass quantity converted to hours by dividing out a rate) of global emissions this century doesn't necessarily mean that you will theoretically "delay" warming by only X hours?  For example, supposing we stopped all emissions today, that would corresponding to subtracting 87 years of emissions by 2100.  If that were the same thing as "delaying warming" by 87 years, wouldn't it then follow that the average temperature in 2100 should be exactly the same as today?  I don't see how one could expect that relationship to hold.  In my (extremely basic) understanding you are starting with a positive thermal disequilibrium, which will only decrease as the Earth's temperature increases (so that Earth emits more radiation) and/or the GHG's in the atmosphere decrease (so that more of the radiation emitted actually escapes to space), and the Earth will continue to warm until the combined effects of increasing Earth temperature and decreasing absorptivity of the atmosphere (assuming CO2 actually did start to be taken up faster than emitted by natural processes with human emissions removed) lead to the amount of radiation emitted out to space equaling the amount of solar radiation entering the atmosphere.  Then as atmospheric CO2 continues to decline, the thermal disequilibrium will become negative, and eventually Earth's average temperature might again reach what it is today, but it would obviously be silly to assume that the time at which that would happen corresponds exactly to the time period we arbitrarily choose to consider (in this case 87 years from now).  

    Maybe on the scale of removing only tens of hours of emissions, as opposed to tens of years, the relationship between removed emissions and "delay" of warming might be one to one.  But I don't think my extreme example of stopping emissions today is wildly inapplicable - isn't the scientific consensus that we NEED to remove tens of years  of emissions to have any chance of seeing climate stability?      

    So am I right to suspect that referring to removed "hours" of emissions as hours of "delayed warming" is a misnomer?  

     

  10. jdixon @9, my calculation is based on just one reasonable interpretation of what it means to "delay warming by x hours".  There are other possible interpretations.  Unfortunately Lomborg does not specify which he means.  Indeed, in his article, he links his claim to an article by Alexander Neubacher in De Spiegel which, while highly critical of Germany's solar subsidies, does not calculate or even mention any delay in warming.  In other words he does not support it, or elucidate it at all.

    As it happens, the Neubacher article claims that solar panels provide about 3% of Germany's power (I implicitly assume about 2.4% in my calculations), and claims that solar energy provide 21% of Germany's "subsidized energy", which assuming all renewables are subsidized is nearly double the 11% I quoted from the Australian government report.  Using my interpretation of "delaying warming", therefore, Lomborg's source for his claim would support about twice the delay I calculated.

  11. jdixon et al:

    A friend lent me a copy of Lomborg's book a few years ago. One of the things that struck me was that he seemed to keep comparing the full cost of reducing global warming with the spot price of fixing one symptom by other means. He never added up all the individual spot prices to get a total cost of dealing with global warming.

    It struck me as being somewhat akin to trying to decide whether or not to replace the roof shingles. A roofing job would cost $X, but patching the ceiling costs a lot less - so just patch the ceiling. A roofing job would cost $X, but replacing bulbs in the shorted electrical system costs a lot less - so just replace light bulbs. A roofing job would cost $X, but replacing the carpet costs a lot less - so just replace the carpet. A roofing job would cost $X, but painting the walls costs a lot less - so just paint the walls. Eventually, all the different repairs end up adding up to a lot more than replacing the roof, so the sensible home owner would replace the roof. But if you're working for the trade association that represents drywall, electrical, paint, and carpet trades - and excludes the roofing indistry - then it's to your advantage to try to mislead the home owner so they don't get the roof fixed.

  12. An apt analogy Bob @ 11; I may borrow it

  13. Tom @ 10, I noticed that too about the article that Lomborg cited, which was why I went to Google for answers about the "37 hours" claim, and kept dead-ending at different sources reporting Lomborg's unelucidated, unsubstantiated statement itself.  

  14. jdixon:

    Sure. Just put it back when you're finished with it...

  15. First, in my post @7 I incorrectly stated that Germany emitted 786.7 billion tonnes of CO2 in 2008 when the correct figure was 786.7 million tonnes.  This makes no difference to the results of the calculation, which used the percentages rather than the absolute value.

    Having a look at one alternative interpretation of Lomborg's claim, I notice that the annual reduction in emission in 2008 from solar power in Germany is approximately 23.6 million tonnes of CO2.  According to the IPCC A2 scenario, in 2100 global emissions of CO2 will be 29 billion tonnes of carbon, or 106.43 billion tonnes of CO2.  Thus, 2008 emissions savings from PV in Germany will be 0.022% of 2100 annual emissions, or a 1.94 hours worth of global emissions.  German PV electricity production has increased linearly since from effectively zero in 1990; and the effective life span of a PV panel is about 20 years.  Assuming that PV panels are not replaced at the end of their usable life, this means the total reduction in 2100 emissions from the German PV program represents approximately 0.5% of 2100 emissions in the A2 scenario, or 42.68 hours of 2100 emissions.  That figure is close enough that an equivalent calculation is probably the basis of Lomborg's claim.  The difference between 43 and 37 hours probably lies in complexities I have not accounted for.

    It is interesting to tease out Lomborg's assumptions.  

    First, he assumes that emissions will follow a BAU trajectory regardless of the efforts of Germany and other nations to avoid that prospect. That is, he is assuming emission reduction strategies will not work to argue that they are ineffective.  Clearly the more effective emissions reduction is, the longer the period of "global warming delayed" by Germany's PV program.  If in fact we achieve zero net emissions by 2050 (the target we should be aiming for), global warming will have been delayed infinitely by the German PV program.  That just shows what a silly metric it is.  Indeed, it shows what a silly argument Lomborg is mounting, for it has all the intellectual credibility (because it has exactly the same logical form) of assuming we will achieve zero emissions and arguing that Germany's PV program will delay global warming infinitely.

    Second, he assumes that PV cells reaching the end of their usable life will not be replaced, or at least that equivalent PV capacity would have been installed at that time regardless of the existence of the subsidy.  This in turn assumes that the cost of  PV will not fall below the rising cost of alternative energy production.  With the possibility of effective carbon pricing (admitedly not yet achieved in Europe), diminishing easilly accessible fossil fuel supplies and falling PV costs, those assumptions are not safe.  I consider the assumption made in my original calculation that PV cells will be replaced at the end of their usable life to be far safer.

    Finally, Lomborg is comparing the emissions reductions of installed capacity todate with global emissions in 2100.  To make a fair comparison, he needs to compare the 130 billion to Gross World Product (the global equivalent to GDP) in 2100.

  16. let me try again.

    Alternative energy is expensive bottom line it doesnt matter what is or isnt accounted for in the price. When I whip out my wallet I dont care how the price got to where it is at. At this moment in time if i come to the counter for a box of solar or a box of fossil fuels especially natural gas at the moment  the cost of gas is far cheaper , no way around it.

    I would like to link to an article that does a better job of making the point Energy policy and Environment

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