Sep 16 2022

Green Transition Will Save Money

It is difficult to project costs into the future, because there are many variables and small errors magnify over time. But still, statistical modeling can be done and validated to produce reliable estimates that can at least inform our discussion. There have been many methods of modeling the cost of global warming vs the cost of transitioning to net-zero carbon.  In general they find that, while there will be costs to transitioning to green technology, there will also be overall savings from reducing global warming.

A new study takes a different approach from previous one – they do not consider the effects of global warming at all, but rather only consider the cost of energy itself. This is basically an ROI approach – we will need to invest a lot of money in new infrastructure, but as a result we will have cheaper electricity, so how does that net out. The bottom line is that under every scenario they consider, transitioning to green energy technologies will save billions of dollars per year in energy costs, and trillions over the entire transition. But let’s look at some of the variables they have to consider.

One thing they did different than prior economic analyses was to try to more accurately model the future costs of green technologies (wind, solar, batteries). Other studies take a conservative approach, but they have all underestimated the decreasing costs of these technologies. So the researchers in the new study more accurately modeled past predictions compared to actual costs and came up with a more accurate model that they validated with historical data. More accurately modeling the likely future decrease in the costs of these technologies increased the likely savings from transitioning to them.

Some sources of uncertainty are interesting. What will the price of oil be in the future under various scenarios? If demand for oil decreases this will actually decrease the cost of oil too. Part of the reason is that the cheapest sources of oil will be preferentially used, so the most expensive oil will drop off first. But a lot depends on how the oil industry will respond. If they also decrease production and investment in new sources, oil prices can rise.

There is also the demand for electricity. The model uses a linear 2% per year, in line with current trends. But, they acknowledge, cheaper electricity may increase demand. However, they argue that this is a “good” problem. Increased demand will increase overall energy costs, but also the overall savings for that demand. Further, the extent to which people are getting value for their use of electricity also means that standards of living will be increasing.

Another variable is the electricity-based systems tend to have a higher conversion efficiency that oil-based system. Electric cars turn more of their energy into momentum than internal combustion engines (they are about twice as efficient). So the analysis also depends on whether or not you consider the total energy or the effective energy, the latter being even more favorable to green electric technologies.

The bottom line of their analysis is that, even without considering the trillions of dollars we will save by mitigating climate change, and the money saved from reduced healthcare costs from pollution, and the value of lives saved, just from considering electricity costs, transitioning to green technology by 2050 will save trillions of dollars. Further, the faster we make this transition, the more money we will save. What this means is, even if you don’t believe in climate change, investing in green infrastructure is cost-effective.

This has been what advocates of renewable energy have been saying for years – renewable energy will improve the environment, save money, reduce pollution and improve health, and make us more energy independent. Reducing the effects of global warming is a bonus.

But of course, global warming is real and is being driven by human caused greenhouse gases. When we factor that in also, the potential savings skyrocket. Global warming also makes the timing of the transition more important. Even without it, it is cost effective to speed up the transition by investing in green infrastructure and to arrange policies that favor companies moving in this direction. If we also consider global warming, it’s a no-brainer.

The big variable here, of course, is that we don’t know exactly where the tipping points are, but we have a pretty good idea. A 2018 Nature article, for example, found that the difference between stabilizing temperatures at 2.0 C (above pre-industrial levels) and 1.5 C is about $20 trillion. But it could be more. Because of positive feedback loops, going past 2.0 C may trigger tipping points that lock us in to further warming, which then take us past tipping points that lock in still further warming. That would be a worst-case scenario, but it is entirely plausible. While this make take 150-200 years to play out, it may cause climate changes that are irreversible on a human timescale. Clearly the responsible thing to do is to avoid such tipping points with a safe margin of error (stay below 1.5 C). Doing so will only save us lives and money anyway.

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