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Is Solar Power Making Climate Policy Cheap?

by Michael Levi
September 19, 2014

Solar power plant clean energy REUTERS/Fabian Andres Cambero

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For the second time this year, Paul Krugman has written a column explaining that serious studies consistently conclude that slashing global carbon dioxide emissions doesn’t need to be expensive. Also for the second time, he gives much of the credit to falling costs for renewable energy, particularly solar power. He’s absolutely correct on the broader point – but dead wrong in explaining why the studies come to that conclusion.

Back in April, Krugman rightly pointed out that an IPCC review had concluded that slashing emissions might reduce annual GDP growth by as little as 0.06 percentage points. In today’s column, he cites a new report from the New Climate Economy (NCE) Project to reasonably suggest that, once public health co-benefits are considered, substantial emissions cuts might come close to paying for themselves.

No problems so far. In each case, though, he offers a similar observation about why the numbers come out so small. Here he is in April:

“What’s behind this economic optimism? To a large extent, it reflects a technological revolution many people don’t know about, the incredible recent decline in the cost of renewable energy, solar power in particular.”

And today:

“The economics of climate protection look even better now than they did a few years ago. On one side, there has been dramatic progress in renewable energy technology, with the costs of solar power, in particular, plunging, down by half just since 2010.”

(The other side is the co-benefits.)

If you read the IPCC and NCE reports, though, you’ll know that their optimistic cost estimates have little to do with cheap solar.

Take a look first at the IPCC report. The 0.06 percentage point figure is for a set of “default technology assumptions” that include availability of nuclear power, carbon capture and sequestration (CCS), and other tools. The plot below (from the IPCC report) shows what happens to the model projections when you rule out CCS and still try to hit an ambitious two-degree temperature goal: the median model that doesn’t crash projects that costs rise by about 140 percent. (Most of the models the IPCC uses can’t even find a pathway – at any cost – that hits the temperature goal once you rule out CCS.) Something similar happens when you rule out abundant bioenergy. In contrast, if you rule out abundant wind and solar, the median model shows increased costs of only a few percent, and the most pessimistic one projects only a 25 percent cost rise. The take-away is that the low cost projections are being driven far more by abundant CCS and bioenergy than by cheap wind or solar.

IPCC

How about the NCE study? The plot below is the critical one from that report. Only 30 percent of the opportunities identified come from energy shifts of any sort at all. (Opportunities in land use in particular are claimed to be much larger.) Out of that slice, less than half comes from renewable power, dominated by wind rather than solar. (Exact numbers will need to wait until NCE publishes its appendices.) Nuclear and CCS play a substantial role; energy efficiency plays a massive one as well.

NCE

Why does any of this matter? Krugman does an important service by rebutting those on both the right and the left who claim that serious climate action requires turning our economic system upside down. (It’s a good guess that this Wednesday column from Mark Bittman, which basically called for the end of capitalism in order to deal with climate change, provoked Krugman to write his latest.) But the sorts of policies you pursue if you think that serious climate action is mostly about wind and solar are fundamentally different from those you pursue if you believe otherwise. A central upshot is that if the modeling exercises that Krugman touts are correct, and countries pursue policies based on a belief in wind and solar, the actual costs of cutting emissions will be far higher than what Krugman claims. At the same time, if the modeling exercises Krugman highlights are wrong, he hasn’t given us particularly strong reason to believe that steep emissions cuts would be cheap.

It may well be the case that falling costs for renewable energy will make cutting greenhouse gas emissions cheap. There’d be no problem if Krugman cited serious analysis that connected falling renewables costs to low estimates for the costs of serious climate policy. We can get ourselves into trouble, though, when we use estimates of the cost for one type of policy to encourage another.

Post a Comment 8 Comments

  • Posted by Markp1950

    It sometimes SAVES money. Eliminate your electric bill. Eliminate your heat bill. Eliminate you gasoline bill. Makes life better.

  • Posted by rob

    It’s not clear where Dr. Levi’s conclusions come from. The study from which the above graph was taken shows that the bulk of the reductions can come from options that provide net economic benefits, counting co-benefits. These gains can offset the net costs of other, more expensive options and CCS plays a relatively minor role. However, he make the important point that much of the reduction should come from energy efficiency gains and better land management.

  • Posted by Dan Kirk-Davidoff

    1) You haven’t made much of a case for differences in action depending on your prior belief about the future price of CCS vs Solar or Wind. Why wouldn’t the imposition of a carbon tax or a cap-and-trade scheme work equally well in both cases?
    There’s a separate argument to be had about investments in R&D- where is the potential for reduction in the price per unit CO2 abatement greatest: wind, solar, electrical storage, efficiency, biofuel or nuclear? I think you can make pretty strong case that solar pv has the greatest potential, followed by electrical storage, followed by nuclear, but that would be off the top of my head. What is your assessment?
    2) The cost curve from NCE shows net benefit for nuclear, solar and wind, and that surely would not have been the case if solar and wind hadn’t gotten much cheaper. So that’s a big difference that’s due to the fall in price of wind and solar.

  • Posted by Dan Kirk-Davidoff

    And another thing!

    As far as I can tell, the generation of electrical system models considered by the IPCC didn’t allow for the possibility that storage and electrical demand management might become cheap. So if CCS is kept out of the picture, the only way to meet demand with low carbon emissions is to have a lot of excess solar & wind capacity (because nuclear doesn’t want to ramp up and down a lot). This raises costs. But if storage prices come down (as they seem likely to), CCS becomes much less crucial. Essentially, CCS is acting like storage in the modeled grids. See this paper: http://link.springer.com/article/10.1007%2Fs10584-013-0963-5#page-1

  • Posted by Dennis McConaghy

    CCS is a fundamentally expensive technology. Most credible analysis of its cost are well in excess of $100/tonne of sequestered carbon, even assuming it could be deployed in any large scale manner.
    How fast could , even the wealthiest of countries, accommodate over $100/tonne carbon taxes?
    Second, claims for the relative economy of wind and solar one is always skeptical whether such comparisons properly account for the inherent variability of their available supply.
    Instead of trying to make specific claims for specific technologies and their relative economic and “carbon” merits, it would be manifestly more constructive to focus on building the case for an economy wide carbon tax.
    That is the only policy alternative that can enable the appropriate micro-economic decision making that will always better optimize what fuel and technologies choices should be made, reflecting how society has chosen to fix the stringency of the carbon tax design.
    Rather debating the relative costs of CCS and solar, better to focus on what the actual parameters of North American carbon price should be initially and how it be altered over time.

  • Posted by Ronald Lindeman

    The solution to global warming is in a simple equation.

    The people who want things to stay the same hold to this equation.

    Carbon fuel tax as it is now plus sales tax as it is now plus property tax as it is now.

    The global warming solution equation is

    Carbon fuel tax increases plus sales tax decreases plus property tax decreases.

    That’s it. Carbon taxes are claimed to be regressive, but then so are sales taxes and property taxes can be. less taxes in property taxes and sales taxes.

  • Posted by Jack William

    The development of affordable, inexhaustible and clean solar energy technologies will have huge longer-term benefits. It will increase countries’ energy security through reliance on an indigenous, inexhaustible and mostly import-independent resource, enhance sustainability, reduce pollution, lower the costs of mitigating climate change, and keep fossil fuel prices lower than otherwise. These advantages are global. Hence the additional costs of the incentives for early deployment should be considered learning investments; they must be wisely spent and need to be widely shared

  • Posted by Jack William

    serpentine – one continuous S that maximizes temperature but not total energy yield in variable flow systems, used in compact solar domestic hot water only systems (no

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