A new path to a low-carbon economy

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Existing solutions to man-made climate change that are politically acceptable and feasible to implement now need to be embraced, writes Jeffrey D. Sachs, professor of economics and director of the Earth Institute at Columbia University and special adviser to the United Nations Secretary-General on the Millennium Development Goals.

The following contribution is authored by Jeffrey D. Sachs, professor of economics and director of the Earth Institute at Columbia University and special adviser to the United Nations Secretary-General on the Millennium Development Goals.

"The solution to manmade climate change depends on the transition to electricity production that, unlike burning oil, natural gas and coal, emits little or no carbon dioxide – the main greenhouse gas responsible for global warming. Low-carbon electricity can be produced by solar, nuclear and wind energy, or by coal-burning power plants that capture and store their CO2 emissions.  

The policy problem is simple. Coal is a cheaper and more easily used energy source than the alternatives. It is cheap because it is plentiful. It is easier to use than wind or solar power because it can produce electricity around the clock, without reliance on weather conditions. 

To save the planet, we need to induce power suppliers to adopt low-carbon energy sources despite coal's lower price and greater ease of use. The obvious way is to tax coal, or to require power plants to have permits to use coal, and to set the tax or permit price high enough to induce a shift towards the low-carbon alternatives.

Suppose coal produces electricity at a cost of $0.06 per kilowatt-hour, while solar power costs $0.16/kilowatt-hour. The tax on coal-based electricity would have to be $0.10/kilowatt-hour. In that case, consumers would pay $0.16/kilowatt-hour for either coal or solar. The utilities would then shift to low-carbon solar power. The switchover, however, would more than double the electricity bill in this example.

Politicians are loath to impose such a tax, fearing a political backlash. For years, this has stymied progress in the United States towards a low-carbon economy. Yet several European countries have successfully introduced the idea of a 'feed-in tariff,' which provides the core of a politically acceptable long-term solution.

A feed-in tariff subsidises the low-carbon energy source rather than taxing the high-carbon energy source. In our example, the government would pay a subsidy of $0.10/kilowatt-hour to the solar-power plant to make up the difference between the consumer price of $0.06 and the production cost of $0.16. The consumer price remains unchanged, but the government must somehow pay for the subsidy."

To read the op-ed in full, please click here.

(Published in partnership with Project Syndicate.)

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