The Push for Net Zero: Prosperity for Me but not for Thee
During the World Economic Forum’s 2023 “Growth Summit” last month, discussion revolved around policies to boost investments in a green energy transition that “benefits all” by “mitigating the climate crisis.”1 The proposed investment strategy would prioritize “sustainable investment” over standard metrics of efficiency. It would “[place] cash into green energy projects [and] in companies that demonstrate social values such as social inclusion or good governance by having, for example, more women on their boards.” The WEF claims that this strategy plays a crucial role in channeling private funds into carbon-neutral projects for “the world's transition to net zero”.2
Perhaps the WEF emphasized a transition that “benefits all” precisely because it realizes that the costs of transitioning to net zero are quite high. Consider a 2021 study in the journal Nature Climate Change that looked at the U.S. and assessed the costs per year that would be required to achieve a nearly full transition toward green technologies. The authors find that a 95 percent energy transition would cost 11.9 percent of U.S. GDP per year or $11,300 per person per year until 2050.3 To put this in perspective total U.S. expenditures on Social Security, Medicare, and Medicaid amounted to 11.6 percent of GDP in 2019.4
Another study looked at the 2015 Paris Climate agreement’s suggested climate reduction contributions and assessed the impact on global poverty. The authors found that full adoption of all emissions policies under the Paris agreement would lead to an increase in global poverty of approximately 4.2 percent.5
Researcher Bjorn Lomborg has become known for his calculations that illustrate this tradeoff in actual national policies. In one study, he examines a 2019 German policy related to climate mitigation efforts, in which policymakers announced plans to invest an additional $44 billion to combat CO2 emissions. Lomborg finds that this translates to a reduction in global temperature of a miniscule 0.00018 degrees Celsius over the next 100 years. But as he points out, $44 billion is a lot of money when it comes to saving lives. That same amount could have instead been invested in preventing tuberculosis in developing countries, stopping an estimated 10 million people from dying.6
Lomborg has similarly estimated the climate benefits associated with the $369 billion set aside for climate policies in the Biden Administration’s 2022 “Inflation Reduction Act” (IRA) legislation that some proponents have deemed “a historic victory for our environment”7. Lomborg in contrast has found that the IRA will cut global temperatures by just 0.0009 degrees Fahrenheit by 2100.8
Ironically, despite massive investments in renewables, the actual share of renewables in the energy mix has risen only minimally. Between 2004 and 2018, investments into renewable energy sources increased 536 percent. Investments into solar and wind energies have received the lion’s share of these investments, increasing from just $29.6 billion to $272.6 billion (an 821 percent increase) during this timeframe (see Figure 1). Yet renewables9 account for just 12.6 percent of worldwide energy production. Of that total, 3.9 percent is from nuclear energy, while solar and wind in particular still only account for 4.3 percent of total worldwide energy production (see Figure 2).
So, how come despite large increases in investments and changes in governmental policy has renewable energy usage failed to increase at a faster rate? The answer is that these green technologies remain unreliable and thus they can hinder rapid development in countries with strained resources. For example, consider the world’s current total battery storage capacity. In the event of sustained cloudy periods or still days, economies highly dependent on wind and solar require stored energy reserves. Yet there are currently only enough batteries to power global average electricity consumption for about 75 seconds, and based on the current growth trends in battery capacity, this will likely only reach 11 minutes by 2030.10
Dr. Steven Koonin - NYU Professor and former Undersecretary for Science at the U.S. Department of Energy during the Obama Administration - has made the point that energy systems currently can have only two of the three crucial qualities: they can be i) reliable, ii) affordable, and/or iii) clean (insofar as local pollution and CO2 considerations are concerned). Systems highly dependent on fossil fuels are reliable and affordable but are not optimally clean, systems that emphasize nuclear energy and carbon capture are reliable and clean but not affordable, and finally those systems that primarily utilize wind and solar energies are affordable and clean but not reliable.11
While countries that lean more aggressively into systems with higher dependence on solar and wind energies may initially benefit from these sources’ low production costs, in the event of prolonged periods without sun or wind they then have to contend with the high costs associated with energy shortages.
For example, Germany has famously set the ambitious targets of getting 80 percent of its energy from renewable sources by 203012 and 100 percent of its energy from renewables by 203513. Making good on its promise, the German government has turned aggressively toward solar and wind energy, even deciding to go as far as in 2011 announcing a total phase out of nuclear energy by 2022.14 This has placed significant strain on the Germany energy grid. Between 2017 and 2019 alone due to the government’s energy policies, the highest observed cost of short-term “balancing energy” increased drastically from just €64 per MWh to a staggering €37,856.15
If the staggering costs of replacing reliable energy from fossil fuels with unreliable solar and wind are unbearable for the world’s most industrialized countries, they are devastating for countries attempting to lift themselves out of poverty. Authors of a recent study on the costs associated with the Paris Climate agreement warned that “stringent mitigation plans may slow down poverty reduction in developing countries.” Indeed, countries at earlier phases of economic development depend heavily on fossil fuels to improve their respective countries’ standards of living and in helping citizens escape poverty at a rapid pace, a path followed by the countries that have become the world’s wealthiest since the industrial revolution.16 It should come as no surprise that lower-middle income countries have lagged behind high-income countries in their adoption of renewables, as the proportion of energy produced in lower-middle income countries is just half that of their high- income counterparts.17 Still, it seems the developed world wants to slam the door shut on countries that were slower to industrialize.
International organizations like WEF and others that stifle the use of fossil fuels in the world are in fact damaging the cause of economic development. Greenpeace, for example, has tried to pressure European banks to stop funding natural gas projects in developing countries in an effort to push them toward greener technologies, and has even taken extreme measures to force them to do so.18
A case study from 2014, in which Greenpeace tried to make a small village Dharnai the first completely solar-powered community in India, illustrates how harmful these actions can be.19 Despite receiving fawning praise from media sources, the project was an abject failure, as the batteries were quickly drained in a matter of hours. Villagers were instead forced to return to using more dangerous forms of energy such as burning wood and dung indoors rather than using a cookstove. According to the World Health Organization, this method creates a level of air pollution indoors that is as harmful to an individual’s health as is smoking two packs of cigarettes a day.20 Consequently, burning wood indoors in this way kills millions of people per year.21
As one might expect, later that year when villagers were given the choice, they dropped their solar connections in favor of the main power grid, as it ultimately proved more reliable and its cost were one third that of solar energy.22
Despite these failures, the WEF also claims that renewables like wind and solar are the cheapest forms of energy.23 If it is so cheap, what is stopping it from taking over fossil fuel based energy? The answer must be: it isn’t so cheap, due to its intermittency and the need to always have storage or backups in place.
A reasonable person may then ask, why do you suppose, considering all of these shortcomings associated with alternative forms of energy, that Wall Street and the broader finance industry seem so eager to pour trillions of dollars into these investments? After all, at COP26 alone for example, a group of 450 financial firms pledged $130 trillion to finance the transition to net-zero emissions.24
As one of us explained in a recent editorial in the Wall Street Journal: “Suppose a government announces that all machines of a certain color, say brown, must be destroyed and replaced with machines of a different color, say green. Owners of the brown machines are not happy, but those who can finance the new green machines will profit handsomely. This artificial demand distorts the efficient allocation of capital and comes at a great cost to economic prosperity.”25 As Figure 1 shows, the bulk of new investment into renewables is going to some of the most unreliable and thus over the long-term relatively more expensive forms of energy (i.e., wind and solar). This is precisely why despite the billions in investments global usage remains below 5 percent as of 2021.
These inefficient investment decisions due to government mandates are not victimless decisions. By imposing higher costs and thus reducing developing countries’ standards of living, Western countries’ leaders and organizations like the WEF are deliberately endorsing a policy agenda that keeps people poorer. Worse, they smugly demand to be lauded for their efforts in “saving the planet” while never having to deal with the negative consequences associated with their positions, as they quietly jet back to their respective countries that have already experienced the benefits of 150 years of industrialization fueled by fossil fuels.
https://www.weforum.org/agenda/2023/05/growth-summit-2023-economic-equity
https://www.weforum.org/agenda/2023/05/growth-summit-2023-resilient-growth
Bjorn Lomborg, “Biden’s Climate Ambitions Are Too Costly for Voters”, Wall Street Journal, 14 October 2021, https://archive.ph/4K48e.
https://www.sciencedirect.com/science/article/abs/pii/S0305750X19301299
https://www.project-syndicate.org/commentary/governments-must-reduce-poverty-not-emissions-by-bjorn-lomborg-2019-09
https://pingree.house.gov/inflationreduction/
https://www.wsj.com/articles/the-inflation-reduction-act-does-little-to-reduce-climate-change-global-warming-carbon-emissions-legislation-temperatures-11661288454
The “renewables” distinction here is the summation of “Other Renewables”, “Biofuels”, “Solar”, “Wind”, and “Hydropower” energy sources.
https://www.wsj.com/articles/the-rich-worlds-climate-hypocrisy-energy-fossil-fuel-wind-solar-panel-india-poverty-power-battery-storage-11655654331?mod=article_inline
See
starting at minute 24:00
https://www.euractiv.com/section/energy/news/new-german-coalition-aims-for-80-renewable-power-by-2030-more-gas-as-back-up/
https://www.reuters.com/business/sustainable-business/germany-aims-get-100-energy-renewable-sources-by-2035-2022-02-28/
https://www.dw.com/en/germanys-nuclear-phaseout-explained/a-39171204
https://www.forbes.com/sites/michaelshellenberger/2019/09/05/renewables-threaten-german-economy-energy-supply-mckinsey-warns-in-new-report/ . As an example, one MWh is enough electricity to run a standard home central air conditioning unit rated at 3,000 watts for 20 minutes.
https://www.vox.com/energy-and-environment/23458617/cop27-fossil-fuels-energy-developing-countries-coal-oil-gas-africa-finance
See “Per Capita Energy from Fossil Fuels, Nuclear and Renewables, 2021” figure: https://ourworldindata.org/energy-mix
https://www.ft.com/content/b00ea2e5-78a0-46c5-b2b0-33e6a40b96af
https://apps.who.int/iris/bitstream/handle/10665/43421/9241563168_eng.pdf
https://www.who.int/news-room/fact-sheets/detail/household-air-pollution-and-health
https://journals.sagepub.com/doi/full/10.1177/0971721820903006
https://www.weforum.org/agenda/2021/07/renewables-cheapest-energy-source/
https://www.wsj.com/articles/net-zero-wall-street-green-renewables-cop26-glasgow-climate-change-global-warming-esg-11636643512
Ibid