How to wean China, India, USA and the World from Coal and shift to Solar
The solution to man made climate change depends on the transition to Electricity production that, unlike burning Oil, Nat Gas, and Coal, emits little or no CO2; 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 from LTN’s POV is simplly this; 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 24/7, without reliance on any Weather condition.
To Save the Planet, power suppliers must be induced to adopt low-carbon energy sources despite Coal’s lower price and ease of use.
The 1st and easiest 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 toward low-carbon alternatives.
Let us suppose Coal produces Electricity at a cost of US$00.06 per kilowatt-hour, while Solar power costs US$00.16 per kilowatt-hour. The tax on Coal-based electricity would have to be US$00.10 per kilowatt-hour.
If that be the case, then consumers would pay US$00.16 per kilowatt-hour for either Coal or Solar. The utilities would then begin to shift to low-carbon solar power. The switchover would cause a more that double the Electricity bill if this came on.
Now, the fact is that politicians are not likely to impose such a tax, because they fear a political backlash that would force them from favor and their powerful “good offices.”
This fact of life has hampered progress in the United States towards a low-carbon economy. But, several EU countries have successfully introduced the idea of the “Feed-in Tariff,” which provides the “Core” of a politically acceptable long-term solution.
A “Feed-in Tariff” subsidizes the low-carbon Energy source rather than taxing the high-carbon energy source.
So in LTN’s example, the government would pay a subsidy of US$00.10 per kilowatt-hour to the Solar-power plant in order to make up the difference between the consumer price of US$00.06 and the production cost of US$00.10.
Thence, the consumer price remains the same, but the government must then pay for the subsidy.
There is another way. Let’s suppose that the government/s levy a small tax on existing Coal power plants in order to pay for the Solar subsidy, and then gradually raise consumers’ Electricity bills as more and more Solar plants come on line.
The price charged to consumers would rise gradually from US$00.06 per kilowatt-hour to the full cost of US$00.16 per kilowatt-hour, but over a phase-in period of, say, 40 yrs; the life-span of today’s newest coal fired electricity generating plants.
Assume that as of Y 2010, the entire Electricity system is Coal-based, and that the Electricity price paid by the consumers is US$00.06 per kilowatt-hour. By Y 2014, suppose that 10% of the 40-yr transition to Solar power has been achieved. The consumer price is raised 10% of the way from US6 cents to US16 cents, thus reaching US$00.07 per kilowatt-hour.
The Coal tax for Y 2014 is then set at US 1 cent per kilowatt-hour, which is just enough to pay the needed Solar subsidy of US 9 cents per kilowatt-hour.
Solar producers fully cover their costs of US 16 cents, since they sell power to the consumers at US 7 cents per kilowatt-hour and receive a subsidy of US 9 cents per kilowatt-hour. A small Coal tax can support a large Solar subsidy.
Let’s take that a bit further, then by Y 2030 the transition to a low-carbon economy is 50% complete. The consumer price for Electricity is now set at US$00.11, exactly halfway between US$00.06 and US$00.16.
The Coal tax is now raised to US$00.05 per kilowatt-hour, enough to cover the Solar subsidy of US$00.05 per kilowatt-hour.
Again, the Solar producers cover their costs exactly, since the subsidy of US$00.055 per kilowatt-hour closes the Gap between the consumer price and the producer cost.
And finally, using the above method, by Y 2050, all Electricity production has made the transition to low-carbon Energy sources, and the consumer price finally reaches US$00.16 per kilowatt-hour, enough to cover the full cost of Solar power without any more government subsidy.
This approach allows higher consumer Electricity prices to be phased in gradually, and establishes strong immediate incentives for adopting Solar power, plus the government budget is balanced every year, since the Coal tax pays for the Solar subsidy.
The actual transformation in the coming years will have 1 major advantage compared to this illustration.
Today’s Solar power plants may cost an extra US$00.10 per kilowatt-hour compared to Coal, but such plants will be much less costly in the future because of improved technology. So, the size of subsidies needed in say 10 to 20 yrs will be lower than they are today.
Energy debates in the USA, Australia, and other countries have centered so far on introducing a cumbersome Cap-and-Trade permit system.
Under the Cap and Trade system every major user of fossil fuels would need to buy permits to emit CO2, and those permits would trade in a special marketplace. The market price of the permits would be equivalent to paying a tax on CO2 emissions.
Management of such Cap-and-Trade systems is difficult and do not give clear signals about the future price of permits. Europe has adopted such a system, but other parts of the World have rejected it out of hand.
IEurope’s biggest successes in promoting low-carbon Energy have come from its Feed-in Tariffs, and carbon taxes in some countries, rather than its Cap-and-Trade system.
We believe that the time has come for the USA, China, India, and other major economies to declare how they will husband and boost their own transitions to a low-carbon economy.
A small and gradually rising carbon tax that funds a Feed-in Tariff system could win political support in the USA. It could also help to bolster consensus among the major coal-based economies, including China and India.
There are effective long-term solutions to man made climate change that are politically acceptable, feasible and relatively easy to implement. The Big Q: is it time to embrace them?