Fossil fuel price spikes cause pain but little climate fallout

For three decades, climate activists have fought to make fossil fuels so expensive that people would be forced to give them up. Their dream is coming true: energy prices are exploding and will soon get worse. Yet we are no closer to solving climate change.

Energy costs rose 26% in industrialized economies last year and will rise another 50% this year globally. While Western governments blame Ukraine for Russia’s war, prices were already rising due to climate policies designed to stifle fossil fuel investment. Since the signing of the 2015 Paris Agreement, the world’s 1,200 largest energy companies have cut their capital investment in oil and gas by more than two-thirds. Huge price hikes are the inevitable result of forcing more energy out of an increasingly starved system.

The climate policy approach of driving consumers and businesses away from fossil fuels with price spikes is causing problems with little climate impact, for two reasons.

First, solar and wind are still only able to meet a fraction of the world’s electricity needs. Even with huge subsidies and political support, solar and wind provided only 9% of the world’s electricity in 2020. Heating, transport and vital industrial processes account for much more energy consumption. important than electricity. This means that solar and wind provide only 1.8% of the world’s energy supply. And electricity is the easiest of these components to decarbonise: we have yet to make significant progress in greening the remaining four-fifths of the world’s energy.

Western countries attribute the rise in energy prices to the war in Ukraine, but they were already rising before.
AFP via Getty Images

Second, even in wealthy parts of the world, it is clear that few people are willing to pay the phenomenal price of achieving net zero carbon emissions. Soaring prices are exacerbating energy poverty in industrialized economies, and prices are expected to rise further. Germany is on track to spend more than half a trillion dollars on climate policies by 2025, but has only managed to reduce its dependence on fossil fuels from 84% in 2000 to 77% today today. McKinsey estimates that zero carbon will cost Europe 5.3% of its GDP in low-emission assets every year – for Germany, more than $200 billion a year. That’s more than Germany spends annually on education and police, courts and prisons combined.

Western leaders cannot continue to push costly policies without backlash. As energy prices soar, the risks of resentment and conflict increase, as France has seen with the “yellow vests” protest movement.

For the poorest billions, rising energy prices are even more serious as they block the way out of poverty and make fertilizer unaffordable for farmers, jeopardizing food production. The rich in rich countries might be able to bear the pain of some climate policies, but emerging economies like India or low-income countries in Africa cannot afford to sacrifice poverty eradication and climate change. economic development to combat climate change.

Wind and solar energy
Wind and solar can only meet a small part of the world’s electricity needs.
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Globally, the inability of green energy to be competitive means the world is well on its way to remaining dependent on fossil fuels. Analyzing all current and promised climate policies, the International Energy Agency finds that fossil fuels will still provide two-thirds of global energy consumption by 2050, a modest decline from the current 79%.

And the failures of green energy explain why carbon emissions continue to rise. Last year saw the highest global emissions on record. This year is likely to be even higher. Climate policy is broken. By driving up the price of fossil fuels, policy makers are putting the cart before the horse. Instead, we need to make green energy much cheaper and more efficient.

Humanity has relied on innovation to solve other great challenges. We didn’t solve air pollution by forcing everyone to stop driving, but by inventing the catalytic converter that dramatically reduces pollution. We did not reduce hunger by telling everyone to eat less, but through the green revolution which allowed farmers to produce much more food.

George W. Bush
Former President George W. Bush’s investment in shale gas resulted in reduced carbon emissions.
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Yet innovation in green energy has been neglected for three decades. In 1980, the rich world was spending more than 8 cents of every $100 of GDP on low-carbon technologies. As climate policies aimed to make fossil fuels more expensive, spending on green research was cut in half to less than 4 cents for every $100.

Copenhagen Consensus researchers, including three Nobel Prize-winning economists, have shown that the most effective climate policy possible is to increase green spending on research and development fivefold to $100 billion a year. That would still be far less than the $755 billion the world spent last year on often inefficient green technologies.

We don’t know where the breakthroughs will occur. They could come from nuclear energy, which can provide reliable energy 24 hours a day unlike the intermittence of solar or wind but which is still much more expensive than fossil fuels. With more R&D, “fourth generation” nuclear could end up providing much cheaper and safer energy. But we must look for breakthroughs in all areas of energy technology, from cheaper solar and wind with massive and very cheap storage to CO₂ extraction, fusion, second-generation biofuels and many other potential solutions.

Such innovation will create significant social benefits over the coming decades, where the next innovation will be built on the previous one. Unfortunately, most of the benefits will come after patents expire, so companies will be reluctant to invest. Instead, we need public investment in innovation.

The best example of game-changing climate innovation is President George W. Bush’s 10-year, $10 billion public investment in shale gas, which ultimately led energy companies to embrace the technology. Not intended as a climate policy, it paved the way for an increase in the production of cheap gas, displacing a significant share of coal. The gas emits about half the CO₂; it’s one of the main reasons America has seen the biggest reduction in emissions in the past decade.

We won’t solve climate change by making fossil fuels unaffordable, but by innovating to lower the price of green technologies so that everyone can change.

Bjorn Lomborg is Chair of the Copenhagen Consensus and Visiting Scholar at Stanford University’s Hoover Institution. His latest book is “False Alarm: How Climate Change Panic Costs Us Trillions, Hurts the Poor, and Fails to Fix the Planet”.