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Price Is No Longer an Obstacle to Clean Power: Peter R. Orszag

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These translations are done via Google Translate

By Peter R. Orszag

(Bloomberg Opinion) As the harm from climate change becomes increasingly manifest, there is some good news: The estimated cost of reducing carbon emissions is falling rapidly. One dramatic example is an analysis by Geoffrey Heal of Columbia University showing that it would cost only $6 billion a year for the U.S. to move to carbon-free electricity generation by 2050.

Even if the precise numbers are off, Heal is right to emphasize that the transition to cleaner energy is much less costly today than it used to be. Three forces are changing the math.

First, renewable power costs are dropping so fast, both utility-scale solar and onshore wind power have become cheaper than natural gas or coal power, as Lazard’s levelized-cost-of-energy estimates from 2019 show. As I wrote when these numbers came out, multiple forces have driven costs down, including ongoing improvements in technology and lower capital costs. (In November, Lazard will have updated estimates of the cost of various energy technologies.)

Second, the cost of storing renewable energy is also falling. The challenge with wind and solar energy is that they are intermittent, so they require either supplemental conventional power, such as combined-cycle natural gas, or enough storage to smooth the variation relative to demand. As storage becomes more affordable than supplementation, the share of energy production based solely on renewable power can expand.

Here too, there is good news: Storage technologies are evolving rapidly and costs are plummeting. The costs of lithium-ion battery technology are declining especially fast compared with other storage technologies, Lazard’s study of the levelized cost of storage shows. (Heal admits that these costs are the most uncertain part of his analysis; for simplicity he assumes that enough storage will be needed for two days of aggregate production from all renewable plants. That feeds into his $6 billion-a-year estimate.)

Third, and crucially, many power plants are nearing the end of their useful lives and need to be replaced one way or another. That means the cost of building new facilities is a given, and shouldn’t be counted as a cost of the transition to lower-carbon electricity. So now is an opportune moment to jump to improved production technologies, before new capital costs are incurred and the technologies are locked in.


If the costs of replacing old plants are included, Heal’s estimate rises to $41 billion a year — still quite manageable.

So how do we get there from here? The Business Roundtable recently endorsed pricing carbon along with a portfolio of complementary policies to reduce emissions. Most economists, in contrast, would put almost exclusive emphasis on pricing carbon, and downplay other approaches such as tax subsidies and energy efficiency standards.

But Heal is skeptical that simply putting a price on carbon will work all that well, at least unless the price is much higher than commonly appreciated. As a result, he reluctantly embraces additional policy measures, joining the Business Roundtable in embracing more than just pricing carbon.

The bottom line? The cost of switching to cleaner energy is falling drastically and seems eminently manageable. Heal suggests that for $20 a person per year, it’s possible to eliminate net carbon emissions from our power grid within three decades. His estimates may be too optimistic, but he’s right that the cost of switching to clean energy is falling fast — and given the stakes, it’s becoming the bargain of the century.

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