Now for Some Good News About Climate

Costs for renewables have plummeted and growth is exceeding expectations

By Ed Ballard, The Wall Street Journal, Nov. 27, 2023

There is no shortage of bad green-energy news. Automakers are fretting about electric-vehicle growth, higher interest rates are smashing financial plans, permitting for big projects still takes forever and offshore wind is a mess. 

But for every setback, there is a Sun Streams. This cluster of solar farms will cover more than 13 square miles of desert west of Phoenix. By 2025, it will provide enough electricity for roughly 300,000 homes, bringing Arizona’s largest utility closer to its goal of a zero-carbon grid.

The scale of the development, mostly owned by renewables company Longroad Energy, is part of a staggering surge in renewable energy. Driven by falling costs and better technology, growth in renewables has consistently exceeded expectations.

The big annual United Nations climate summit starts later this week in Dubai. What has become clear after years of talking is that few countries or businesses or people are willing to sacrifice much to limit climate change. The explosion of clean energy offers hope for cutting fossil-fuel use. 

“We are coming short on many dimensions, and we have an enormous amount of work to do,” said Rich Lesser, global chair of Boston Consulting Group. “But, equally important, our ability to make progress on the technology side has dramatically exceeded our expectations.”

In 2009, the International Energy Agency predicted that solar power would remain too expensive to compete on the grid. It continued to underestimate the growth of renewable energy and EVs. Last year, more than four-fifths of the world’s new power capacity was renewables, according to the International Renewable Energy Agency. 

Subsidies drove early growth in wind and solar, then technology refinements and large-scale manufacturing made them cheap. Lithium-ion batteries, which power cars and store electricity on the grid, plunged in price, too. Sun Streams will have enough batteries to power about 40,000 Teslas. 

Money is continuing to flow into these projects despite green energy’s headwinds. Longroad, the developer, said on Monday it raised $600 million of debt finance to expand its portfolio in a deal led by Apterra Infrastructure Capital, an affiliate of Apollo Global Management.

Research firm Rystad Energy estimates that we are on course to burn enough oil, gas and coal to heat the planet by between 1.6 degrees and 1.9 degrees Celsius above preindustrial levels, depending on how urgently governments act to speed up the transition. 

That is rosier than many other forecasts, though it exceeds the international target of 1.5 degrees that is seen as a comparatively safe limit. 

Rystad’s bullishness comes from the sun. Chief Executive Jarand Rystad said the spread of solar panels is compensating for lagging sectors such as offshore wind, which has been hobbled by cost overruns and snarled supply chains.  

BloombergNEF expects solar panels installed this year to add nearly 400 gigawatts of generating capacity. That is 4.5% of the generating capacity of the world’s power plants in 2022. On the current trajectory, transition bulls argue, it is a matter of when renewables erode fossil-fuel use, not if. 

The IEA expects demand for coal, gas and oil to peak this decade. To be sure, many fossil-fuel-producing companies and countries are betting on a long future for their products, and peak-oil talk has been wrong before. 

But it is also easy to underestimate the pace of change. Projections by the U.S. Energy Information Administration didn’t foresee how quickly renewable energy and natural gas would erode U.S. coal consumption. 

Much depends on China, where the growth of wind and solar coincides with new coal projects. Optimists say coal plants will act as backup in a system increasingly dominated by renewables. China leads the world in long-duration battery projects, according to BloombergNEF. 

Jarand Rystad says fossil-fuel power generation in China is close to a peak. “The tipping point is very soon,” he said.

The average cost of solar power fell nearly 90% between 2009 and 2023, with onshore wind declining by two-thirds, according to BloombergNEF. If costs continue to fall as installations increase, “the policy and finance spheres should prepare for a rapid disruptive transition,” wrote academics in the journal Nature Communications last month.

Similar declines are starting to reshape transportation. EV costs are falling, and infrastructure is improving. The total cost of ownership of small and midsize EVs is now cheaper than gasoline-powered vehicles in China and Europe and could hit that point in the U.S. next year, according to the Economics of Energy Innovation and System Transition project led by the University of Exeter.

In this view, renewables, batteries and EVs will become more popular as they get cheaper and better. Emerging green-energy technologies such as hydrogen, which is benefiting from government support and a surge in private investment, could follow the same path. 

“We have…underestimated sometimes inflection cost curves, and how quickly adoption happens,” said Kyung-Ah Park, head of ESG investment management and managing director of sustainability at Temasek, the Singapore state investment company with a portfolio valued above $280 billion. “I think you’re going to see more of that,” she added, saying other technologies will benefit from policy tailwinds.

Investors including Temasek put up 1.5 billion euros, or about $1.64 billion, for a low-carbon steel plant in Sweden in September as more money flows into decarbonizing industrial processes. H2 Green Steel will replace coal with hydrogen, produced using renewable electricity. Porsche plans to use H2’s steel in its cars. 

Investors are funding startups trying to produce better electrolyzers—machines that use electricity to split water into hydrogen and oxygen. Companies are locking in future supplies of hydrogen. Fertilizer producer OCI Global is securing green hydrogen to make ammonia, oil major TotalEnergies plans to use it in refineries, and shipping giant Maersk is ordering low-emissions methanol fuel, some of which will be made using green hydrogen.

At a recent event in London, Bill Gates said innovation in carbon-intensive industries such as steel and cement has far exceeded his expectations since he launched his Breakthrough Energy initiative to fund climate tech in 2015. 

Thorny emissions problems now have competing possible solutions. One Breakthrough-backed startup, Boston Metal, recently raised $262 million to make green steel via a method that uses electricity rather than hydrogen. Two others, Rondo Energy and Antora Energy, are manufacturing thermal batteries that store electricity as heat—a way to power high-temperature processes while using up surplus renewable power. 

“The fact that solar and wind costs have come down so dramatically has opened up a whole new set of options,” said Dolf Gielen, an energy economist at the World Bank.

https://www.wsj.com/business/energy-oil/now-for-some-good-news-about-climate-27236f56?mod=hp_lead_pos10

Why many scientists are now saying climate change is an all-out ‘emergency’

Escalating rhetoric comes as new study shows there are just six years left to keep global warming to 1.5 degrees Celsius at current CO2 emissions rate

By Shannon Osaka, The Washington Post, Oct. 30, 2023

Bill Ripple had never been an activist.

The Oregon State University ecologist had spent his career wandering through the hills and canyons of Yellowstone National Park, tracking the health of wolves and other large carnivores. Nor was he particularly outspoken: As a college student, he was so concerned about taking a debate class that he considered dropping out and returning to his family farm.

But then, in 2018, Ripple saw pictures of a town called Paradise, Calif., completely destroyed by wildfire. Houses had disappeared in the blaze; all that remained were twisted hunks of metal and glass. Ripple started writing a new academic paper. He called it: “World Scientists’ Warning of a Climate Emergency.” He sent it to colleagues to see if anyone wanted to sign on. By the time the paper was published in the journal Bioscience in 2019, it had 11,000 signatures from scientists around the world — it now has more than 15,000.

“My life completely changed,” Ripple said. He is the subject of a 30-minute Oregon State documentary; he gets constant media requests and calls to collaborate from scientists around the world. Last week, he published a new paper on the state of the climate system.

It was called “Entering Uncharted Territory.”

“Scientists are more willing to speak out,” Ripple said. “As a group, we’ve been pretty hesitant, historically.” But, he added, “I feel like scientists have a moral obligation to warn humanity.”

After a few years of record-breaking temperatures and extreme weather events, Ripple’s experience is a sign of how climate scientists — who once refrained from entering the public fray — are now using strident language to describe the warming planet. References to “climate emergency” and “climate crisis,” once used primarily by activist groups like the British-based Extinction Rebellion or the U.S.-based Sunrise Movement, are spiking in the academic literature. Meanwhile, scientists’ communication to the media and the public has gotten more exasperated — and more desperate.

On Monday, scientists released a paper showing that the world’s “carbon budget” — the amount of greenhouse gas emissions the world can still emit without boosting global temperatures more than 1.5 degrees Celsius (2.7 degrees Fahrenheit) — has shrunk by a third. The world has only six years left at current emissions levels before racing past that temperature limit.

“There are no technical scenarios globally available in the scientific literature that would support that that is actually possible, or can even describe how that would be possible,” Joeri Rogelj, a climate scientist at Imperial College London, told reporters in a call.

Tim Lenton, one of the co-authors on Ripple’s most recent paper and a professor of earth system science at the University of Exeter, said that 2023 has been filled with temperatures so far beyond the norm that “they’re very hard to rationalize.”

“This isn’t fitting a simple statistical model,” he said.

Lenton said he isn’t afraid to use terms like “emergency” or “climate and ecological crisis.”

It wasn’t always this way. In the 2000s and even early 2010s, most scientists shied away making any statements that could be seen as “political.” Jacquelyn Gill, a professor of climate science and paleoecology at the University of Maine, said that when she was doing her PhD in those years, senior academics warned her against deviating at all from the science when interacting with the media or the public.

“We were actively told if we start to talk about solutions, if we start to talk about the policy implications of our work, we will have abandoned our supposed ‘scientific neutrality,’” Gill said. “And then people will not trust us anymore on the science.”

Susan Joy Hassol, a science communication expert who has worked with climate researchers for years, says that even a decade ago, climate scientists were uncertain what their role was in communicating the dangers of rising temperatures. “I think at least some of them felt that scientists communicate through IPCC reports,” Hassol said, referring to the U.N. Intergovernmental Panel on Climate Change. “‘We do our science, we publish, we put together these reports, and it’s kind of up to other people to listen.’”

Now, she said, that has changed. “We have reached this stage of crisis,” she said.

It isn’t just the fact that emissions aren’t going down — or that policy hasn’t responded quickly enough to the challenge. (Carbon dioxide emissions related to energy use have continued to climb, even after the brief downturn of the coronavirus pandemic.) As the impacts of climate change escalate, scientists say, their language has changed to meet the moment.

When it comes to terms like “climate emergency,” Gill says, “it’s a little bit of strategy and a lot of honesty.” While climate scientists are still discussing whether warming is accelerating, she added, “it’s clear the impacts are becoming more noticeable and in-your-face.”

Hassol said that the shift is simple. In the 2000s, she said, climate change wasn’t yet at the level of an emergency. She recalls a 2009 report called “The Copenhagen Diagnosis,” which analyzed climate science to date and made suggestions for how to reach net-zero carbon emissions. If world governments had acted swiftly, the world would have had to cut emissions only by a bit over 3 percent per year. “We called that the bunny slope,” Hassol recalled.

If, on the other hand, governments waited until 2020 to start the transition, cuts would have to be much steeper — up to 9 percent per year. “We called that the double-black diamond,” she said. Despite the brief respite in CO2 emissions during the pandemic, humanity’s trajectory has veered closer to the double-black diamond.

At the same time, many scientists realize that even the best communication in the world isn’t enough to overcome the inertia of a system based on fossil fuels — and the resistance of various oil and gas companies.

“The problem is not that scientists haven’t been communicating clearly enough,” Hassol said. “We communicated pretty darn clearly. Anyone who wanted to hear the message — it was there.”

Chico Harlan contributed to this report.

https://www.washingtonpost.com/climate-environment/2023/10/30/climate-emergency-scientists-declaration/

How carbon prices are taking over the world

A quarter of global emissions are now covered, and the share is rising fast

The Economist, October 1, 2023

If global warming is to be limited, the world must forget about fossil fuels as fast as possible—that much almost everyone agrees upon. How to do so is the complicated part. Economists have long favoured putting a price on carbon, a mechanism that Europe introduced in 2005. Doing so allows the market to identify the cheapest unit of greenhouse gas to cut, and thus society to fight climate change at the lowest possible cost. Others, including many American politicians, worry that such schemes will provoke a backlash by raising consumer costs. Under President Joe Biden, America is instead doling out hundreds of billions of dollars to nurture green supply chains.

Yet, remarkably, the rest of the world is now beginning to look more European—with carbon prices spreading in countries both rich and poor. Take Indonesia, the world’s ninth-biggest polluter. Although it releases 620m tonnes of carbon-dioxide equivalent a year, with almost half its soaring energy consumption coming from coal, the country has green ambitions. On September 26th, at the launch of its first carbon market, Joko Widodo, the president, talked up its prospects as a hub for the carbon trade, and local banks duly snapped up credits from a geothermal-energy firm. The country also introduced a local emissions-trading scheme in February, which requires large coal-fired plants to buy permits for emissions above a threshold.

In short, even in countries better known as polluters than as green leaders, things are shifting. By the start of 2023, 23% of the world’s emissions were covered by a carbon price, according to the World Bank, up from just 5% in 2010 (see chart). The spread will only accelerate over the coming years as more countries come around to the advantages of carbon pricing, and existing schemes expand their reach. On October 1st the eu launched a groundbreaking policy under a dreary name. The “carbon border adjustment mechanism” (cbam) will, by 2026, start to levy a carbon price on all the bloc’s imports, meaning that European companies will have a strong incentive to push suppliers around the world to go green.

The spread of carbon prices is happening in three ways. First, governments are creating new markets and levies. Indonesia is one example. If all goes to plan, its market will eventually be combined with a carbon tax. In April Japan launched a voluntary national market for carbon offsets, which will work alongside an existing regional cap-and-trade policy in place in Tokyo. Participants, accounting for 40% or so of the country’s pollution, will be required to disclose and set emissions targets. Over time the scheme will become stricter, with auctions of carbon allowances for the energy industry due to begin in 2033. Meanwhile, Vietnam is working on an emissions-trading scheme to be established in 2028, in which firms with emissions above a threshold will need to offset them by buying credits.

Second, countries with more established markets are beefing up their policies. On September 24th China’s National Climate Strategy Centre announced that its emissions-trading scheme, which is the world’s largest, will move from only focusing on the carbon intensity of coal power plants, to focusing on both their intensity and total emissions. The scheme will be linked with a dormant carbon-credit market, allowing plants to meet their obligations by purchasing credits for renewable power, planting forests or restoring mangroves. Australia, which scrapped its original carbon price in 2014, has reformed a previously toothless scheme known as the “safeguard mechanism”. Since July large industrial facilities that account for 28% of the country’s emissions have had to reduce emissions by 4.9% a year against a baseline. Those that fail must buy carbon offsets, which trade at a price of around $20 a tonne.

The final way in which carbon markets are spreading is through cross-border schemes. The eu’s programme is by far the most advanced. In cbam’s pilot phase importers of aluminium, cement, electricity, fertiliser, hydrogen, iron and steel will need to report “embodied” emissions (those generated through production and transport). Then, from 2026, importers will have to pay a levy equivalent to the difference between the carbon cost of these embodied emissions in the eu’s scheme and any carbon price paid by the exporter in their domestic market. Free permits for sectors will also be phased out, and the housing and transport industries will be brought into the market.

Many of these schemes will take time to have an impact. Lots in Asia are flimsy, with prices set too low to produce meaningful change—well below the eu’s current price of €80-90 ($85-95), which is itself only approaching climate economists’ estimate of the social cost of carbon. For instance, half the coal plants covered by China’s emissions-trading scheme face a negative carbon price, meaning that they are in effect paid to burn the dirty fuel, since their emission intensity is below the national average, says Lauri Myllyvirta of the Centre for Research on Energy and Clean Air, a think-tank. The scheme also fails to create an incentive to shift from coal to other sources of power, he notes.

Across the world, activists criticise the ability of firms to use offsets to indulge in what they term “greenwashing”, where companies falsely present themselves as environmentally friendly. Some schemes also struggle to prove they have led to emissions reductions. In 2022 a team of academics, led by Andrew Macintosh of Australian National University, argued that reforestation used as carbon credits in Australia’s scheme either did not happen or would have happened irrespective of payments for offsets. An independent review has since recommended changes to how the scheme works.

Yet even carbon-pricing programmes that are limited will still help change behaviour, for the simple reason that they encourage the monitoring of emissions. After its launch two years ago, China’s emissions-trading scheme was dogged by fraud, with consultants alleged to have helped firms produce fake coal samples. A crackdown was announced by officials earlier this year, who are now satisfied with the quality of data. Despite the absence of a carbon price, American firms also face incentives to monitor emissions. President Biden has proposed a rule that all businesses selling to the federal government must disclose their emissions and have plans to reduce them. Many large firms have set voluntary net-zero targets as part of their marketing efforts. Apple, the world’s largest, has pledged to make its supply chain entirely carbon neutral by 2030.

And manufacturers around the world now face a still greater incentive to accurately track their carbon footprints: cbam. The eu’s ultimate goal is to tackle “carbon leakage”. Before cbam’s introduction, Europe’s carbon price meant that domestic industries faced an extra cost compared with those in countries with less ambitious decarbonisation plans. This gave importers an incentive to source material from abroad, even if these inputs were dirtier. To compensate for this, the eu handed out permits to industrial producers. These will now be phased out as cbam is phased in.

During the pilot phase, cbam simply presents an extra hurdle (what economists call a “non-tariff barrier”) for exporters to the bloc. To comply, European firms must report the embodied emissions of their imports. If such data do not exist, importers must use reference values provided by the eu. In order to nudge foreign companies to change their behaviour and prove that their emissions are lower, these are based on the emissions of the dirtiest firms in the bloc. From 2026 importers will have to pay the difference between the amount embodied emissions would be charged under the eu’s emissions-trading scheme and whatever carbon price the products pay at home.

Carbon border tariffs may themselves multiply over the coming years. In Australia the government recently announced a review into the country’s “carbon leakage”, which will examine such an option. In 2021 America and the eu paused a trade dispute, begun by President Donald Trump, by starting negotiations over a “Global Arrangement on Sustainable Steel and Aluminium”. America wants the two trading partners to establish a common external tariff on more polluting steel producers. Since America does not have a domestic carbon price, such a policy would flout the rules of the World Trade Organisation. But if the eu and America do not come to an agreement, the Trump-era tariffs and the eu’s retaliatory measures will be reinstated.

There is a domino effect to carbon pricing. Once an industry is subject to a carbon price its businesses will naturally want their competitors to face the same rules. Therefore owners of coal power plants will lobby to ensure that gas power plants operate on a level playing-field. Governments in exporting countries also have an incentive to ensure that their domestic firms pay a carbon price at home rather than a tariff abroad. If Asia’s factories are pressed to reduce their emissions anyway by schemes such as cbam, then its governments are leaving money on the table by not levying a carbon price of their own.

The question is whether the dominoes will fall fast enough. Almost no emissions-trading schemes are aimed at emissions from residential property or cars, for instance, where consumers would really feel the pain. In choosing to introduce carbon-pricing schemes, and then to make them broader and more muscular, policymakers have most economists firmly on their side—and are proceeding much faster than is commonly realised. But future policymakers will need to make such policies even more intrusive if the effects of climate change are to be minimised. For that to happen, they will have to win over voters, too. 

Global use of oil could peak this decade: IEA

By Nick Robertson, The Hill, Sept. 26, 2023

Greenhouse gas emissions and the global demand for fossil fuels could peak this decade, according to an updated analysis from the International Energy Agency (IEA) that emphasized more must be done to prevent devastating climate change.

The agency said that the case for limiting global warming to 1.5 degrees Celsius is “stronger than ever,” citing a rapidly growing green energy industry and electric vehicle sales.

The new projections are an update to the agency’s 2021 plan to get to net zero global greenhouse emissions by 2050. 

“The speed of the roll-out of key clean energy technologies means that the IEA now projects that demand for coal, oil and natural gas will all peak this decade even without any new climate policies,” according to the report. “This is encouraging, but not nearly enough for the 1.5 degree Celsius goal.”

Much of that expansion was prodded on by Russia’s invasion of Ukraine, according to the report, which forced European countries to move rapidly away from natural gas and to alternative energy sources. 

The IEA projects global renewable energy capacity will nearly triple to 11,000 gigawatts by 2030 and methane emissions will fall to a quarter of current levels in the same period — to about 30 megatons per year.

The new plan also relies less on technologies that have not yet been developed. While about half of the reductions in the 2021 report necessitated future tech, the 2023 update reduces that to about 35 percent.

The technologies that have shown the most promise in the last two years have been new battery processes and the hydrogen electrolysis method of removing carbon dioxide from the air, according to the report.

If the world continues and doubles down on investing in green energy sources, as well as ceases new construction of fossil fuel sources, net zero is still possible by 2050, the IEA said, but a lack of international cooperation makes that difficult.

“By 2035, emissions need to decline by 80 percent in advanced economies and 60 percent in emerging market and developing economies compared to the 2022 level,” according to the report. “As part of an equitable pathway to the global goal of net zero emissions by 2050, almost all countries need to bring forward their targeted net zero dates.”

And as time goes on, the need for action becomes more apparent, the agency said.

“The energy sector is changing faster than many people think, but much more needs to be done and time is short. Momentum is coming not just from the push to meet climate targets but also from the increasingly strong economic case for clean energy, energy security imperatives, and the jobs and industrial opportunities that accompany the new energy economy,” the report concludes. “Yet, momentum must be accelerated to be in line with the 1.5°C goal and to ensure that the process of change works for everyone.”

Popular Senate carbon tariff bill gains House champions

By Emma Dumain, Greenwire, Sept. 7, 2023

As interest grows in a Senate proposal to calculate the emissions intensity of industrial materials produced in the U.S., two lawmakers are getting ready to introduce companion legislation in the House.

It will mark an important step for the “Providing Reliable, Objective, Verifiable Emissions Intensity and Transparency (PROVE IT) Act,” which is being viewed as a first step in building support for a policy known as a carbon border adjustment mechanism, or CBAM, that would impose tariffs on carbon-intensive imports.

Reps. John Curtis (R-Utah) and Scott Peters (D-Calif.) will be the lead sponsors of a House version of the “PROVE IT Act,” their offices confirmed to E&E News on Thursday.

“Rep. Curtis has enjoyed working with Rep. Peters on the PROVE IT Act,” a spokesperson said in a statement. “While minor changes are being worked through, he believes this bill is critical given Europe’s implementation of the CBAM and the need for better data showing America’s carbon advantage and top-tier environmental performance.”

A Peters spokesperson said in a separate statement, “Rep. Peters is excited to be working with Rep. Curtis again to advance bipartisan climate policies and show that even in an age of increasing partisanship, we can still work together to advance strong environmental and energy policies.”

“Rep. Peters believes that to address climate change we must raise our standards and lead the world in providing clean and reliable energy,” the statement continued.

“We must also create a race to the top so all nations are incentivized to reduce their contribution to climate change,” the statement said. “The PROVE IT Act will provide transparency into the emissions intensity of key economic sectors across the globe and incentivize countries to continue reducing their climate footprint.”

The two members have worked together on environmental policy in the past. Curtis, chair of the Conservative Climate Caucus, and Peters, a moderate who views changes to the National Environmental Policy Act as critical to boosting renewable projects, have discussed what a bipartisan permitting overhaul bill could look like.

They were also, in the previous Congress, co-sponsors of legislation to establish new carbon removal research and verification efforts.

While the Curtis spokesperson didn’t elaborate on what changes the Republican is seeking to the legislation, the Senate version would require the Department of Energy to study and determine the emissions intensity of nearly two dozen products made in the United States and by G-7 countries, free-trade agreement partners, foreign countries of concern and “countries that hold a substantial global market share for a covered product.”

The list of “covered products” would include aluminum, iron, steel, plastic, crude oil, lithium-ion batteries, solar panels and wind turbines.

DOE would have two years to compile a report on its findings, in consultation with EPA, the Office of the U.S. Trade Representative, and the Commerce and State departments. An update of the data would have to be published every five years.

Sens. Chris Coons (D-Del.) and Kevin Cramer (R-N.D.), the Senate sponsors of the “PROVE IT Act,” have touted this framework as necessary for the data-gathering that would have to take place before any CBAM could go into effect.

They have also praised the bill’s approach as one that will bring a more diverse coalition into the conversation about the advantages of tying trade policy to carbon emissions reductions.

Republicans who have signed onto the bill so far, Cramer and Coons reiterated at an event hosted by the Climate Leadership Council on Thursday morning, are drawn to policies that would put the United States at an advantage on the world stage.

At this moment, the European Union is closing in on implementing its own CBAM. The U.S. would benefit from being able to assert knowledge about the carbon intensity of its own products, rather than have the E.U. make its own determinations — especially when U.S. emissions pale in comparison to some of the world’s largest polluters and biggest trade partners.

“In the Republican Party, we’re living in this ‘America First’ populism explosion, really,” said Cramer, “so this helps that; this speaks to that.”

https://www.eenews.net/articles/popular-senate-carbon-tariff-bill-gains-house-champions/

The biggest fossil fuel subsidies are indirect, and bigger than ever

“Sparklines” column by Nathaniel Bullard, Bloomberg News, August 31, 2023

The world is headed for a record year of investment in the energy transition. Every new clean electron generated by wind turbines and solar arrays, and each new battery-powered car and hydrogen electrolyzer, will reduce some measure of the fossil fuels consumed on the planet’s roads and grids. More than $1 trillion was spent on the transition last year, and almost certainly will be spent again in 2023. 

Big as that figure is, it pales in comparison to another energy-related outlay: subsidies for fossil fuels and electricity. The International Monetary Fund calculated that just over $7 trillion in subsidies went to fossil fuels last year. That is a record for at least the past decade. Since the IMF’s report expresses all figures in 2021 dollars, inflation cannot explain away the increase. In short, the world has never spent this much to subsidize fossil fuels. 

About one-quarter of the total — $1.33 trillion — is made up of what the IMF terms explicit subsidies, or undercharging for the cost of supplying a fossil fuel or electricity. The figure is a record in its own right, and more that the total investment in the energy transition tracked last year by BloombergNEF. 

But that still leaves a balance of $5.7 trillion in implicit subsidies, or undercharging for the environmental costs of a fuel, as well as forgone taxes on consumption. This amount is another record, and up 10% from 2021. Implicit subsidies grew less in percentage terms than explicit ones, but given their scale, they increased nearly as much in absolute terms — by more than $500 billion. 

Oil companies run PR campaigns all the time, but none has taken off quite like the “carbon footprint.” It taps into a question we all have: Can our choices lower emissions? If so, how? And if they don’t…why bother? This week on Zero, Akshat is joined by Kira Bindrim, the editor of Bloomberg Green’s Greener Living, to talk through that question, what she’s observed in a year of editing stories about products and the importance of using “joy” as a metric. Subscribe to Zeroon Apple, Spotify, or Google to get new episodes every Thursday.

These subsidies aren’t just huge. They are also fairly predictable, unlike explicit subsidies, which vary significantly from year to year depending on fuel prices and government policy decisions. For instance, explicit subsidies declined by a quarter in 2016 and rose by 39% a year later. The years 2020 and 2021 are outliers due to Covid-19, but in this sense energy subsidies are hardly unique.

Last year, three fuels received more than a trillion dollars each in implicit supports. Gasoline got just over $1 trillion (for the first time); diesel, more than $1.5 trillion; and coal, $2.1 trillion — the third year since 2015 in which it received at least $2 trillion. 

The difference between implicit and explicit subsidies for a given fuel (or electricity) can be significant. Gasoline receives “only” $80 billion in explicit terms, and diesel $140 billion; they receive, respectively, 11 and 12 times more in implicit terms. Kerosene gets an even greater implicit subsidy compared to its explicit one: $146 billion versus $9 billion. 

There are some exceptions to this general pattern. Natural gas is the only fuel to receive less implicit than explicit subsidy. But with half a billion dollars separating more than $640 billion for both subsidy types for gas, calling them “equal” would be better. Electricity receives more than $300 billion in explicit dollars, according to the IMF, but zero implicit ones. 

And then there is coal. Last year, coal received all of $8.6 billion in explicit subsidies and $2.1 trillion in implicit subsidies — a more than 240 times’ difference. 

The IMF notes in its report that keeping fuel prices below their “fully efficient levels” also keeps greenhouse gas emissions high. Were the world to raise prices to the level that accounts for both their explicit and implicit costs, then carbon dioxide emissions from fossil fuels could fall more than 40% below their baseline levels (and a third lower than emissions in 2019) by the end of the decade. 

Yet the very persistence of multi-trillion-dollar indirect subsidies suggests how hard such a move would be in practice. We may be inured to the cost of underpricing, even if it’s more than 5% of global gross domestic product. 

The IMF’s data itself, though, also suggests a path toward reducing implicit subsidies without a coordinated global effort of raising prices to efficient levels. As noted above, only one energy source has zero implicit subsidy: electricity. It does have more than $300 billion of explicit subsidy, of course, but as an energy source, it does not carry with it the same implicit costs as kerosene, or coal.

That means that wherever electricity displaces another energy source, it is also reducing implicit subsidy. And at the same time, wherever that electricity is low-cost and renewable, it is reducing reliance on fossil fuels and their own fuel-based subsidies too. Electricity is an outlier in the world’s $7 trillion energy subsidy landscape, and that’s a good thing.

Nat Bullard is a senior contributor to BloombergNEF and writes the Sparklines column for Bloomberg Green. He advises early-stage climate technology companies and climate investors.