Isra-Mart srl: Reduce carbon by making it dear, energy economist argues

In the absence of decisive intervention from governments, fossil fuels will remain the dominant energy source for the next 25 years to 30 years, despite strong growth in renewable-energy production and despite the build up of climate-changing carbon dioxide (C02) in the atmosphere, a leading US energy economist and author argues.

Speaking during a recent lecture in South Africa organised by the Fossil Fuel Foundation, professor Carol Dahl of the Colorado School of Mines’ Mineral and Energy Programme noted that, in the 100 years from 1900 to 2000, fossil fuels had expanded from 68% of the global energy mix to 83%. Coal had surpassed wood in the 1880s, oil had passed coal in 1950s, while the use of natural gas had risen strongly since the 1950s.

“Renewables are growing really fast, but they will still be a very small part of our overall consumption by 2030,” Dahl said.

While renewable energy output was forecast to grow at around 1,5% a year between now and 2030, that was still only slightly ahead of the anticipated average for all primary-energy sources (including oil, gas and coal) of 1,3%.

“Therefore, if we don’t have very stringent government policies, fossil fuels will be dominant for much longer than just 2030,” she added.

That reality would make it difficult to lower CO2 emissions to the yearly target of 2,9 t a person, as well as to stabilise CO2 stocks at 450 parts per million (ppm) by 2050, which would require a 60% reduction in emissions by then – the current volume was about 390 ppm, increasing by 2 ppm a year.

“By the end of the century, I am sure that we will be using more renewables than fossil fuels. But without fairly strong policy intervention in the next 20 to 30 years, I think we will still be using an awful lot of fossil fuels. Therefore, much of what happens will really depend on what governments do over the next decade,” Dahl argued.

She indicated that she favoured the deployment of market-based policies, such as carbon taxes, or cap-and-trade solutions, to send the correct price signals for carbon use.

However, governments were also considering subsidies, or even renewable portfolio standards, whereby minimum thresholds could be placed on the use of renewable energy by certain dates.

“Economists tend not to favour such interventions, as there is scepticism about the ability of government to figure out what the best technologies are. On the other hand, if you send the right price signal, on the true cost and benefits of a certain fuel type, then, we as economists believe, the market will figure out the best way to make the change,” she argued.

“In other words, if your aim is to reduce carbon, make carbon expensive.”

Dahl is also working on a project for the US Department of Energy to discern historical price elasticity patterns in the global energy market, which could guide the eventual incentives and disincentives that might be deployed to change consumption behaviour.

“The idea is to try and understand that effect that an instrument like a carbon tax might have over 20 to 30 years. At the moment, some patterns are emerging, but that work still needs to be finalised.”

But Dahl argued against the notion that there was no price elasticity in the energy market. “The elasticity may not be huge, but I still think that people do respond to price,” she concluded.