Much in the way of human brain power, as well as time, money and computing resources, is being dedicated to analyzing the costs and benefits of alternative, less socially and environmentally damaging clean energy development pathways. Taking an alternative approach to the issue in a recently released research paper, the Brookings Institution’s Charles R. Frank, Jr. evaluates five low and no-carbon electricity technologies and presents their net benefits across a range of energy and climate policy and market price assumptions.
Rather than assessing the net benefits of wind, solar, hydroelectric, nuclear and combined-cycle natural gas power plants from the more commonly used perspective of levelized energy costs, which can be misleading, in “The Net Benefits of Low and No-Carbon Electricity Technologies,” Frank, an economist and former director of the Chicago Mercantile Exchange (CME), bases his analysis on avoided emissions and avoided costs. He concludes that absent a high-enough price on carbon, a carbon tax or direct levies on fossil fuel suppliers, “nuclear, hydro and natural gas combined cycle have far more net benefits than either wind or solar.”
While providing valuable economic insights for power industry investors, operators, and energy and climate policymakers, Frank’s study also highlights the shortcomings of research economists’ models and thinking when it comes to guiding decision-making on energy and climate, and the dangers of relying on them as “go-to” guides for determining energy, climate and economic policy.
Low and no-cost electricity technologies: Avoided emissions, costs and net benefits
Frank lays out his three main conclusion in the introduction to “The Net Benefits of Low and No-Cost Electricity Technologies”:
- First—assuming reductions in carbon emissions are valued at $50 per metric ton and the price of natural gas is $16 per million Btu or less—nuclear, hydro and natural gas combined cycle have far more net benefits than either wind or solar. This is the case because solar and wind facilities suffer from a very high capacity cost per megawatt, very low capacity factors and low reliability, which result in low avoided emissions and low avoided energy cost per dollar invested.
- Second, low and no-carbon energy projects are most effective in avoiding emissions if a price for carbon is levied on fossil fuel energy suppliers. In the absence of an appropriate price for carbon, new no-carbon plants will tend to displace low-carbon gas combined cycle plants rather than high-carbon coal plants and achieve only a fraction of the potential reduction in carbon emissions. The price of carbon should be high enough to make production from gas-fired plants preferable to production from coal-fired plants, both in the short term, based on relative short-term energy costs, and the longer term, based on relative energy and capacity costs combined.
- Third, direct regulation of carbon dioxide emissions of new and existing coal-fired plants, as proposed by the U.S. Environmental Protection Agency, can have some of the same effects as a carbon price in reducing coal plant emissions both in the short term and in the longer term as old, inefficient coal plants are retired. However, a price levied on carbon dioxide emissions is likely to be a less costly way to achieve a reduction in emissions.
Economics as the “go-to” guide for energy and climate policy making
Fully and genuinely understanding any research requires a rigorous, thorough examination and appreciation of the assumptions upon which it is based. Evaluating the avoided emissions, avoided costs and thereby net benefits of alternative clean energy technologies–based on forecasts of carbon and energy market prices or imagined carbon tax–distorts and misrepresents a reality that is far more complex. That can have grave implications for this and future generations.
Rather than acknowledging or searching for an alternative means of compensating for the inability of conventional economics to fully “capture” and comprehend all the ecological and sociological or, for that matter, economic, effects, impacts and risks of greenhouse gas emissions and climate change, Frank defaults to economic convention.
In his research paper, Frank turns to the economic maxim and fundamental neoclassical economics assumption that market prices, in this case for carbon and energy, incorporate and price in all the knowledge available on the subject at hand, and that all that knowledge is available to everyone. That’s clearly not the case even in the oldest, well-established markets, much less the nascent markets for carbon and greenhouse gas emissions.
While they are the best market mechanism for reducing emissions achievable politically to this point in time, calculating avoided costs and net benefits of clean energy technologies based on carbon market prices and assumptions about the path of future energy prices falls far short of what is needed to guide energy policy and decision-making worldwide.
Carbon market prices do not reflect the true social and environmental costs of rising greenhouse gas emissions, or the net benefits of emissions reductions. They are determined by the supply and demand of carbon offset credits, the quantities of which on offer at any time are determined according to the rules of nascent, compromised institutional frameworks for reducing carbon emissions.
Accounting for the overall costs and net benefits of greenhouse gas emissions
To be fair, the wide-ranging impacts and costs of present-day or future climate change are not known by anyone to any high degree of certainty. What is abundantly clear is that those risks and threats can be as profound and devastating as any faced over the course of human history.
As stated more decisively than ever in the U.N. International Panel on Climate Change’s (IPCC) Fifth Assessment Report, the world’s leading climate scientists have concluded to a very high degree of certainty that our carbon and greenhouse gas emissions are driving global warming and climate change. Historic documentary and geological evidence clearly shows that climate change has been a driving force that has led to widespread conflict and the collapse of civilizations. A large and growing body of scientific research documents similar, troubling signs taking place today.
Incomplete and potentially misleading as it is when considered at face value, Frank’s analysis is certainly valuable and useful to those making decisions about electricity production wihtin the narrow context of conventional economic thinking. Furthermore, Frank does the public a service by evaluating the net benefits of electricity production from combined cycle natural gas, nuclear power, hydroelectric, wind and solar energy plants from an alternative perspective of avoided costs and avoided emissions.
Given the underlying assumptions, however, such research studies highlight the inadequacy of conventional economic models and thinking when it comes to energy, climate and the environment, and the dangers of an over-reliance on them to guide energy, climate and economic policy.
At bottom, emissions-free electricity generation technology and systems that have much less in the way of negative impacts on our planet’s atmosphere, land, waters and ecosystems are readily available, and at rapidly declining cost. The question is: How much are we willing to pay, or give up, for them?
Images credit: Brookings Institution, “The Net Benefits of Low and No-Carbon Electricity Technologies,” Charles R. Frank, Jr.