True costs of fossil fuels make renewables seem cheap in comparison
In November 2006, California voters rejected Proposition 87, a ballot initiative to raise the oil industry’s taxes by $4 billion for research into renewable energy.
Four months before the ballot, a survey (PDF) by the Public Policy Institute of California found that 61 percent of likely voters favored the idea, including 51 percent of Republicans.
What changed between the survey and the vote? The oil industry pumped more than $60 million into a campaign to defeat the measure. Proposition 87 contained a specific provision that would have forbidden oil companies from passing the tax along to consumers. Nevertheless, a central part of the industry’s message was that Proposition 87 would raise the price of gasoline.
On the Hill and in the voting booth, the specter of higher costs and taxes is the big weapon in the fossil-fuel industry’s arsenal against climate action. The question is, what’s the defense?
It is important to acknowledge and to anticipate that putting a price on carbon will raise energy prices. The Center on Budget and Policy Priorities released an estimate (PDF) last November that carbon pricing to achieve a modest 15 percent reduction in emissions would cost the poorest fifth of the population between $750 and $950 a year on average. That’s big money to a family living on $13,000 — and fossil-energy costs presumably would grow as carbon caps get stricter.
But we can mitigate those costs:
Among other measures, the federal government should dramatically increase funding for the Department of Energy’s program to weatherize the homes of low-income families. Part of the revenues from carbon taxes or a cap-and-auction regime should be returned to consumers in the form of a rebate or tax cut. The Center on Budget and Policy Priorities estimates that energy price increases at the level it projects could be offset by 14 percent of auction revenues distributed to families in any of several ways.
Moreover, the price of oil and gas already is rising steeply through no fault of climate action. The average price of a barrel of crude oil was under $12 a decade ago; last week, it hit $100.
Ten years ago, the average price of residential natural gas was $7.45 per thousand cubic feet. In the first 10 months of 2007, the average price was $14.49.
Even without carbon pricing, fossil energy costs will continue rising because of growing world demand and diminishing supplies. We and the other world economies have a choice between two futures. In one, we continue depending on finite resources that are getting more expensive to produce and that are likely to bring resource conflicts as global competition for them increases. In the other future, we phase out fossils in favor of high efficiency and fuels that are abundant, clean and free.
Another important factor in our energy reality is that the true costs of fossil fuels are much higher than the price we pay at the pump or the electric meter. The true costs are hidden by federal subsidies and externalities such as health problems due to air pollution, environmental damages from producing and consuming the fuels, maintenance of the strategic petroleum reserve, and defending Persian Gulf shipping lanes. In other words, we pay not only at the pump, but at the doctor’s office and in our tax bills.
Our national strategy, it seems to me, should be to go aggressively after the domestic and global markets for wind, solar, geothermal, hydroelectric, biomass, and other renewable resources. It’s reasonable to expect that the capital costs of these technologies will go down as we make more of them and achieve economies of manufacturing scale. At some point, the full costs of fossil energy technologies — capital, fuel, carbon pricing and the many other costs that now are externalized — will be higher than costs of those renewable energy technologies that have no fuel charges and low externalities. In fact, if we totaled up the true costs of coal, oil, and natural gas today, it would be clear that many of the clean energy technologies we regard as too expensive already are cheap by comparison.
It’s not easy to make these arguments in a first-cost immediate-gratification culture where consumers pay far more attention to the sticker price than to the true costs of their decisions. A Yale-Gallup poll last July found that 71 percent of respondents were opposed to higher electricity prices and 67 percent opposed higher prices for gasoline, even while more and more people are concerned about climate change.
In other words, told by Mother Nature, “You can pay me now or pay me later,” seven in 10 Americans would respond, “Do you take Master Card?”
With funding from the Presidential Climate Action Project, University of Vermont ecologist Bob Costanza and his team at Earth Inc. are developing an Energy and Environmental Policy Full Cost Calculator to help policy makers estimate the true costs of different resources, technologies, and policies. It’s a start.
But consumers need to be mindful of true costs, too. Maybe we should start showing true costs on auto efficiency stickers, fuel pumps, and appliance labels. (Think of a gasoline pump that registers not only gallons and price as you fill up, but also per-gallon tax subsidies, carbon emissions, national defense taxes, lives lost in Iraq, and asthma cases.)
Actually, that may not be a bad idea.
Part I is here.