Economics that Work


Macroeconomics of the clean-energy transition

Unburnable carbonThe Economic Risks of Climate Change is an independent assessment of the economic impacts of climate change in the US.


The Bank of England
(analogous to the Federal Reserve in the US) is taking the financial risks of the Carbon Bubble seriously.

 

In 2012 the Rocky Mountain Institute published the first study concluding that building out clean energy in the US would not only be technically feasible, but would save money and have other benefits as well. In 2014 Prof. Mark Jacobson of Stanford started detailing such build-outs for every state in the US and most countries. Now there are dozens of studies for decarbonizing states and nations, all of which conclude that money is saved, jobs are created, and lives are saved.

The fossil-fuel companies continue to claim that renewables will be too costly, too unreliable, and too small, while the opposite is true in each case. The operating profits of US oil companies totaled $51B in 2013, so a billion or two spent to spread disinformation is easy for an unscrupulous company to justify if it delays their inevitable collapse.

Controlling capitalism

There are many economists saying that new controls are needed to keep capitalism from polluting ourselves to death. Since the 1920’s US industry has focused consumers on buying as much as possible by keeping them continuously dissatisfied. Today we buy more stuff than ever and work harder than ever to pay for it all–why aren’t we content with the stuff we have, creating less pollution, working fewer hours, and enjoying life more?

 

With our economy built on debt, those people and companies who can’t make their payments are gradually excluded like a game of musical chairs. Some say debt is why the rich people and countries keep getting richer and the poor get poorer, even as they sell their natural resources to pay the mounting debts.

circular economy clip art

 

Some economists believe we need a steady-state economy to keep our exponential growth in check–they say the planet’s resources are finite, therefore the economy can’t grow forever. But most economists point out that the value of goods and services needn’t be coupled to scarce materials, and thus finite materials does not imply a steady-state economy.

 

Instead of a linear flow of materials from a raw state, processed and combined into goods, and used until discarded, a circular economy recycles all its materials just as natural ecosystems do. Many countries require suppliers of consumer goods to take back discarded products, thus encouraging product design for recycling.

 

Gross domestic product (GDP) as a singular measure of an economy is problematic for multiple reasons. There are major programs in some countries to develop metrics as clear as GDP that also include the social and environmental measures.

 

Social costs of fossil fuels

Clean-energy alternatives are even more affordable when the external or social cost of carbon (SCC) is considered.

The external costs of fossil fuel emissions have been legally recognized since a 2007 ruling by the Ninth Circuit Court of Appeals. For example, counting external costs of fossil fuels would result in gasoline costing up to $8 per gallon or coal electricity up to 21 cents per kWh.

In a 2007 ruling on a dispute concerning fuel economy standards for cars, a judge sent a clear message to federal agencies. They could no longer continue business as usual and fail to account for climate change when assessing the costs and benefits of regulations. “The value of carbon emissions reduction is certainly not zero,” Judge Betty B. Fletcher wrote in her opinion for the U.S. Court of Appeals for the Ninth Circuit. This led the Office of Management and Budget to estimate the 2015 social cost of carbon (SCC) in the US to be $12 to $109 per MTCO2e, depending upon the discount rate assumed.

Other assumptions of the calculation and inclusion of other social costs of extracting or burning fossil fuels results in costs of $110 to $580 per MTCO2e.

Including such external costs would have made the commercial costs of fossil fuels more expensive than clean-energy alternatives years ago, and much more expensive today.

SCC chart