IEA: $45 Trillion Needed To Cut CO2 Emissions 50% By 2050

Environmental Leader has a good article on the report by IEA that says that $45T of investment will be required by 2050 in order to reduce CO2 by 50%. In particular, it highlights the graph which is very interesting, showing 15 of the 50% reduction coming from efficiency gains, and the next 20 of 50% coming at relatively low cost from the power sector. So combined, these two are 70% of the overall reduction, and looking at the graph, can be achieved with near net 0 cost (the efficiency savings cover the added cost of power switchover).

So what's left is a massively expensive effort to convert our industry, cars and trucks to an alternate fuel source. The conclusion of the IEA report is that we would need $500/ton tax or price of carbon to achieve the reductions required in the industry and transport sectors. But wait a minute - the power industry needs a price of carbon under $100 to meet its goals, and the efficiency gains can be met without much of a price of carbon at all. At $500/ton, we'd be looking at an additional cost for electricity of around 30 cents per kWH - are we really going to do that just because another sector is harder to deal with than electricity?

What this graph so nicely points out is that we have three different problems, and because of the economics, maybe we shouldn't treat them the same way. First, we have the need to increase our efficiency. Since this is generally cost neutral or better, this should be able to be done through some kind of incentive program. Second, we need to convert our electricity production, and there's increasing consensus that we can do this at a reasonably low cost.

Finally, our big problem is that we need to wean ourselves of our oil dependence for transportation and industrial use. For better or worse, we also appear to have a massive disconnect in supply and demand in this sector, so we are doubly incented to address this problem. And you can see by the large range of predicted cost in the graph, especially compared to the small range in the power sector, that we don't really yet know how to do this.

So I draw optimism from the left 2/3 of the chart, and am very concerned about the right third. But more importantly, I'm increasingly worried about us using carbon pricing as a big hammer that we're going to fix everything with. We have at least three distinct problems here, so maybe we should be looking at at least that many mechanisms to drive change.

Comments:

I'm intrigued by the possible overlap between the need for different stimuli in different areas and the investment-centered approach championed by Shellenberger + Nordhaus (the Breakthrough folks). What if we set the price really high (or a cap low, with an auction), but give back most of it in rebates focused on efficiency (including incentives to stop driving), plus investment in power plants, plus turning a lot of the money right back around to find the technologies we'll need to cover that last third, and some help to increase the social equity of the transitio? Basically, fund the incentives for all by increasing the costs of one a lot (and a bit for a second).

Posted by Asa on June 09, 2008 at 05:52 PM EDT #

While $45 trillion is a lot of money, if we put this in perspective (1.1% of world GDP), it's actually pretty "cheap" when compared to other costs we incur like military spending (about 2.5%) and healthcare (about 10%). Also, the point you make about there being some really low hanging fruit (35% reduction in CO2 that is essentially "free") points to the conclusion that we should all get crackin' now!

Posted by Furqan Nazeeri on June 15, 2008 at 04:27 AM EDT #

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