THE NEW ENERGY ECONOMY WILL BE AFFORDABLE

Low-carbon future: We can afford to go green
Jim Giles, 2 December 2009 (New Scientist)

"…[T]he enthusiasm of voters for policies to alleviate climate change falls off as the price tag increases…However, a new modelling exercise conducted exclusively for this magazine suggests that these fears are largely unfounded…[R]adical cuts to the UK's emissions will cause barely noticeable increases in the price of food, drink and most other goods by 2050…Electricity and petrol costs will rise significantly, but with the right policies in place, say the modellers, this need not lead to big changes in our lifestyle…

"Although it is impossible to precisely predict prices four decades from now, the exercise is one of the most detailed examinations yet of the impact of climate change policies on UK consumers. It provides a useful rough guide to our economic future…[P]revious research has come to similar conclusions for the US….[The structural effects of cap and trade climate policy] found that if the US were to cut emissions by 50 per cent by 2050, prices of most consumer goods would increase by less than 5 per cent… consistent with [other] analyses…"

click to enlarge

"The Intergovernmental Panel on Climate Change recommends that wealthy nations cut their emissions to between 80 and 95 per cent below 1990 levels by 2050 in order to avoid the worst effects of climate change…To meet this goal, industries will have to slash fossil fuel consumption, and low-carbon power sources will have to massively expand. Companies will have to pay increasingly higher prices for the right to emit greenhouse gases…To gauge the impact [on the average consumer]…Cambridge Econometrics…used historic economic data to predict…prices in over 40 categories of goods and services…

"Most of the price hikes are a consequence of rising energy costs, in part because coal and gas are replaced by more expensive low-carbon sources. The price of electricity is projected to be 15 per cent higher in 2050…But electricity and other forms of energy make up only a fraction of the price of most goods. Other factors - raw materials, labour and taxes - are far more important. The energy that goes into producing food, alcoholic drinks and tobacco, for example, makes up just 2 per cent of the consumer price. For motor vehicle purchases and hotel stays, the figure is 1 per cent. Only for energy-intensive industries does the contribution climb above 3 per cent…"

click to enlarge

"…[M]ost products cost just a few per cent more by 2050…Achieving the overall picture of low prices does require government action…To avoid large price hikes in home heating and road transport while still hitting the 80 per cent target, the Cambridge researchers had to build two major policies into their analysis. They assumed that future governments will provide grants and other incentives to help switch all domestic heating and cooking to electricity, and invest in the infrastructure needed for electric cars to almost completely replace petroleum-fuelled vehicles…

"So is tackling climate change going to be easier than expected, in terms of consumer costs? …[A]ny attempt to forecast four decades ahead can be derailed by unforeseen events…Despite this, the Cambridge Econometrics results, together with other recent studies, do provide a useful guide for governments…[and] suggest that the overall challenge is surmountable, even if many of the details will only become clear in years to come…"