To limit climate change to 2° Celsius, low-carbon energy options will need additional investments of about US $800 billion a year globally from now to mid-century, according to a new study published in the journal Climate Change Economics. But much of that capital could come from shifting subsidies and investments away from fossil fuels and associated technologies. Worldwide, fossil subsidies currently amount to around $500 billion per year.
“We know that if we want to avoid the worst impacts of climate change, we need to drastically transform our energy system,” says IIASA researcher David McCollum, who led the study. “This is a comprehensive analysis to show how much investment capital is needed to successfully make that transition.”
The study, part of a larger EU research project examining the implications and implementation needs of climate policies consistent with the internationally agreed 2° C target, compared the results from six separate global energy-economic models, each with regional- and country-level detail. The authors examined future scenarios for energy investment based on a variety of factors, including technology progress, efficiency potential, economics, regional socio-economic development, and climate policy.
Investments in clean energy currently total around $200 to 250 billion per year, and reference scenarios show that with climate policies currently on the books, this is likely to grow to around $400 billion. However, the amount needed to limit climate change to the 2° target amounts to around $1200 billion, the study shows.
The energy investments needed to address climate change continue to be an area of large uncertainty. By comparing the results from multiple models, the scientists were able to better define the costs of addressing climate change.
“Many countries say that they’re on board with the a target of 2° Celsius global mean temperature stabilization by 2100; some have even made commitments to reduce their greenhouse gas emissions. But until now, it hasn’t been very clear how to get to that point, at least from an investment point of view. It’s high time we think about how much capital is needed for new power plants, biofuel refineries, efficient vehicles, and other technologies—and where those dollars need to flow—so that we get the emissions reductions we want,” says McCollum.
IIASA Energy Program Director Keywan Riahi, another study co-author and project leader, says, “Given that energy-supply technologies and infrastructure are characterized by long lifetimes of 30 to 60 years or more, there’s a considerable amount of technological inertia in the system that could impede a rapid transformation. That’s why the energy investment decisions of the next several years are so important: because they will shape the direction of the energy transition path for many years to come.”
The study shows that the greatest investments will be needed in rapidly developing countries, namely in Asia, Latin America, and Sub-Saharan Africa.
“Energy investment in these countries is poised to increase substantially anyway. But if we’re serious about addressing climate change, we must find ways to direct more investment to these key regions. Clever policy designs, including carbon pricing mechanisms, can help.” says Massimo Tavoni, researcher at the Fondazione Eni Enrico Mattei, a climate research center in Italy, and overall coordinator of the LIMITS project, of which the new study is a part.
The researchers note that their analysis of future investment costs does not attempt to quantify the potentially major fuel savings from switching from fossil fuels to renewable sources, such as wind and solar energy. As shown in the IIASA-led Global Energy Assessment, such savings could offset a considerable share of increased investment on a global scale.
This study provided an important input into the Intergovernmental Panel on Climate Change Fifth Assessment Report, Working Group III, Chapter 16 on Cross-cutting Investment and Finance Issues.
About the LIMITS project
This study was conducted as part of the Low Climate Impact Scenarios and the Implications of Required Tight Emissions Control Strategies (LIMITS) project, a European Union Seventh Framework Program (FP-7)-supported collaboration between the International Institute for Applied Systems Analysis (IIASA), the Fondazione Eni Enrico Mattei (FEEM) in Italy, the Potsdam Institute for Climate Impact Research (PIK) in Germany, the, the Joint Research Centre of the European Commission, Central European University, the National Development and Reform Commission Energy Research Institute in China, the Indian Institute of Management (IIM), the National Institute for Environmental Studies (NIES) in Japan, and the Pacific Northwest National Laboratory (PNNL) in the US.
Reference
McCollum D, Nagai Y, Riahi K, Marangoni G, Calvin K, Pietzcker R, Van Vliet J, van der Zwaaan B. (2014). Energy investments under climate policy: a comparison of global models. Climate Change Economics Vol. 04, No. 04. DOI: 10.1142/S2010007813400101
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“Worldwide, fossil subsidies currently amount to around $500 billion per year.”
I sure wish someone would show me those subsidies. I ran my $500 a month of oil production through turbotax, and when the domestic production tax credit came up, it was just about eliminated because the income is from oil and gas. Gravel, corn. political pamphlets, anything would get a tax break as long as it is not oil or gas. I imagine solar and wind would be treated a bit better.
” That’s why the energy investment decisions of the next several years are so important: because they will shape the direction of the energy transition path for many years to come.”
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
No, that is why political decisions in the next several years are so important: because they will shape the direction of the economy for many years to come. Lemmings!
Foundations of which are probably all based upon the unrealistic climate models. Funny, how many billions have been wasted already … and positive results have they achieved. Just goes to show, you get what you pay for and this study appears to support that.
Err … “and what positive results have they achieved?“
Anth0ny:
Thankyou for publishing the above report. It says,
McCollum does not say whom he means by “We”, but they are wrong. Indeed, that is why the OCO-2 satellite has just been launched (as reported on WUWT here).
Perhaps it would be wise to wait a few years to discern if there is any need to “transform our energy system” by returning to expensive, inefficient, unreliable, and intermittent forms of power supply that were abandoned generations ago.
And, I would add that if McCollum and the rest of his “We” really want to return to using the power of wind and the power of the muscles of slaves and animals then they should volunteer to be slaves.
Richard
I’m bemused by the claim that fossil fuels are subsidised. In Australia we pay about 38c tax per litre of petrol. In the UK the tax is 57.95p/litre, Canada 16-30c/litre, USA 48c/gallon+state taxes. There are taxes on diesel and LPG too. These are all on top of all the normal taxes. Virtually all European countries, and some others, levy taxes on petrol and other fossil fuel products. Methinks that some people scream about the odd concession and shut their eyes to the main game.
Follow the money. Who will be getting the money instead of the guys who keep us working and warm now? $800 billion a year sounds like a lot, even to me.
“The energy investments needed to address climate change continue to be an area of large uncertainty.”
And they want around a $trillion investment based on this statement? Are they serious? Did they undertake their “study” in the middle of the Sahara at mid day when they arrived at that conclusion? Should we not reduce this “area of large uncertainty” down a tad to a dead cert, before “we” squander all that dosh first? Sheesh!
I too have for a long time wondered what all these subsidies on fossil fuel consist of. Those that claim that fossil fuels are heavily subsidised and/or that ‘we’ are not paying the full price of carbon always seem coy and reluctant to put details on their claims by setting out the subsidies and/or what is the true cost of carbon and why and how it arises. I sure wish that someone would list them so that a view can be taken on whether they are justified or otherwise reasonable.
The only ‘subsidy’ that I have seen mentioned is that jet fuel is not taxed as highly as other fuels. Personally, I do not consider that a subsidy in the true sense. The decision to tax anything is a political decision, and is punitive. Further, on this small point, air travel, in the UK, attracts its own special tax which in effect goes to off-set the fact that a lower tax is applied to jet fuel. With some cheap carriers, when a passenger is travelling without any luggage, the passenger taxes are sometimes the largest part of the ticket cost!
Due to the high passenger levey, it is often cheaper to use hub airports in Europe to travel long haul. Inconvenient and not something relevant to the business traveller, but a family of 4 can often make significant savings if they fly short haul to a hub airport in Europe and then swop planes for the long haul flight.
“Worldwide, fossil subsidies currently amount to around $500 billion per year.”
Notice that this study has apparently aggregated the national accounts of all countries in the world. This works for labor and capital although prices for labor and capital are distorted by barriers that restrict the cross-boundary flow..
I would like to see how these subsidies are computed. I suspect that “subsidies” equal the difference between domestic prices for fossil fuels and world market prices.
The first thing I wonder about is whether or not the world price of petroleum is distorted by taxation regimes in a manner that causes these prices to be greater than the factor prices of labor and capital necessary for production of fossil fuel.
I base this on consideration of the relative roles of land, labor and capital in production. And this leads me to wonder what role “land” has in world market price of fossil fuels.
In the context of economic analysis “land” includes not only the territory on and under the surface of the Earth, but also all the institutions, laws and conventions that regulate the exploitation, production and distribution of the fossil fuels.
In the most simple terms, land generates rent. You have title to exclusive use to a land resource and you derive rent not from the piece of territory but from the piece of paper that says you are the owner and the government that enforces your rights. This is the economist’s context for land and rent. This is why the AmerInds sold their land to Europeans for a pittance. Because they did not have the concept of “land ownership” and “rent”.
By definition, labor and capital comprise value-added while “land” represents economic rent that arises through the authority of public and private institutions that control the resources in the ground.
In my opinion, “subsidïes” should include only the difference between the domestic prices and the value added by labor and capital because, by definition economic rent is merely a monetary transfer that in most cases represents no resource cost. If labor and capital are involved, then the payment is not rent but value-added.
The reason that the role of rent is not obvious in the fossil fuel sector is because domestic and world market prices, value-added, rents and taxes are computed in national accounts, not aggregated worldwide.
However, the study discussed here has aggregated the national accounts of the world. Thus cross-border rents should be treated as mere transfers and not included as value-added.
As a footnote, it may be worth considering to what extent laws that prevent exploitation of fossil fuels has the effect of driving up their prices in a similar manner as OPEC attempted to achieve.
So law that prevent the exploitation of offshore oil or unconventional gas (fracking) and/or prevent the importation or exportation of fossil fuels have the effect of distorting the factor of production we call “land”. The consequence is to increase the economic rent to current producers.
I conclude that the US government maintains the “economic rents” of foreign producers by maintaining restrictions on exploitation of fossil fuels on Federal lands and US offshore deposits, and by restricting trade in fossil fuels. It may be no consolation to say that European countries maintain even more absurd policies than the US.
Well, maybe the study is working as designed ……
Mike Jonas says:
July 3, 2014 at 1:05 am
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And in the UK, Value Added Tax (at 20%) is levied on the sale. This tax (VAT) is therefore levied on the fuel duty tax, so that this adds a further 20% to the overall fuel duty paid by the customer.
One reason why it will be so difficult for Governments to pull away from cAGW, is the tax that they levy on fossil fuels. If there is no real AGW then people will question why should they pay the green taxes that have been introduced these past 30 years. For example, the motorist pays very heavily, and Governments who love spending money and would not dream of cutting projects would find it very difficult to cut back on the taxes they receive from motorists and the like. What will replenish this revenue stream?
This is one of the reasons why they are so keen to keep the cAGW bandwagon rolling, and why the summary for policy makers does not incorporate the growing views amongst climate scientists that sensitivity to CO2 may be less than previously thought, and the role of natural variation may be greater than previously thought. The disconnect in AR5 is greater than in AR4 because of the need by Governments to preserve their tax structures (in which I include the subsidies that they have committed towards renewables).
Nup. Not possible. Imagine CAGWists getting a proper job for a few years after swanning on this gravy train for the last few DECADES?? It’d be like removing their oxygen supply, which would be preferable in my book.
They’re gonna milk this to the end, as the story makes adequately clear.
“Worldwide, fossil subsidies currently amount to around $500 billion per year.”
Are the confusing tax relief and lower taxation with subsidies.
A subsidy is when government gives away money whilst lower taxation means governments are not taking money from industy and consumers?
Thus the picture is totally distorted?
So, $800 billion per year is the same as $500 billion per year? It’s not a 60% increase? And much of it could come out of the $500 billion?? Even a diversion of 80% of the $500 billion would only provide 50% of the $800 billion.
And the goal is to limit global warming to 2 degrees Celsius by 2100?
See http://www.drroyspencer.com/wp-content/uploads/UAH_LT_1979_thru_June_2014_v5.png
This record indicates at worst, a .3 degree Celsius increase every 20 years or so. If this pattern continues through 2100, there would be only 1.5 degree Celsius additional gain by then. There is no indication we need to waste, er… spend any more on CO2 containment.
Prof Phil Jones was asked where the 2C danger level came from. His reply was that he did not know and perhaps it was ”plucked out of the air”.
2C is actually less than 1% of the ”normal” temperature in Kelvin, the scale we should use.
Worldwide, fossil subsidies currently amount to around $500 billion per year.
If you ever wonder why they never say who actual pays the vast majority these subsidies its because its not the ‘evil west ‘ at all, but places like Iran or Venezuela who do it for the bread and circus affect. And who have no intention what so ever of changing their ways , not that those who moan about these subsides ever consider asking them to.
That is before we get to the small problem of using money for something that works and mets a need , compared to using money for something which sometimes works and only meets needs to a limited extent due to factors over which no one has control , unless you know any one that can stop the rotation of planets .
Speigel on Line; april 2010
Climate Catastrophe: A Superstorm for Global Warming Research
Part 8: The Invention of the Two-Degree Target
http://www.spiegel.de/international/world/climate-catastrophe-a-superstorm-for-global-warming-research-a-686697-8.html
[ quoted ]
a group of German scientists, yielding to political pressure, invented an easily digestible message in the mid-1990s: the two-degree target. To avoid even greater damage to human beings and nature, the scientists warned, the temperature on Earth could not be more than two degrees Celsius higher than it was before the beginning of industrialization.
It was a pretty audacious estimate. Nevertheless, the powers-that-be finally had a tangible number to work with. An amazing success story was about to begin.
‘Clearly a Political Goal’
Rarely has a scientific idea had such a strong impact on world politics. Most countries have now recognized the two-degree target. If the two-degree limit were exceeded, German Environment Minister Norbert Röttgen announced ahead of the failed Copenhagen summit, “life on our planet, as we know it today, would no longer be possible.”
But this is scientific nonsense. “Two degrees is not a magical limit — it’s clearly a political goal,” says Hans Joachim Schellnhuber, director of the Potsdam Institute for Climate Impact Research (PIK). “The world will not come to an end right away in the event of stronger warming, nor are we definitely saved if warming is not as significant. The reality, of course, is much more complicated.”
Schellnhuber ought to know. He is the father of the two-degree target.
“Yes, I plead guilty,” he says, smiling. The idea didn’t hurt his career. In fact, it made him Germany’s most influential climatologist. Schellnhuber, a theoretical physicist, became Chancellor Angela Merkel’s chief scientific adviser — a position any researcher would envy.
Rule of Thumb
The story of the two-degree target began in the German Advisory Council on Global Change (WBGU). Administration politicians had asked the council for climate protection guidelines, and the scientists under Schellnhuber’s leadership came up with a strikingly simple idea. “We looked at the history of the climate since the rise of homo sapiens,” Schellnhuber recalls. “This showed us that average global temperatures in the last 130,000 years were no more than two degrees higher than before the beginning of the industrial revolution. To be on the safe side, we came up with a rule of thumb stating that it would be better not to depart from this field of experience in human evolution. Otherwise we would be treading on terra incognita.”
As tempting as it sounds, on closer inspection this approach proves to be nothing but a sleight of hand. That’s because humans are children of an ice age. For many thousands of years, they struggled to survive in a climate that was as least four degrees colder than it is today, and at times even more than eight degrees colder.
This means that, on balance, mankind has already survived far more severe temperature fluctuations than two degrees. And the cold periods were always the worst periods. Besides, modern civilizations have far more technical means of adapting to climate change than earlier societies had.
[ more ]
This is from an old 2007 US Gov’t report for electricity subsidies. Scroll down to page 106 near the end of the PDF.
http://www.eia.gov/oiaf/servicerpt/subsidy2/pdf/chap5.pdf
Solar and Wind receive 100X the subsidy as Nat Gas & Petroleum liquids Per Unit of Production.
The $500 billion fossil subsidies might sound like a lot. But it’s peanuts compared compared to the value we receive. And is that even a subsidy as opposed to a tax break. There is a huge difference between a tax deduction and a Federal tax credit.
Here’s an article saying the fossil “subsidies” are simply normal tax deductions taken by every business.
http://townhall.com/columnists/pauldriessen/2011/08/26/spreading_big_oil_subsidy_disinformation/page/full
Anyone know if there is a non-paywalled copy of this POS out there?
w.
$500bn subsidy? I guess in the prog world, letting you keep money you legitimately earned is the government “subsidizing” you. Their mindset is that the government rightly owns the fruits of your labor and lets you keep some if it out of largesse.
We could give wind and solar trillions in subsidies: Just increase the tax rate so that their tax liability would be trillions of dollars, then give them a “tax credit” for it. Voila, trillions in subsidies. Same as “oil”.
Nobody who actually performs any real science thinks that CO2 does anything that is not beneficial. Whichever side of the “Greenhouse Gas” debate you are, all those that look at the observational science say that any warming from CO2 is minor and a good thing. More importantly the more CO2 there is the better the biosphere likes it. There is no valid reason for replacing coal, oil and gas with wind and sunlight. It is all about energy flux density and oil, gas and coal have it and wind and sunlight do not. It is that simple.
“By comparing the results from multiple models, the scientists were able to better define the costs of addressing climate change.”
The average of crap is . . . wait for it . . . crap.
Carbon pricing applied to Sub-Saharan Africans – how many people would that kill?
What a bunch of BS.
First of all, the “$500 Billion” fossil fuel “subsidy” meme is completely BS.
This $500 billion in “subsidies” is comprised of depreciation write-offs given to ALLLLLL corporations (with a few special oil-industry specific tax breaks). It also includes insane REIMBURSEMENTS by insane governments that force oil companies to sell gas below cost to enable the corrupt politicians to buy votes.
Personally, I don’t think corporations should pay ANY taxes, since all they do is pass along their tax obligations to consumers in the form of higher product and service costs.
Imagine the $trillions off-shore retained earnings that would flood into the US if all corporate profits were tax free and the 1,000’s of corporations that would come to the US if they could keep all their profits… It boggles the mind.
Anyway, Alt-En companies DO receive government subsidies because without them, there would be almost ZERO demand for their products as their products are too expensive to be feasible. There is a SMALL demand for existing alt-en products as back-up power systems for rich people, people that wish to live off the grig, or people in very remote areas with no access to a power grid…
Every DIME of alt-en subsidies is a complete waste of money and distorts the efficient/effective use of limited land, labor and capital. If a product/service cannot survive without subsidies, it shouldn’t exist. These wasted subsidies would be better utilized as the MARKET (not political hacks) decides.
Governments SUCK at picking winners and losers.