The age of cheap electricity is over

“The age of cheap electricity is over”. These were the words from Nobuo Tanaka, Executive Director of the International Energy Association on Monday December 6th, 2010 during his review of the 2010 World Energy Outlook. This is the reality that we must face in order to meet the 450ppm of CO2 or 2 degrees Celsius increase target since electricity accounts for approximately 40% of global CO2 emissions today. The 450ppm target would require a rebalancing of our global electricity generation to include significant generation from nuclear power, renewable energy, and fossil fuels with carbon capture & sequestration (CCS). The magnitude of the price increase is uncertain given that renewable energy will continue to make improvements and become cheaper over time. However, the IEA projects that the 450 scenario will cost $750billion annually through 2030 and then double through 2050.

Later in the day the President of Mexico, Felipe Calderon, addressed participants, urging civil society to mobilize on climate change. The question is whether consumers are prepared to accept the reality of more expensive electricity. At the Green Solutions forum, a side conference focused on public and private side interaction, Brice Lalonde, the French Ambassador for climate change negotiations said “people need to recognize the externalities that should be incorporated into electricity prices”. It’s basic economics actually, but these externalities are often not properly accounted for when looking at environmental issues because they tend to be very difficult to measure. The current measure of GDP that is universally used does not internalize the costs of extracting natural resources or carbon emissions. Therefore, the accounting system needs to be revised. Emitting carbon is analogous to hitting your neighbor according to Lalonde. If you hit your neighbor and send him to the hospital, GDP goes up. Cutting down a forest or burning fossil fuels causes GDP to similarly increase and causes harm as well. The only difference is that legally, you can’t hit your neighbor.

In an ailing economy increasing prices on anything is difficult. Obama is struggling to make compromises between the Republican and Democratic parties by extending unemployment benefits along with tax cuts for the wealthy. It is hard to imagine federal policy could implement anything that would then increase prices. This is the struggle in the U.S. and unfortunately it appears much of civil society is currently not willing to pay for higher electricity to acknowledge carbon emissions as an externality. Bo Diczfalusy, Director of Sustainable Energy Policy and Technology of the International Energy Association, believes it will take a mass movement and major cultural shift for civil society to accept renewable energy. “It will require a great deal of education and training to see how this leads to a healthier planet.”

Howard Chang is Yale Climate and Energy Institute Fellow and a joint MEM/MBA ’12 Candidate