Debunking the myths surrounding environmental economics

Put simply, renewable energies are at least as cheap as their fossil fuel alternatives. Here’s why.

Put simply, renewable energies are at least as cheap as their fossil fuel alternatives. Here’s why

First, some surprising facts that correct myths we’ve all heard about renewable energies: Global fossil fuel subsidies are five times higher than renewable subsidies. Britain’s coal-fired power stations only run at 34 per cent efficiency. And studies have shown that solar technologies can produce ten jobs per unit compared with one in conventional energy.

Climate-sceptic rhetoric leaves aside this pertinent evidence preferring confirmation bias as a basis for policy instead.      

The cost of electricity is measured in cents ($) per kilowatt hour (kWh). This is calculated using a system called the levelized cost of electricity (LCOE) which accounts for factors such as capital costs, fuel costs, and maintenance, to create comparable figures.

The LCOE includes an assumed utilization rate that allows for intermittent renewable supplies. Critics say that the LCOE doesn’t account for additional costs associated with renewables. But the opposite is true.

LCOE skews estimates in favour of fossil fuels and disguises many of their implications. Illness and mortality due to pollution, environmental monitoring and clean up, and infrastructure damage, all cost the state as a direct result of fossil fuels. We call these costs: externalities.

The US Energy Information Administration (EIA) has projected levelized costs to 2019 for coal (6c), the cheapest gas source (1.4c), and onshore wind (6.4c). However, adding on only the most conservative estimate (p.1669) of externality costs, the prices become: coal (9.6c), gas (2.7c), and wind remains the same (6.4c).

Other studies calculate the cost of externalities to be much higher, between 9 – 27c kWh.

Based on lowest externality estimates and using the cheapest source of natural gas as an example, gas appears as a false alternative to renewables.

Methane leakage during extraction of gas has proved in many cases to negate any benefit. Methane emissions have been assessed between 1-9 per cent of total emissions at extraction. Unless leakage is below 3.2 per cent, the life cycle emissions of a gas plant will be no better than a new coal plant.

Externalities make gas more expensive than onshore wind, geothermal, biomass, and hydroelectricity.

The International Renewable Energy Agency reported earlier this year that, such was the burden of externalities on global economies, investment in renewables could save between $123bn – $735bn over a twenty year period.

These figures reflect the scale of the damage caused by fossil fuel-related pollution. In 2012, 3.7 million premature deaths worldwide were linked to outdoor pollution.

The World Health Organization also found in a study that 83 per cent of Europeans were exposed to high levels of PM10 (particulate matter), the most detrimental pollutant to human health. In fact, Europe ranks the second worst polluted region per capita on the planet as a result of fossil fuel reliance.

This catastrophic effect on health translates directly into expenditure. The World Bank reported in 2007 (p.xv) that damage associated with air pollution cost China 3.8 per cent of its GDP. Perhaps that’s why, despite its economy being smaller, China invested more in renewables last year than the entire EU.

The EIA also projected estimates to 2040 for coal (8.7c), the cheapest gas source (7.8c), and onshore wind (7.3c). Even without the costs of externalities, by 2040, gas and coal will be more expensive than renewables.

They calculate a further figure for 2040: the levelized avoided cost of electricity. This calculates whether new production adds value to the system by displacing more expensive generation. The only sources with value-adding potential were advanced conventional combined gas (+2.0c), geothermal (+75.2c), onshore wind (+13.0c), solar (+10.6c), and hydroelectricity (+11.0c).

By 2040, renewables will be cheaper in levelized costs, significantly cheaper when externalities are factored in, and will also be the primary sources for adding value to our energy system.

The fact that fossil fuels are more expensive than renewables is disguised because externality costs of fossil fuels are hidden in ordinary price comparisons. Renewables are not an expense but a saving, a figure that could run into the hundreds of billions.

Matt Bevington is a member of the Green Party and a contributor to the Fabian Review

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