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How Carbon Pricing Will Save the World

· carbon pricing,energy,davos 2017

As the world's leaders are currently meeting in Davos, Switzerland for the annual World Economic Forum to discuss issues and policies in energy, biotech, income equality, responsible leadership and a host of other issues, the rest of us will have the luxury of being able to access online what is going on at this conference in the comfort of own homes and offices, sipping on hot chocolate and mulled wine from our living rooms or lounging next to the swimming pool.

One of the key issues in this year's WEF is the transition to clean energy. It's been increasingly clear that our current dependence on fossil fuels has had negative impacts on the quality of life and the environment, but exactly how can this concretely translate into real world solutions?

The World Economic Forum, 2017 panel on Energy's Clean Transition included the following panelists: Oleg V. Deripaska (President, UC Rusal), Christiana Figueres (former Executive Secretary of the United Nations Climate Change Secretariat), Patrick Pouyanné (Chairman, CEO, Total), Ignacio Sánchez Galán (Chairman, CEO, Iberdrola), Nur Bekri (Minister of the National Energy Administration, China) and moderated by Steve Sedgwick (Anchor, CNBC).

In the panel, Energy's Clean Transition, leaders in the energy sector had some surprising things to say. The solution is not all that difficult or hard to implement at all. What is necessary for corporations to transition to clean energy are dependent on two factors: 1) carbon pricing 2) new developments in technology that will make clean energy cheaper than implementation and usage of fossil fuels.

If we examine the first condition: carbon pricing, what is it?

Carbon pricing is a tax put on corporations that emit carbon dioxide per tonne. This limits the output of certain industries such as coal; for example, the UK implemented a tax in 2013 which was approximately £15/tonne of carbon dioxide. One of the panelists, Patrick Pouyanné, remarked on this extremely effective solution, which became the primary reason why the UK shifted from a coal-dominated energy industry to a natural gas-dominated energy industry in just two years. Obviously natural gas is still part of fossil fuels, but it is considered the lesser of the two evils in comparison to coal with a much less output of carbon dioxide emissions.

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The UK implemented a carbon tax on carbon dioxide emissions in 2013 which radically shifted the UK's energy consumption from coal to gas as the dominant energy source in approximately two years.

The reason why coal is the dominant source of energy in many nations, such as China, the panelists agree, is because coal is the cheapest. Nur Bekri, who is the Minister of the National Energy Administration, National Energy Administration in China, said that because China has a population of 1.4 billion people, that they have a necessity to diversify their energy portfolio, and cannot rely on a single source of energy at present. He finds one of the challenges of renewable energy is that it is unstable, the distribution is inefficient and although the technology is accelerating, it not there yet in terms of scale and being able to be produced cheaply. 

However, China has recently decided to axe new coal programmes, and defunded about 100+ new coal plants and other projects related to coal. Some people may be aware that China recently commissioned to build the largest waste to energy plant in the world in Shenzhen. For China, the focus is on waste-to-energy, and to make renewables cheaper.

In the United States, although a few states (such as California) have carbon pricing, or taxes on carbon dioxide emissions output by companies, a nationwide federal law does not yet exist or passed in Congress. In the US, coal takes up 33% of the all energy output, as does gas 33% and renewables make up about 20%. Coal was the dominant energy source in the UK until the carbon pricing was implemented in 2013, in which natural gas became the the dominant energy source in a period of 2 years (30% gas, 22% coal in 2015).

According to the panelists, investors in the energy sector tend to be "rational," which appeared to be rather a nice euphemism for overt short-term profit seeking avarice. The heads of companies, although they may like the idea of renewable energy, are bound to their duties to the shareholders of their company, which is to make profit. To be able to successfully appeal to the energy industries to transition into renewables, there is an imminent necessity to simply make fossil fuels expensive for production and consumption by regulation of the industries by putting taxes on carbon dioxide emissions whilst at the same time making renewables cheaper and technologically more efficient for stable output through R&D investment and government subsidies.

In the US however, govt funding into renewables hasn't been all that successful. One lesson we can learn from the Solyndra debacle of 2011 was that the Obama administration had put all their eggs were into one basket, in which Solyndra single-handedly had been given a majority of govt rebates, without diversifying the govt renewable energy sector investments. What happened subsequently was that the solar energy market became inundated by producers in China that output similar silicone solar panels for much cheaper, therefore putting Solyndra under. Another issue was a technological one; in that silicone solar panels were not efficient, and did not output enough energy as their absorption rate of solar energy was quite low. Silicone solar panels was a step in the right direction, but the technology was still rapidly advancing at the time when Solyndra took the majority of govt tax rebates, whilst other solutions were being developed simultaneously, which had a higher efficiency and output, such as cells being developed for artificial photosynthesis. Although much research exists in this area, with many new technologies being developed, it is still not clear which will become the dominant force into the 4th Industrial Revolution.

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Artificial photosynthesis: human-made solar leaves output and absorb more solar energy than natural plants, which could be the new way to output energy into homes, bypassing both natural gas and coal in the near future.

However, President Obama recently wrote an article in science magazine in regards to the gains made in renewable energy and the moving trend from major companies, such as Google and Walmart whose operations will be based on 100% renewable energy in the coming years. In addition, President Obama also notes the dramatic decrease in prices of renewable energy in just the last several years: Renewable electricity costs also fell dramatically between 2008 and 2015: the cost of electricity fell 41% for wind, 54% for rooftop solar photovoltaic (PV) installations, and 64% for utility-scale PV . Despite some initial setbacks, it is clear that one of the key achievements of the Obama administration was to plant the seeds for large scale corporations to adapt to renewables, in addition to setting forth conditions that would put renewables into the profitability zone.

One thing is clear however, the energy sector is one that has been long waiting to be disrupted. Today, people use coal simply because it is cheap, and often in many nations, such as the United States, a federal nationwide tax on carbon dioxide emissions, or a nationwide carbon pricing act is still being hotly contested by members of Congress. Implementing a simple solution is a necessary step to take for nations to move away from a dependence on coal, which might ironically also be beneficial for another fossil fuel, such as natural gas. It's not a perfect solution, but one that could move corporations in the right direction in terms of regulation and less carbon dioxide emissions.

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In China, it is a normal sight to see people wearing masks, to avoid breathing in fumes from fossil fuels, such as coal, which releases carbon dioxide emissions and other toxins into the air. Currently, China is making an active transition from coal-dominated energy sources to waste-to-energy and renewable energy.

Christiana Figueres, the former Executive Secretary of the United Nations Climate Change secretariat thinks that carbon pricing is something that is not possible in the state of New York, for example, but I ask, Why not? In the initial stages, it is apparent that many companies will oppose a nationwide carbon pricing, but once implemented, it could make America great again, a nation that is looking to its future and investing in emerging technologies instead of being dependent on the past, fossil fuels such as coal that threaten our quality of life and the air we breathe.