Thursday, November 20, 2014

The Poverty of Renewables

MIAMI – According to UN Secretary-General Ban Ki-moon, “Climate change harms the poor first and worst.” This is true, because the poor are the most vulnerable and have the least resources with which to adapt. But we often forget that current policies to address global warming make energy much more costly, and that this harms the world’s poor much more.

Solar and wind power was subsidized by $60 billion in 2012. This means that the world spent $60 billion more on energy than was needed. And, because the total climate benefit was a paltry $1.4 billion, the subsidies essentially wasted $58.6 billion. Biofuels were subsidized by another $19 billion, with essentially no climate benefit. All of that money could have been used to improve health care, hire more teachers, build better roads, or lower taxes.

Forcing everyone to buy more expensive, less reliable energy pushes up costs throughout the economy, leaving less for other public goods. The average of macroeconomic models indicates that the total cost of the EU’s climate policy will be €209 billion ($280 billion) per year from 2020 until the end of the century.

The burden of these policies falls overwhelmingly on the world’s poor, because the rich can easily pay more for their energy. I am often taken aback by well-meaning and economically comfortable environmentalists who cavalierly suggest that gasoline prices should be doubled or electricity exclusively sourced from high-cost green sources. That may go over well in affluent Hunterdon County, New Jersey, where residents reportedly spend just 2% of their income on gasoline. But the poorest 30% of the US population spend almost 17% of their after-tax income on gasoline.

Similarly, environmentalists boast that households in the United Kingdom have reduced their electricity consumption by almost 10% since 2005. But they neglect to mention that this reflects a 50% increase in electricity prices, mostly to pay for an increase in the share of renewables from 1.8% to 4.6%.

The poor, no surprise, have reduced their consumption by much more than 10%, whereas the rich have not reduced theirs at all. Over the past five years, heating a UK home has become 63% more expensive, while real wages have declined. Some 17% of households are now energy poor – that is, they have to spend more than 10% of their income on energy; and, because elderly people are typically poorer, about a quarter of their households are energy poor. Deprived pensioners burn old books to keep warm, because they are cheaper than coal, they ride on heated buses all day, and a third leave part of their homes cold.

In Germany, where green subsidies will cost €23.6 billion this year, household electricity prices have increased by 80% since 2000, causing 6.9 million households to live in energy poverty. Wealthy homeowners in Bavaria can feel good about their inefficient solar panels, receiving lavish subsidies essentially paid by poor tenants in the Ruhr, who cannot afford their own solar panels but still have to pay higher electricity costs.

The list goes on. In Greece, where tax hikes on oil have driven up heating costs by 48%, more and more Athenians are cutting down park trees, causing air pollution from wood burning to triple.

But climate policies carry an even larger cost in the developing world, where three billion people lack access to cheap and plentiful energy, perpetuating their poverty. They cook and keep warm by burning twigs and dung, producing indoor air pollution that causes 3.5 million deaths per year – by far the world’s biggest environmental problem.

Access to electricity could solve that problem, while allowing families to read at night, own a refrigerator to keep food from spoiling, or use a computer to connect with the world. It would also allow businesses to produce more competitively, creating jobs and economic growth.

Consider Pakistan and South Africa, where a dearth of generating capacity means recurrent blackouts that wreak havoc on businesses and cost jobs. Yet the funding of new coal-fired power plants in both countries has been widely opposed by well-meaning Westerners and governments. Instead, they suggest renewables as the solution.

But this is hypocritical. The rich world gets just 1.2% of its energy from hugely expensive solar and wind technologies, and we would never accept having power only when the wind was blowing. Over the next two years, Germany will build ten new coal-fired power plants to keep the lights on.

In 1971, 40% of China’s energy came from renewables. Since then, it has powered its explosive economic growth almost exclusively with highly polluting coal, lifting 680 million people out of poverty. Today, China gets a trifling 0.23% of its energy from wind and solar. By contrast, Africa gets 50% of its energy today from renewables – and remains poor.

A new analysis from the Center for Global Development quantifies our disregard of the world’s poor. Investing in renewables, we can pull one person out of poverty for about $500. But, using gas electrification, we could pull more than four people out of poverty for the same amount. By focusing on our climate concerns, we deliberately choose to leave more than three out of four people in darkness and poverty.

Addressing global warming effectively requires long-term innovation that makes green energy affordable to all. Until then, wasting enormous sums of money at the expense of the world’s poor is no solution at all.

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    1. CommentedDavid Donovan

      I definitely am not following the logic here. Sure, you subsidized solar and wind power by that amount, but how exactly does that translate to spending more than needed?

    2. CommentedLuis Delgado

      The proposed remedy can be worse than the disease because to subsidize green technologies will cause the economy to paralyze, thereby hurting the chances to invest in new, and more efficient clean technologies. What policy makers are telling us is that "we must clean the planet first and then we must grow," when the most sensible option is to continue to grow, develop new technologies and then start cleaning the planet efficiently. Unless you buy into global warming alarmist, we can do a better job by moving gradually into clean technologies.

    3. CommentedShawn Grannell

      Fossil fuels could become more expensive someday, and we will need something cheaper with which to replace them, but we don't know when that will happen. The consequences of our remedy for that contradict the reasons for seeking a remedy in the first place, when our remedy has the effect of making energy more expensive right now. Which is worse, more expensive someday wherein "someday" could be beyond our great grandchildrens' lifetimes for all we know, or more expensive right now? The consequences of implementing a proposed replacement for fossil fuels should be consistent with all of our reasons for doing so, which means that it must be cheaper. There could be other reasons, too, but at the very least a replacement must be cheaper. The obvious mistake here was that the replacements for fossil fuels have not been cheaper.

    4. CommentedRachel Green

      I definitely am not following the logic here. Sure, you subsidized solar and wind power by that amount, but how exactly does that translate to spending more than needed?

        CommentedMolecule Barça

        It means you're spending too much because the subsidy wouldn't be necessary if you were paying for conventionally sourced energy. The subsidy all represents extra costs someone needs to pay to get the same amount of energy from the subsidized source.

    5. CommentedFernando Ferreira

      The hugely transparent subsidization of renewables against the stealth subsidization of fossil fuel energy mainly the huge military and security expenditures diluted in budgets accounts.

    6. CommentedRajan Bhardvaj

      Question is not just about subsidies but the most economically efficient mechanisms to reflect the true costs of carbon emissions. A revenue neutral carbon tax with transfers to the lowest income households to offset increased costs is one of the better options, as unpalatable as it may be politically at least in the United States.

    7. CommentedTimothee Jaulin

      A quick comment:
      According to IMF (2013), fossil fuel subsidies summed up to $480bn in 2011, compared to IAE's estimates of subsidies for renewables in 2011, $88bn.
      I guess when talking about subsidies, the global picture should be taken into account.

        Portrait of Bjørn Lomborg

        CommentedBjørn Lomborg

        Dear Timothee. Yes, absolutely, we should get rid of both fossil and renewable subsidies. But remember, that almost all of the fossil fuel subsidies are in third world countries, and have nothing to do with global warming. They're essentially ways to placate the electorate (like damaging subsidies to grain and bread). See perhaps my article on this at WSJ:,d.aWc

    8. CommentedSebastian Sarria

      I've always enjoyed Lomborg's insight into our current global Climate Change/Environmental discussion politicians, academics, and students are having the world all over. However, I still believe that his viewpoint is misguided. As any sane person today knows, combating climate change and environmental degradation requires substantial challenges resulting in substantial sacrifices. Yes, I share the belief that the poor have the right to enjoy the same benefits the rich have for so long, but not at the expense of prolonging an adequate and thorough solution to environmental degradation.
      An individual with the stature that Mr. Lomborg has should aim their efforts to finding a quick solution, and not prolonging the issue.
      I also want to mention that both sides (developed and developing) must cut back, and not just one. This, I believe, should be the focus of Mr. Lomborg, and not combating current efforts.
      If the international community does not do something soon, then it is very possible that many more of the poor might continue facing a growing energy inequality. The sooner something is done, the sooner we can all benefit from our planet's sustainable resources.

        CommentedThomas Faddis

        You obviously have not read Lomborg's, The Skeptical Environmentalist! Every bit of what you say is Wrong.