NEW YORK – The solution to manmade climate change depends on the transition to electricity production that, unlike burning oil, natural gas, and coal, emits little or no carbon dioxide – the main greenhouse gas responsible for global warming. Low-carbon electricity can be produced by solar, nuclear, and wind energy, or by coal-burning power plants that capture and store their CO2 emissions.
The policy problem is simple. Coal is a cheaper and more easily used energy source than the alternatives. It is cheap because it is plentiful. It is easier to use than wind or solar power because it can produce electricity around the clock, without reliance on weather conditions.
To save the planet, we need to induce power suppliers to adopt low-carbon energy sources despite coal’s lower price and greater ease of use. The obvious way is to tax coal, or to require power plants to have permits to use coal, and to set the tax or permit price high enough to induce a shift towards the low-carbon alternatives.
Suppose coal produces electricity at a cost of $0.06 per kilowatt-hour, while solar power costs $0.16/kilowatt-hour. The tax on coal-based electricity would have to be $0.10/kilowatt-hour. In that case, consumers would pay $0.16/kilowatt-hour for either coal or solar. The utilities would then shift to low-carbon solar power. The switchover, however, would more than double the electricity bill in this example.