The Poverty of Renewables
According to UN Secretary-General Ban Ki-moon, “Climate change harms the poor first and worst,” because the poor are the most vulnerable and have the least resources with which to adapt. But, because current policies to address global warming make energy much more costly, they harm the world’s poor much more.
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.
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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.
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.