Climate watch: Climate change is about money
You may have the impression that climate change is about polar bears, rising seas, or excessive heat. But what really matters in solving climate change is money. We pretty much know what the problems are and what we need to do to keep them from getting worse. But we have not figured out the money.
At the recent climate change meeting in Azerbaijan (COP 29) the most contentious issue involved the amount of money which rich countries (who benefited from burning fossil fuels) would be willing to give to poor countries (who are suffering the effects of climate change). The final amount agreed to was generally termed inadequate, and, even so, many rich countries have failed to pay what they already promised at past meetings.
Political calculations play a role, but they center on money, too. Inflation loomed large in the 2024 election. Will U.S. voters accept sending money to help those impacted by climate change? After all, we also feel its effects. Hurricanes Helene and Milton reportedly caused over $50 billion in damages, mainly due to flooding. Storms carry more moisture now because of the warming world. Who is going to pay to rebuild the destroyed houses and businesses, most of which were uninsured for flooding? The White House has asked Congress for $100 billion in additional funding for disaster relief. These weather-related disasters will likely keep getting more extreme and more costly. At what point will they have a noticeable impact on our overall economy?
One promising policy to stop greenhouse gas emissions is to tax the carbon content of fossil fuels to discourage their use. Will people accept higher prices on oil and gas and electricity? The last election said that they would not be willing to.
A hopeful development came when the cost of producing electricity from solar and wind fell below the cost of producing electricity from fossil fuels. But this advantage has not led to a rapid increase in the deployment of renewable energy. Why? Brett Christophers provides an answer in a recent book, “The Price is Wrong.” He argues that the complex structure of the electricity market, the way electricity is bought and put on the grid, makes it difficult for renewable energy to compete with fossil fuels. Investors hesitate to fund utility-scale solar projects because they cannot be assured an adequate return on their investment.
Fossil fuels companies are much more profitable. According to the New York Times (Nov. 18), “The median return on capital among some of the world’s biggest investor-owned oil companies ... topped 11 percent last year. ... The median return over that same period for the top renewable energy companies has stayed around 2 percent.” Solar and wind require large sums of money at the beginning of the project. Once built, they are cheap to operate because they do not require an input of fuel. But investors prefer to invest in an enterprise that will make a substantial profit, and solar and wind are not doing that.
The Economist magazine (Nov. 16) provides some good news, arguing that “The energy transition will be much cheaper than you think.” I hope their projections are accurate and that the transition will be affordable. But be prepared for a bumpy ride and conflicts over money. To get through it we’ll need a rational mind that ignores the hype and a hopeful attitude looking forward to a livable future.