Where are we on Climate Change?

Mike Greenstone @UChi_Economics gave a great talk @chicagobooth. I will post a few of his charts.

1. Including battery back-up, cost of electricity from renewables is 3x/4x more expensive than from fossil fuels.

2. Same for cars. Oil prices need to be quite high for EVs to be less costly: you need oil price at €129 for battery powered car to be more economical.

3. Fossile fuels will not just run out on their own.
On the contrary we are finding oil faster than we can use it:

We had 30 years worth of oil in 1980, 40 years today. Huge reserves of coal and gas.

4. Hugely heterogenous effect of climate change- e.g. as seen on mortality.

Difference is that "red places"- those with big increases in mortality, are where the bulk of population currently live.

5. There is no getting around that there will have to be large reductions in emissions from poorer, middle income economies.

6. Paris agreement etc. did make a difference. Worse case scenarios are being avoided. We are on path to a bit over 2 degrees of warming.

7. IRA will make a difference to US emitions. But not enough.

Solution?

We must Price Energy at its full social cost- pollution should not be free.

Social cost of carbon is estimated by Greenstone at around $200. If we fully priced emissions we would find that Coal is MOST EXPENSIVE TECHNOLOGY!

Also (Germany!) nuclear is the cheapest.

This is even more the case if we include the health cost of particulate matter. Coal really should stay on the ground.

However, only a few places have carbon taxes. And those that have it set it way below $200 (at $4 on average!)

Why is it so difficult to price carbon? Is it because of distributional consequences?

Economist answer: simply redistribute the revenues- poor will be much better off.

Example with carbon tax at $52, collecting $2.1tn for government in next decade.

Innovation will help, but fossil fuel innovation is also very significant (e.g. shale oil and gas recovery increasing!).

In sum: we need significant policy change.