Introducing the Green Premiums
A powerful tool for understanding clean energy and climate change.
By Bill Gates|
September 29, 2020 5 minute read
Over the past several years, I’ve been making the case that we have to eliminate global carbon emissions. To avoid the worst effects of climate change, we need new zero-carbon ways to generate electricity, grow food, make things, move around, and keep warm and cool.
But knowing what we need to accomplish is very different from knowing how to do it—or even whether we can.
Do we have everything we need to deliver enough affordable electricity for the world, or do we need more innovation? What about things like clean fuels, steel, and cement—are they viable options yet? In short, which clean sources are effective enough and cheap enough now, and which ones aren’t yet?
Understanding the answers to these questions will help us make sure we’re putting our best minds and resources on the toughest problems in climate and energy. In my view it boils down to one issue: What is the difference in cost between a product that involves emitting carbon and an alternative that doesn’t? This difference in cost is what I call the Green Premium, and understanding it is key to making progress on climate change. (It is also a central idea in my book about climate change, which will come out in February.)
Here’s an example of a Green Premium: The average retail price for a gallon of jet fuel in the United States over the past few years has been around $2.22, while advanced biofuels for jets cost around $5.35 per gallon. The Green Premium is the difference between the two, which is $3.13, or an increase of more than 140 percent.
Since airlines would not be willing to pay more than twice as much to fuel their planes—and many customers would balk at the resulting increase in air fares—the Green Premium on biofuels suggests that we need to find ways to either make them cheaper or make jet fuel more expensive. Or a combination of the two.
Unfortunately, calculating Green Premiums is not an exact science. It involves making assumptions about the cost of emerging technologies, for example, that well-informed people can disagree about. It is also important to note that one reason the Green Premiums exist is that the prices of fossil fuels don’t factor in the damage they inflict by making the planet warmer. In many cases, clean alternatives appear more expensive because fossil fuels are artificially cheap.
So even though Green Premiums are an imperfect measure, they are better than no measure at all.
For one thing, they help us measure our progress toward eliminating carbon emissions. The bigger a Green Premium is—especially for lower-income countries like India and Nigeria whose energy needs are growing—the further we are from a zero-carbon future.
They also serve as a guide to action. In cases where the Green Premiums are big, we know we need innovations that will close the price gap. In cases where they’re small—or where clean products are actually cheaper than the polluting version—it suggests that something other than the cost is keeping zero-carbon products from being deployed, and we need to understand why.
I’ll give you two examples that show why I find Green Premiums so useful.
First, electricity. The Green Premium for electricity amounts to the additional cost of getting all power in our grid from non-emitting sources like wind, solar, nuclear power, and fossil fuel plants equipped with carbon-capture technology. For the reasons I explained in this post, there’s a high Green Premium for electricity in most parts of the world, and we need innovation to drive it closer to zero.
But clean alternatives are within striking distance in the U.S. and Europe. One study suggested that decarbonizing Europe’s power grid by 90 to 95 percent would cause rates to go up roughly 14 euros per month for a typical household in the European Union. In the United States, it would cost an extra $18 a month for the average home. While that is still a substantial premium, especially for low-income people, it’s encouraging that Europeans and Americans may be able to generate most of their electricity carbon-free for the cost of a few cups of coffee each month.
Once we know what’s driving a given Green Premium, it acts like a roadmap—it tells us the route we need to take to get to zero. In the case of electricity, one step is to keep deploying renewables where they make sense. Another is to invest more in developing technologies like long-term electricity storage, carbon capture, and advanced nuclear. And we need to modernize and expand the grids that deliver clean electricity from where it’s generated to where it’s needed—often a distance of thousands of miles.
Electricity is a relatively straightforward case. A much more complicated one is manufacturing.
Consider the process of making cement. It’s responsible for releasing carbon dioxide in two ways: when fossil fuels are burned to generate heat for cement production, and during the chemical reactions involved in the manufacturing process.
We don't yet know how to make cement without releasing this carbon. The best we can do is to capture it once it has been released and stash it away permanently, a process that adds between 75 percent and 140 percent to the cost of cement. Few construction firms would be up for absorbing such a price increase in any competitive market.
Other Green Premiums in manufacturing—for steel, for example—are also quite high. This tells us that we don’t have the tools we need to make clean manufacturing anywhere near economical enough that everyone will adopt it. We need more innovation.
As a rule, there are three levers we can pull to reduce Green Premiums:
Governments can use policies to either make the carbon-based version of something more expensive, or make the clean version cheaper—or, ideally, some of both. This could include requiring a certain amount of electricity or fuel to be generated in zero-carbon ways.
Companies and investors can commit to buying and using cleaner alternatives, investing in research and development, supporting clean-energy entrepreneurs and startups, and advocating for helpful government policies.
Individuals can help create markets for better, cleaner alternatives. When you buy an electric vehicle or a plant-based burger even though it costs more than the alternative, you’re saying to the companies that make these products: “There’s demand for these items. Make more and we’ll buy them.” That will drive investment in research, which helps decrease the price and ultimately makes clean products more affordable and available for everyone.
Not everyone can afford these premiums, but if you can, it’s a productive way to contribute.
I’m convinced that the Green Premium concept can bring clarity to a debate where it is badly needed right now. I hope more people embrace it and help improve the idea. Understanding the Green Premiums will help the world make the most of its efforts and funding as we work together to avoid a climate disaster.
COMMENTS
Pascal Plumier Mar 10, 2021
First, I should say that the Green Premiums concept is very interesting to deal with some important planet problems . Secondly, in the short term, I am not sure that a significant part of the population is ready to pay more for a "climate friendly" product, especially in these more difficult times financially speaking. I would rather think of tax incentives for the purchase or use of these "cleaner" products and of scientific research & development policies aimed at reducing the cost of the latter ones ... But, this is my current opinion ...
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Bill Lathan a month
I think the Green Premium is a good way to develop energy innovation using free enterprise rather than the government in itself. Successful government projects like the Internet and GPS were, I believe responses to government proposals to do this or that by free enterprises.
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Dirk Stamm a month
Ein kleiner, vielleicht verrückter Gedanke zu den „Green Premiums“. Der große Hemmschuh bei der Wende von fossiler zu solarer Energieerzeugung, ist das „Green Premium“ zwischen Solarstrom und fossilen Strom. Diese hohen Preisdissonanzen zwischen solaren und fossilen Strom entstehen dadurch, dass das zur Stromerzeugung von einer PV-Anlage eingefangene Sonnenlicht nicht als ein eigener, werthaltiger Rohstoff betrachtet wird. Dabei sollte Sonnenlicht (Photonen statt Briketts) doch der kostbarste Energierohstoff unserer Zeit sein. Hier müsste man vielleicht von einer Blindheit des Marktes für einen Rohstoff reden. Die fossile Industrie hat keine Anreize von Kohle zu Sonne zu wechseln, weil es einen Rohstoff Sonnenlicht, für den sich der ganze Aufwand eines Energiewechsels lohnen würde, auf dem Markt gar nicht gibt. Photonen sind im Gegensatz zu Elektronen, für den Markt nicht vorhanden. Die fossile Industrie könnte zu ähnlich hohen Gewinnen mit geförderten Sonnenlicht, wie mit fossilen Rohstoffen kommen, wenn es einen anerkannten Rohstoffpreis für Sonnenlicht überhaupt erst mal gäbe. "Industrielles Sonnenlicht", ein vor der Stromgewinnung gemessener Rohstoffinput, der der Solarstromerzeugung dient, wäre nicht zum Nachteil des Verbrauchers. Erstmal bedeutet dies keinesfalls eine Bepreisung für alles Sonnenlicht, sondern nur für den winzigen Anteil, der industriell zur Stromerzeugung „gefördert“ wird. Man kann Sonnenlicht nur „fördern“ mit einer geeigneten PV-Anlage, ähnlich wie man Kohle nur mit einer großen industriellen Anlage, z.B. mit einem Schaufelradbagger fördern kann. Statt in Schaufelradbaggern zu investieren, müsste die Industrie, die zur Lichtförderung nötigen PV-Anlagen erwerben und an die Stromverbraucher vermieten. Das mit diesen Anlagen eingefangene Licht, gemessen in Lux, würde dann monatlich wie eine Rohstofflieferung (oder wie eine erweiterte Stromrechnung) abgerechnet werden. Der Gesamtpreis würde sich dann ergeben aus: Lux Watt/h. Mit der Maßeinheit „Lux, Kilolux, Gigalux“ usw. hätte man ein Licht- Rohstoffäquivalent zu „Tonnen, Barrel und Fässer“ fossiler Rohstoffe geschaffen. Dies würde die großen klimaschädlichen Kraftwerke, die nur der Profiterzeugung mittels Verbrennung fossiler Kohle dienen, überflüssig machen. Das PV-Sharing wäre ein ähnliches Geschäftsmodell wie ein kostenloses bereitgestelltes, aber mit einem Vertrag verbundenes Smartphone. Die Industrie würde damit genau so Gewinne abschöpfen, wie bisher mittels Verfeuerung von Kohle für die Stromerzeugung, aber ohne schädliches CO2 damit zu emittieren. Die an den Verbraucher outgesourcte Lichtförderung, würde einen Rohstoffhandel mit Licht erzeugen, der für ähnliche Gewinne sorgt, als handele es sich dabei um Kohle oder Erdöl. Damit wäre die „Green Premiums“ zwischen Kohle- und Solarstrom beseitigt. Für den Verbraucher, der sich keine eigene PV-Anlage leisten kann, bliebe der Endpreis ähnlich, wie bei Kohlestrom. Da Strom alle anderen Energiearten zukünftig ersetzen soll, wäre Lichtförderung ebenfalls eine Ausstiegshilfe für die jetzige Erdölbranche. - Wollte ein PV-Anlagen-Mieter zu einer eigenen, kostenlosen und unabhängigen Solarstromversorgung kommen, müsste er bloß eine dementsprechend ausgerichtete Lichförder-Anlage selbst erwerben. Oder aber er kauft die gemietete Lichförderanlage dem Konzern, der sie zur Verfügung gestellt hat, ab. Von da an, wo ihm die Fördertechnik selbst gehört, bräuchte er auch keinen Preis mehr für das zur Stromerzeugung geförderte Licht bezahlen. Ein Zusatznutzen für den Verbraucher bei einer PV-Anlagen-Vermietung ist, dass solche gemieteten oder kostenlosen, aber mit einem Liefervertrag gebundenen PV-Anlagen, von der Industrie für ihn gewartet und modernisiert würden.
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Pucclez The Amazing a month
Deforestation is another big issue. If we keep our trees instead of using that area for animals such as cows and goats, we will have another place to get rid of our CO2 and get oxygen in return.
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Pucclez The Amazing a month
Another thing that we should keep in mind while trying to reach zero emissions by 2050 is the fact that a major part of CO2 emissions that are currently in the atmosphere are not because of products that we use that emit CO2 but because of the waste from those products. We should try and eliminate the waste from those products before trying to make those products green.
