This is my Times column on why we are paying too much to decarbonise via both nuclear and renewables, but I have expanded various points to give detailed quotes from sources to verify my arguments. [The expansions are in square brackets and italics.]
If Hinkley Point C goes ahead, the cost for consumers of subsidizing it will be £30 billion, according to the National Audit Office, or five times what was originally estimated. The increase comes largely from the fact that fossil fuels are cheaper than even the lowest possibility envisaged by the late and unlamented Department of Energy and Climate Change.
[In 2012 DECC forecast three scenarios for fossil fuel prices. In the “high” scenario, the oil price, per barrel, in 2016 was expected to be $137.2; in the medium scenario, $119.2 and in the “low” scenario, $98.8. The price today is $43, that is less than half the lowest scenario envisaged by DECC just four years ago.]
The purpose of this subsidy is to ensure that we have very-low-carbon electricity to replace ageing coal and nuclear plants, the better to mitigate global warming. Since Hinkley would emit half a billion fewer tonnes of carbon dioxide during its 35-year life than comparable gas-fired projects, that implies a cost per tonne of carbon dioxide avoided of £60 ($80).
How does this compare with the cost of the damage that global warming will do in the entire future, per tonne of carbon dioxide, a number known as the “social cost of carbon”? The United States government uses a figure of $37 per tonne, so we are being asked to pay more than twice as much.
[From here: “The current social cost of carbon pollution estimates for a unit of emissions in 2015 are $57, $37, and $11 using discount rates of 2.5 percent, 3 percent, and 5 percent, respectively.” Note that lower discount rates devalue the value put on the welfare of poorer people today compared with everybody tomorrow.]
Even that probably overstates the cost of carbon. Taking into account more than ten recent studies of climate sensitivity using real-world data, assuming a normal 3% discount rate, and employing two widely used models of climate change, Professor Ross McKitrick of Guelph University in Ontario and two colleagues at the Heritage Foundation find that a realistic social cost of carbon is somewhere between $3 and $30 per tonne of carbon dioxide.
[Here is a quote from that paper: “IAMs have relied heavily on the RB07 graph to characterize ECS, most notably for the purpose of the highly-influential reports of the US Interagency Working Group (IWG 2010, 2013) which determines the SCC for official US regulatory purposes. But this usage is inappropriate for two reasons. First, as Roe himself later pointed out (Roe and Bauman 2013), the distribution in RB07 was not applicable in the context of IAM simulations because the wideness of the tails is a function of the time span to equilibrium, and the time span relevant to IAM simulations is not consistent with a fat tailed-ECS distribution. In the real world, CO2 doubling is not instantaneous, the transition to a new equilibrium state is exceedingly slow, and the oceans absorb huge amounts of heat along the way… Second, RB07 predated a large literature on empirical ECS estimation. As was common at the time, they fitted a distribution to a small number of simulated ECS distributions derived from climate models. It is only relatively recently that sufficiently long and detailed observational data sets have been produced to allow direct estimation of ECS using empirical energy balance models. A large number of studies have appeared since 2010 estimating ECS on long term climatic data (Otto et al. 2013, Ring et al. 2012, Aldrin et al. 2012, Lewis 2013, Lewis & Curry 2015, Schwartz 2012, Skeie et al 2014, Lewis 2016, etc.). This literature has consistently yielded ECS values near or even below the low end of the range taken from climate model studies.”]
Indeed, there is a 40% chance in one model that the social cost of carbon is actually negative – which is to say that carbon dioxide emissions will prove in the end to have done more good than harm. Since that study was published, satellite evidence has confirmed that there has been a 14% increase in green vegetation over 30 years, 70% of which is directly attributable to increased carbon dioxide.
[Here’s an extract from the paper: “Here we use three long-term satellite leaf area index (LAI) records and ten global ecosystem models to investigate four key drivers of LAI trends during 1982–2009. We show a persistent and widespread increase of growing season integrated LAI (greening) over 25% to 50% of the global vegetated area, whereas less than 4% of the globe shows decreasing LAI (browning). Factorial simulations with multiple global ecosystem models suggest that CO2 fertilization effects explain 70% of the observed greening trend.”
And here is a quote from the press release accompanying the paper’s publication: “The greening over the past 33 years reported in this study is equivalent to adding a green continent about two-‐‑times the size of mainland USA (18 million km2), and has the ability to fundamentally change the cycling of water and carbon in the climate system,” says lead author Dr. Zaichun Zhu, a researcher from Peking University, China.]
This “global greening” has affected all habitats from the tropics to the tundra, but especially arid areas such as the Sahel region of Africa, where the poorest countries are. More carbon dioxide makes plants less susceptible to drought. In terms of its cumulative impact on harvests and human welfare, global greening is worth trillions of dollars.
[Here is what a 2013 study by Craig Idso concluded: “Several analyses have been conducted to estimate potential monetary damages of the rising atmospheric CO2 concentration. Few, however, have attempted to investigate its monetary benefits. Chief among such positive externalities is the economic value added to global crop production by several growth-enhancing properties of atmospheric CO2 enrichment. As literally thousands of laboratory and field studies have demonstrated, elevated levels of atmospheric CO2 have been conclusively shown to stimulate plant productivity and growth, as well as to foster certain water-conserving and stress-alleviating benefits. For a 300-ppm increase in the air’s CO2 content, for example, herbaceous plant biomass is typically enhanced by 25 to 55%, representing an important positive externality that is absent from today’s state-of-the-art social cost of carbon (SCC) calculations. The present study addresses this deficiency by providing a quantitative estimate of the direct monetary benefits conferred by atmospheric CO2 enrichment on both historic and future global crop production. The results indicate that the annual total monetary value of this benefit grew from $18.5 billion in 1961 to over $140 billion by 2011, amounting to a total sum of $3.2 trillion over the 50-year period 1961-2011. Projecting the monetary value of this positive externality forward in time reveals it will likely bestow an additional $9.8 trillion on crop production between now and 2050.”]
By contrast, the damage done by climate change has so far proved smaller than predicted – there has been no consistent increase in storms or droughts – and even this year’s El Nino temperature spike, now fading, has failed to push the rate of change of temperature above the middle of the range predicted by the models. Disaster could still be round the corner, but so far it is looking increasingly possible, indeed probable, that the social cost of carbon is far lower than the premium we are being asked to pay for low-carbon energy.
[See the chart here: http://clivebest.com/blog/?p=7256 - The commentary reads: “The recent surge in temperature anomalies due to the El Nino event in late 2015 seems to be over. Values have fallen towards ‘normal’ in June. One recent claim is that the record anomaly in May exceeding 1 deg.C is in line with the mean projections of CMIP5 models (Gavin Schmidt). However if we compare the H4 data directly to an ensemble of CMIP5 models, then we see that the overall data still lay well below the expected trend.”]
Having an indirect commercial interest in coal -- although I champion gas and cheaper versions of nuclear power for our electricity needs in the future – perhaps I am biased in favour of low estimates of the social cost of carbon. But then the proponents of renewable energy also have a vested interest in the social cost of carbon being high.
Renewable subsidies are even worse value for money when compared with the social cost of carbon. According to a new study by John Constable and Lee Moroney, small solar costs the UK consumer at least $380 per tonne of carbon dioxide mitigated, offshore wind $274 and onshore wind $137.
[Here is an extract from Constable and Moroney’s paper: “Table 3 calculates the subsidy cost per tonne of carbon dioxide saved by the various renewable technologies in the United Kingdom, assuming that each MWh of renewable electricity displaces grid average emissions of approximately 0.5 tonnes of carbon dioxide, a generous assumption, since renewables tend to displace gas in the UK, with much lower savings. Conversion to dollars has been made assuming an exchange rate of $1.5 to the pound. If we add system costs to these subsidy costs; then, the cost per tonne on-shore wind, for example, rises to about $350/tonne, and that for off-shore to about $470/tonne…Even at the upper ends of the SCC estimates, the costs of abatement from the major renewable energy technologies do not appear spontaneously compelling. Indeed, it would appear to be rational to prefer climate change and its harms to the economic harm resulting from the costs of adopting renewables.”]
At least if we build Hinkley the power will be available whenever we need it; not true for wind and solar. California is already experiencing problems with solar power dumped on the grid during the day when demand is low, but not being there in the evening when demand spikes. The result is that nuclear power faces being phased out for more flexible gas – which means an increase in emissions.
[New York state is facing a similar problem. Here is an extract from a recent article on the topic: “On Monday, the New York Public Service Commission will vote on a proposal that will provide about $1 billion per year in subsidies to the state’s nuclear plants to keep them operating. While giving subsidies to big utilities is hardly an ideal outcome, the move recognizes the difficulty that utilities are having in keeping their reactors in operation—especially when they have to compete against highly subsidized sources like wind and solar.having to subsidise nuclear to stay on line despite the effect of wind.”]
South Australia, meanwhile, has experienced what an excess of wind does to a grid. Coal plants, made unprofitable, have shut down, so electricity prices now shoot up on days when the wind is not blowing, causing economic havoc and leaving the grid to rely on expensive diesel and open-cycle gas generators, which can respond quickly, and which have relatively high emissions.
Elsewhere in the world, even coal is the unintended beneficiary of renewable subsidies. Fatih Birol, head of the International Energy Agency said in June that political support for renewable energy technologies has made it difficult for gas to compete, which has helped coal maintain market share.
In a prescient paper for the Centre for Policy Studies, Rupert Darwall predicted these problems. He argued that heavily subsidised wind and solar capacity flooding the market with “near random amounts of zero marginal cost electricity” was wrecking the economics of conventional power stations.
He concluded: “Without renewables, the UK market would require 22GW ofnew capacity to replace old coal and nuclear. With renewables, 50GW is required, i.e. 28GW more to deal with the intermittency problem.” On top of this is the huge cost of connecting remote wind farms to the grid.
[Darwall goes on: “Including capacity to cover for intermittency and extra grid infrastructure, the annualised capital cost of renewables is approximately £9 billion. Against this needs to be set the saved fuel costs of generating electricity from conventional power stations. For gas, this would be around £3 billion a year at current wholesale prices, implying an annual net cost of renewables of around £6 billion a year. The above analysis leads to a straightforward conclusion. You can have renewables. Or you can have the market. You cannot have both.
There are therefore two options to align ownership and control:
if renewables are a must-have – although no government has made a reasoned policy case for them – then nationalisation is the answer; or
the state cedes control, ditches the renewables target and returns the sector to the market.
Nationalisation removes political risk thereby cutting the sector’s cost of capital. Together with the savings from abolishing retail competition, it would cut average bills by around £72 a year now, and £92 from 2020. By contrast, ditching the renewables target and returning the sector to the market would save households around £214 a year, assuming gas replaces renewable power. This option would depend on securing a permanent opt-out from the EU renewables directive and any successor policy imposing targets on individual member states.”]
Incidentally, storing renewable power is not an answer. According to the physicist Clive Best, to store just a day’s worth of electricity for Germany, let alone a week’s, would require almost twice as many car batteries as there are in the entire world.
[Here is Best’s calculation: “The average German daily electrical energy demand is 1.4 TWh during winter months but can peak to 1.6 TWh. A standard (65Ah) car battery can store 0.78 KWh of energy. Therefore to power Germany for one day without any significant wind or solar input during winter would need at least [1.8 billion batteries.] There are currently 1 billion cars and trucks in the world. So Germany’s energy storage solution would need to requisition all of these , plus then manufacture 800 million more just to cover one day without wind in Winter.
If instead Germany decided to buy Tesla Powerwall battery packs priced at $3000, then they would only need 220 million of them for a total cost of $660 billion. However for energy security insurance they probably need about seven times that number to cover a full week for a total cost of ~ $4.6 trillion.”]
It is clear that our cheapest option for keeping the lights on is gas. There are good reasons to pay a modest premium to build nuclear power plants of proven design alongside gas to ensure diversity of supply and insulation against volatility in gas prices as well as to reduce emissions. But the premiums we are being asked to pay for renewables, or for Hinkley Point C, an unproven technology that is over budget, behind schedule and beholden to Chinese investment, are clearly too high.
The last government agreed to a doubling of the price of Hinkley’s electricity, to about £120 per megawatt-hour if it opens in 2025, and to there being no penalties if it runs eight years behind schedule and opens in 2033. Such a deal cannot survive a test that puts the interests of the families who are “just managing” first. “When we take the big calls,” said Mrs May on taking office to such people, “we’ll think not of the powerful, but you.”
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