Cheaper electricity tomorrow can help with decarbonisation today
You can borrow energy from the future, sort of
Most plans for reducing carbon emissions centre either on raising the cost of fossil fuels (or banning things that use them) or hopes that electric options will become more efficient and attractive to consumers. I think policies that credibly make electricity cheaper in the future are underrated in getting people to change behaviour today.
From a carbon emissions point of view, we want to raise the cost of fossil fuels relative to “green” fuel sources, most of which produce electricity. When people create carbon emissions, the rest of the world bears most of the cost in the form of faster global warming. Making them bear the cost via a carbon tax will give them an incentive to move to lower emission forms of energy.
I’m sceptical that this will be addressed any time soon, though. Raising the cost of energy is really unpopular and affects lots of people. It would be hellish if the government decided to equalise all these taxes now, with energy costs already incredibly high, even if it was good for climate reasons – other things are important too. And the fact that a carbon tax hasn’t happened yet, despite the Treasury’s extreme thirst for tax revenues, suggests that the political costs of trying could be very high, and might mean it doesn’t actually end up happening (a bit like how we don’t get enough houses built, even though it’s obviously in the country’s interest to build them).
There are other, more brute-force proposals to reduce emissions in the UK as well, like a planned ban on gas and oil boilers in new build houses from 2025, and a ban the sale of new petrol cars from 2030. These might happen because they hit fewer people immediately, but still won’t do much about all the petrol cars and gas and oil boilers already out there.
The problem here is that there is a self-fulfilling prophecy in how this affects people’s behaviour. If people expect the government to “get tough” in the future about the cost of gas and other fossil fuels, they will be more inclined to switch away from fossil fuels now. And the more people who have switched away, the easier it will be politically for the government to “get tough”. But conversely if people are sceptical about the government’s determination to raise the cost of gas and petrol, the more they will stay using those, and the harder it will be for the government to do something about them.
Imagine if the government said it was going to ban petrol cars from the road altogether by, say, 2035. If we were all convinced it was going to stick to that, we’d all switch to electric cars between now and then, and it would be easy for the government to go ahead with it in 2035 because very few people would be left driving petrol cars. But if we doubted the government’s commitment or ability to do this ban, we might stick with petrol cars until then, and complain furiously if it actually tried it in 2035, making it harder to do it. Future commitments based on the government saying “No, seriously, we really care about this and will burn huge amounts of popularity to do this” just aren’t very credible, and won’t get people to change behaviour in advance.
I’m more optimistic about electric cars and domestic heat pumps becoming more efficient and hence cheaper to run. Electric cars are already be cheaper to run than petrol cars, though they still cost more up front. But the more efficient you expect these things to become in the near future, the greater the incentive is to hold out and avoid switching now. If those efficiency gains don’t come as quickly as hoped, we might end up in a difficult spot where lots of people are still using fossil fuels. So while I think this probably is the thing that will do most of the work for us, it isn’t guaranteed, and could be risky to rely on too much.
The third lever that I suggest we focus on more is to give people an expectation that (green) electricity will become a lot cheaper. This is the “carrot” to the anti-fossil fuel “stick” – ultimately, both are about people judging that electricity will be relatively cheaper than fossil fuels, but this approach focuses on making electricity cheaper rather than making fossil fuels pricier. But this does not have the same political pitfalls that the stick has – it’s easier to spend money on things people like than raise taxes on them.
Japan has just announced a plan to jointly spend $1.1 trillion, along with private sector investors, on a new nuclear fleet over the next ten years – the FT says that a new “next generation” nuclear reactor is about $7.3bn in Japan, so this would be enough for 150 of those. If this plan is credible and means significantly cheaper electricity in the next decade or so, then instantly there is a much stronger incentive for people to switch to electric today, because people can expect that the total lifetime cost of the electric device will be a lot lower. This, in turn, should make it easier to raise the price of fossil fuels, because fewer people will object, further shifting the balance in favour of green energy sources. We’ve turned our vicious circle into a virtuous one.
This is possibly all very obvious already, and there are already lots of reasons to want cheap energy. But I occasionally see some people who care about reducing carbon emissions object to things like nuclear because they won’t come “soon enough”. Not only is that poor planning for the future (of the kind that we’re suffering as a result of today), it ignores that cheaper electricity in the future improves incentives to switch to lower carbon electric options today – which, in turn, makes it easier to do the “stick” stuff like introducing a carbon tax.
The obstacles to this sort of policy seem entirely different to the obstacles to, say, banning gas boilers. The latter policy, taken on its own, involves lots of people losing out, which a government might not want to be responsible for. The electricity supply policy is more a problem of political short-termism – a government that isn’t going to reap many rewards from its policy because it will happen in the future, so doesn’t bother doing it. But there are lots of people who care about climate change right now, and it might be possible to inform them of the benefits of an energy roll-out that is ten years away, and hence increase popularity today for governments that do things to make electricity cheaper a decade from now.
PS: Jack Devanney’s new Substack on nuclear power is great. In particular, he argues that nuclear is much more expensive than it needs to be because we re-invest all cost reductions in reducing background radiation more and more, even though it’s already (a) trivially low and (b) not really a big deal in the first place. This, and the fact that we exaggerate the risks of nuclear accidents – which aren’t nearly as dangerous or harmful as most people assume – means we pay much more for nuclear than we should.