Global Warming: Winds of Vanity

COPENHAGEN – Copenhagen, Denmark’s capital, wants to be the world’s first CO₂-neutral city by 2025. But, as many other well-meaning cities and countries have discovered, cutting CO₂ significantly is more difficult than it seems, and may require quite a bit of creative accounting.

More surprisingly, Copenhagen’s politicians have confidently declared that cutting CO₂ now will ultimately make the city and its citizens wealthier, with today’s expensive green-energy investments more than paying off when fossil-fuel prices rise. But how can deliberately limiting one’s options improve one’s prospects? These sound more like the arguments of green campaigners – and they are most likely wrong.

The first challenge that Copenhagen faces in reaching its zero-emissions goal is the lack of cost-effective alternatives for some sources of CO₂, particularly automobiles. Denmark already provides the world’s largest subsidy to electric cars by exempting them from its marginal 180% car-registration tax. For the most popular electric car, the Nissan Leaf, this exemption is worth $85,000 (€63,000). Yet, just 1,536 of Denmark’s 2.7 million cars are electric.

There is also the challenge inherent in wind-generated electricity: ensuring that the city can continue to run when the wind is not blowing. To address this problem, Copenhagen has had to devise an electricity-generation strategy that enables it sometimes to run on coal-fired power when necessary, without creating net emissions.

The city’s plan is to build more than 100 wind turbines within the greater Copenhagen area and in the shallow waters around it. With a combined output of 360 megawatts, which will feed electricity into the grid, these turbines will more than cover Copenhagen’s electricity needs – and the surplus can be used to offset the city’s remaining CO₂ emissions, including from the city’s millions of non-electric cars.

Copenhagen’s success thus depends on the surrounding areas not aiming for CO₂ neutrality. After all, the whole accounting exercise works only if others are still using fossil fuels that Copenhagen’s unpredictable wind power can replace. In this sense, Copenhagen is hogging the chance to feel righteous.

The city’s political leaders promise that this strategy for attaining carbon neutrality “provides an overall positive economic picture and will lead to economic benefits for Copenhageners” based on the expectation that prices for conventional energy sources like coal, oil, and gas will rise in the coming years. But the often-heard justification for this assumption – that humanity is rapidly depleting these scarce resources – is inconsistent with real-world events, as innovation has effectively expanded oil, gas, and coal reserves to unprecedented levels in recent years.

Consider Copenhagen’s wind-turbine plan, the single largest expected source of savings. The total cost of construction and maintenance is projected to be $919 million. Even assuming a very large carbon tax, this amounts to a rather paltry $142 million, meaning that the project’s value – $261 million in savings – stems largely from the $1.04 billion saved on electricity payments. 

While that sounds impressive, it depends on a massive 68% increase in the price of fossil-fuel-produced electricity by 2030. And Copenhagen is not alone in making such assumptions; the United Kingdom’s Department of Energy & Climate Change estimates a 51% price increase by 2030.

It is likely that these projections are unrealistic. Look at the long-term price trends of coal and gas, which power the vast majority of global electricity production. Despite a recent increase, real coal prices have been trending downward since the 1950s.

In the United States, the shale-gas revolution, facilitated by the development of hydraulic fracturing (“fracking”), has brought prices to their lowest levels since natural gas gained prominence after the oil crises of the 1970s. With many more countries set to tap shale-gas reserves over the next decade, this downward trend will most likely continue, helping to lower the price of electricity generation further. That is why Aurora Energy Research recently projected a significant decline in electricity prices for the next three decades.

Fracking technology has also enabled the US to tap its large shale-oil reserves, making it the world’s largest petroleum producer, ahead of Saudi Arabia. Citigroup estimates that, by 2020, oil will cost just $75 per barrel, and the former head of international forecasting at the OECD suggests that the number could be closer to $50.

This is inconvenient for climate mandarins in the UK and Copenhagen alike, because it reduces clean energy’s allure. Even if fossil-fuel-powered electricity prices remain constant, Copenhagen’s wind turbines become a net drain. If Aurora’s forecast proves correct, Copenhagen’s wind project would become a massive failure, costing 50% more than the saved electricity is worth.

Instead of allowing politicians to spend public money on feel-good climate projects based on distant – and unreliable – predictions, citizens should encourage their leaders to invest those funds in clean-energy research and development, with the goal of making renewables inexpensive enough to overcome fossil fuels in the market. Initiatives like Copenhagen’s, however wonderful they sound, are ultimately little more than costly vanity projects.

Copyright: Project Syndicate, 2014.
www.project-syndicate.org