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May 5, 2021, 9:20 a.m. EDT

Climate change has finally reached a tipping point that’s good

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By Gernot Wagner

NEW YORK ( Project Syndicate )—Like most worthwhile pursuits, reducing carbon pollution comes with costs. If it didn’t, climate change wouldn’t be a problem in the first place—at least not from a narrow economic perspective. But climate change, and what it demands of us, is also a deeply political issue.

Now that the direct economic costs of climate action have declined, the debate is shifting to the political and social difficulties of moving away from fossil fuels and toward a low-carbon, high-efficiency world.

On the matter of economic costs, climate action is becoming more affordable across the board. The costs of solar photovoltaic (PV) panels have  plummeted  by over 85% in under a decade, and by well over 99% since the first panels found their way onto people’s roofs in the early 1980s.

As a result, global solar PV generation has  increased  rapidly, with projections pointing to a further quadrupling by the end of this decade. Solar is the  fastest-growing  source of electricity generation; and wind generation is not far behind.

The climate challenge in a nutshell

But there still is a long way to go. Worldwide, coal remains king for total electricity  generation , as does oil for  total energy  use (which includes driving, flying, and shipping).

This, in a nutshell, is the climate challenge: the costs of renewables are reaching new lows, but older, dirtier forms of energy are still in use, and in demand, everywhere. The eventual outcome is clear, and so are the trends: the green transition  will  happen. The only question is whether it will proceed quickly enough to contain the risks of climate inaction.

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It is clear that looking only at the  costs  of reducing carbon pollution is not enough; they must be compared with the costs of  unmitigated climate change . Moreover, neither cost is, nor ever will be, distributed equally. Coal miners and manufacturers of internal combustion engines will necessarily bear more of the costs of climate action, whereas poor and vulnerable communities will bear the brunt of climate inaction.

Overall, though, there is no comparison: the costs of inaction far outweigh the costs of cutting carbon-dioxide emissions.

Social cost of carbon

To see why, it helps to think in terms of the “ social cost of carbon ,” which captures the lifetime cost of each ton of CO emitted today to the economy, the environment, and society. Calculating this figure is not simple, which is why it has been described as the “holy grail” of climate economics—the one number that captures the big picture. Two key factors in the calculation are an estimate of the actual climate damage caused by each ton of CO, and a conversion of this estimate into present dollars using a discount rate.

Highly conservative estimates of the current social cost of carbon put it at around $50 per ton. I say “highly conservative” because this figure comes from a  U.S. government interagency working group  using methods that were largely devised over a decade ago. Climate economics has advanced considerably since then, such that  recalculating  the number would almost certainly produce a price well over $100 per ton.

This implies that for a country such as Hungary—which emits around  50 million  tons of CO per year—the damage caused by keeping emissions at their current level amounts to well over $5 billion per year, some one-sixth of  the budget in 2019 .

Though there are large uncertainties about estimates of the social cost of carbon, the true costs are almost certainly higher than current estimates, implying that we need even  more ambitious  climate policies. At the same time, the uncertainties about the cost of cutting carbon pollution point in the opposite direction. Energy modelers perennially overestimate the costs of renewables like solar PV, and thus  underestimate  their rate of deployment.

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