The cost of Decarbonization: how much green to go green?

There is a lot of discussion about “decarbonization” to address the threat of Climate Change.   This is the process of weaning the world’s economy away from carbon based energy (coal, oil and natural gas), and replacing it with non-carbon based renewables.

This article attempts to cost out the process on a global scale.

Normally, we would do a “cost-benefit” analysis, but with this issue benefits are completely subjective.  Depending on whether one is a climate change skeptic or believer, the perceived benefits could be anywhere from zero to saving the planet, a very large range.  Either way, we should have some idea what the tab might be for the project, for consideration by supporters and detractors alike.

Lets start by picking a proven decarbonizing technique that is capable of meeting global needs. The most popular renewables of late are solar and wind, with other options such as nuclear, algae, geothermal, and wave energy either too complicated or conflicted to get much attention. Most renewables to date have been pilot projects that have demonstrated impressive technical results, but haven’t yet contributed meaningfully to our energy systems.  Current renewables do conserve fuel that would otherwise be burned in traditional generators, but do not serve growing peak energy demand or assist with energy security.

My research leads me to believe that solar energy will be the base technology for decarbonization, so we will use it in this analysis.  Not just any solar configuration, but a serious commercial technology known as solar plus storage.  Solar plus storage not only generates energy, but stores it in batteries, to provide 24/7 energy that is as useful and valuable as our traditional coal, gas or hydroelectric plants have been to date.

Let’s look at a system at the kilowatt scale, which is approximately the average electrical demand for a North American home:

A solar plus storage energy asset would have about 5 kilowatt hours of onsite battery storage paired to each peak kilowatt of solar PV panels.  This combination would transform the peak 1000 watts of intermittent power from daytime sunlight into 200 watts of steady and reliable power to the grid.  Solar energy is often described in terms of peak power output, but that only works for 20% of the day.  With solar we really need to start with 5 times the rated peak power to end up with an average steady supply of the rated peak capacity, which can then be compared to other energy sources.

Today, solar panels cost about $3/peak watt.  Lithium ion battery storage costs about $300/kilowatt hour.  From these components we can build a one kilowatt solar plus storage generator for $22,500 per kilowatt.  This compares to a traditional natural gas generator (which is used today for demand growth) that costs $2000 per kilowatt.  The solar plus storage system has two great advantages: it doesn’t need fuel, and doesn’t produce any operating emissions. At this upfront cost it could generate power for about 25 cents per kilowatt hour, compared to current costs of about 10 cents.

The good news is that both solar and storage are on a remarkable downtrending cost curve, that could see costs ultimately lowered to one third of today’s prices, at which time it would be  cost competitive with traditional power.  (Carbon tax fans will quickly note that cost parity can also be achieved with a 300% tax on existing energy).

What do the numbers look like at global scale?  Let’s use gigawatts, a billion watts or a million kilowatts.  This is the scale of large coal, hydro, and nuclear power plants.  There are now even several solar and wind projects (peak numbers!) that have scaled up to this size.

Total global energy demand is approximately 18,000 gigawatt equivalents.  Eighty percent of this is supplied from hydrocarbons, the rest from hydro and nuclear with smaller contributions from renewables.  Very approximately, we rely on hydrocarbons to provide about 5000 gigawatt equivalents for each of electricity, transportation, and heat.  Also very roughly, we rely on each of coal, oil and natural gas for 5000 gigawatts for their respective contributions.  Coal tends to be for electricity, oil for transportation, and natural gas for both electricity and heat.

The graphic below, courtesy of BP, shows one global energy forecast in major categories.  For math enthusiasts 18,000 gigawatts electrical converts to 14 billion toe or tons of oil equivalent:

The first step in decarbonization would be to transform the electricity sector.  Building out solar plus storage would cost 5000GW x 1 million kilowatts per gigawatt x $22,500 = $112.5 Trillion dollars.  We can do our best to distribute generation near loads, which would minimize transmission costs and reduce losses (rooftops are great).  All fossil fuel plants would be shuttered, leaving hydro and nuclear to operate as usual.  The electrical grid would otherwise perform just as it does today.

The next step would be to tackle the transportation sector, for another $112.5 trillion.  This would require the replacement of 2 billion vehicles with electric models at about $40,000 apiece for another $80 trillion.  Since electric vehicles should have a lower total cost of ownership in the near future, we could just assign this cost to individual car buyers.  There would be a valuable synergy between the electric cars’ batteries and the grid storage, which would reduce the storage costs for the grid in this scenario.  There would also be significant transmission and distribution costs involved in getting power to all the new demand points.

Lastly, we would need to decarbonize the heating sector.  This would be expensive for those in cold climates who heat with natural gas.  There would be at least a three fold increase in unit energy costs, and buildings would need double the electrical service capacity and need to have new electrical heating equipment installed.  Just the upstream energy component would cost the same $112.5 trillion dollars.

How much surface area would be required? Total land area would be 100,000 square miles, or a square 316 miles on a side.   This compares to total worldwide urban land development of over a million square miles, so we would only have to overlay one tenth of our cities with solar panels to achieve the desired result.

The conclusion is that decarbonizing the economy could be done with today’s technology, but would cost (just on the supply side) about $340 trillion if done with today’s prices.  This works out to $45,000/person alive today.  There is good reason to believe the costs will decline over time, but it is very unlikely the job could be done for less than $100 trillion.  To help understand how much money this is, we can compare it to the world gross domestic product, or GDP, which is about $80 trillion annually.  That is the total amount of money in the economy, so is an upper limit to what can be spent in a year.  Current expenditures for all energy are about $6 trillion/year, with $.4 trillion invested in all categories of renewables.  Current expenditures on solar power are less than $.2 trillion per year, with 100 gigawatts (peak, no storage) added annually.

However, energy demand is growing at an annual pace of 2% , requiring an additional 300 gigawatts each year, implying that $7 trillion would be needed just to meet growth.

Clearly, decarbonization is a massive task and extremely expensive.  Ironically, to compound the issue, these projects will demand a lot of energy, of which 80% is currently very carbonized. Decarbonization, if done in the near future, will require far more than one year’s worth of global energy, or more than 36 billion barrels of oil, 130 Tcf of gas and 7 billion tons of coal.  It takes a lot of oil to mine and ship lithium from South America or cobalt from Africa.  Coal will continue to be used to manufacture solar panels in China in the near term.  Natural gas can be phased out in the electricity sector, but will be very difficult to replace in many heating applications.

We can’t decarbonize without energy, and if we wait for the economy to slowly decarbonize before launching projects of scale the schedule will be dragged out for decades.  Just like the industrial revolution needed a lot of horses, firewood and manual labour to switch over to coal and steam power, so too will the carbon-free economy need a lot of legacy energy as it transitions.

It seems that society will have to choose a pace of development and corresponding level of investment that addresses the issue.  Depending on your view on climate change, that could be slower or much faster than what is happening today.  In my view, the pace would have to be increased to at least $10 trillion dollars per year to make any significant difference.

How much “green” would you spend on decarbonization?

About the Author

Larry Weiers has extensive experience in many areas of the energy sector. His most recent role before retiring was VP of Energy Technology and Innovation with a senior North American Integrated Petroleum Company.  He has published an e-book titled “Sustainability of the Modern Human Economy”.

BOE Report offers real-time news and analysis on the upstream and midstream oil and gas industry, macroeconomic price environment, and government energy policy.