Powering ahead on net zero leads only to a world of pain

Workers prepare to load coal onto a truck at the Jharia coalfield in Dhanbad in India's Jharkhand state.

The world is waking up to the fact the climate policy goal of achieving net-zero CO2 emissions brings crippling economic pain.

Fossil fuel prices shot up by 26 per cent across industrialised economies last year and will rise globally by another 50 per cent this year. Politicians blame Russia’s invasion of Ukraine, but the long-term trend stems mostly from governments demonising fossil fuels while their societies remain dependent on them.

Since the 2015 Paris Agreement, global investment in fossil fuels has halved, inevitably driving up prices.

As fossil fuel prices climb, activists believe people will shift painlessly to renewable energy sources. But they’ve made a major miscalculation: renewables are far from ready to power the world. Solar and wind can work only with vast amounts of back-up power, mostly fossil fuels, to keep the world running when the wind dies down, the sky clouds over or night falls. Moreover, renewables mostly generate electricity, which is just one-fifth of our total energy use – the vast majority is non-electric like transport, industrial processes and heat.

That’s why the world still gets 80 per cent of its energy from fossil fuels, and renewables deliver just 15 per cent. There won’t be change any time soon – even the Biden administration expects the world in 2050 to be dependent on fossil fuels for 70 per cent of energy.

But most net-zero policies try to force much greater reductions in fossil fuels, driving down investments and making them extremely expensive before alternatives can take over.

That leads to worldwide pain, like the northern hemisphere winter we’re entering where Europe prepares for brownouts and two-thirds of the British population is predicted to enter energy poverty.

Rich countries are showcasing the policies to avoid. Germany is on track to spend more than $US500bn ($770bn) on climate policies by 2025, yet has managed to reduce fossil fuel dependency from 84 per cent in 2000 to only 77 per cent today.

McKinsey estimates that getting to net zero will cost Europe 5.3 per cent of its gross domestic product in low-emission assets every year, or more than $US200bn annually just for Germany. That is more than it spends annually on education and police, courts and prisons combined.

The US has gone all in on its own net-zero ambition with the most expensive climate change policy in its history. With the Inflation Reduction Act, the Biden administration plans to spend $US369bn promoting low-carbon energy and electric vehicles. This vast expenditure will have a negligible impact on climate change: the money spent will reduce the global temperature rise unmeasurably, possibly as low as 0.0005C.

Little wonder that emerging economies are baulking at the expectation they emulate these terrible policies. How they tackle climate change is vitally important because about three-quarters of all emissions in the rest of the 21st century will come from today’s developing countries – India, China and countries across Africa and Asia.

India has realised that trying to achieve net-zero carbon emissions “would entail astronomical costs” and would require a “complete transformation” of its economy. In a scathing rejection, the environment ministry notes that doing so “could derail our development plans”.

In fact, India found that this policy would be so costly for the country that to even make a start on the process, New Delhi would need the West to pay $US1 trillion.

India and other developing countries also have banded together to jointly demand another $US1.3 trillion in “climate financing” every year by 2030, over and above what rich countries have already promised.

Emerging economies will not sacrifice poverty eradication and economic development to follow a net-zero policy approach that brings so much pain for so little climate reward.

In the absence of affordable, effective fossil fuel replacements, the climate policy espoused by advanced economies just means costlier power bills and lower growth rates to achieve tiny changes in temperature rises.

Fortunately, there are far smarter alternative approaches. The best long-term strategy would be to dramatically increase investment in green energy research and development. This approach would be much more effective while likely being 10 times cheaper than the approach taken by Europe and the US. This also makes it much more plausible to be implemented by governments around the world.

Consider how the computer went from being incredibly rare and expensive to commonplace and cheap. Governments didn’t achieve this revolution by subsidising every Western home in the 1960s or ’70s to install a massive, relatively inefficient computer in their basement. Breakthroughs were achieved by public and private expenditure on research and development leading to multiple innovations that led to evermore technologies becoming commercially viable, driving even more research and production in a virtuous circle. That’s the example we need to emulate when it comes to green energy.

In rich countries today, energy policies designed to make fossil fuels expensive are doing exactly what they were supposed to do. Sadly, this means great pain and a bleak winter ahead. Other countries are wise to pay heed to this lesson, and we should all instead take the pathway of innovation.

Bjorn Lomborg is president of the Copenhagen Consensus and visiting fellow at Stanford University’s Hoover Institution. His latest book is False Alarm: How Climate Change Panic Costs Us Trillions, Hurts the Poor, and Fails to Fix the Planet.