Why do we talk about money when we talk about climate change? Isn’t it worth any cost to save humanity? The truth is that governments, businesses, and individuals have limited resources. We must make choices about which policies and products we adopt, and yes, those choices are primarily driven by one thing: money.

Fossil fuels are cheap, as in, cheaper-than-a-soft-drink cheap, and it’s no surprise they cost so little. For more than two centuries, we’ve developed systems and policies to keep fossil fuels affordable and keep the great wheel of industry turning. That cheap energy has been good for global economic growth, but it has come at a great cost— greenhouse gas emissions. Moving away from fossil fuels will mean moving to sources of energy that are more expensive, at least in the short term. As mentioned above, this additional expense is called the green premium.

Why does the green premium matter? As we work to adapt to climate change and reduce emissions, we need to ensure that everyone has access to zero- carbon options. That way, a country won’t have to choose between development and keeping emissions low. To ensure the fastest and fairest transition to net-zero emissions, low-carbon technologies must be the cheapest technologies.

Calculating green premiums is not an exact science. Prices of different goods and services can go up or down over time and vary from place to place. Still, the green premium can be helpful when evaluating climate solutions, as it can help us decide where to focus our efforts. If a low- or zero-carbon solution’s green premium is small, we can focus on using that solution now. If a solution’s green premium is large, we will need to innovate to make its cost lower. Sometimes, a solution is not widely used despite having a small green premium. More effort must be put into making people aware of the solution or into changing outdated policies.

Let’s explore what we can do to lower the green premium and increase the accessibility of climate solutions.

Reducing the green premium

We need to reduce the green premium so that zero-carbon solutions are as cheap or cheaper than their traditional counterparts. Closing that gap is more challenging for some products. For example, the green premium for zero- carbon electricity in the United States adds about 15 percent to what most people pay now. Swapping out traditional jet fuel for zero-carbon biofuel would involve a much bigger green premium, one that raises costs by 140 percent. The bigger the green premium, the harder it will be to reduce a product’s emissions.

The green premium is much higher for many products simply because they cost a lot more to make. Fossil fuels have a 200-year head start on most zero-carbon technologies. It takes a long time to develop new products and lower their production costs. But we don’t have a long time. We need to innovate and develop these new products as quickly as possible.

Let’s look at the roles governments, businesses, and individuals can play in driving innovation.

Governments

To start, we need governments to step in and help fund research and development. Governments can take on risks that private companies are unwilling to take for fear of losing money. Once new products are developed, governments can buy them in large quantities. For example, they can announce that they will only buy carbon- negative cement for all new government building projects. This will help create a market for the cement and lower prices.

Governments can support low- or zero-carbon solutions by lowering production costs. If a private company cannot develop a carbon-neutral product that is cheap enough to be practical, governments can step in and help pay production costs, making the product more affordable for consumers. Governments can also make a difference through their policy choices. They can pass laws that require minimum standards for low- carbon technology use. For example, they can require that a certain amount of electricity for a public utility be generated in a certain way.

Business

Private companies also have an important role to play. Because they often can work more quickly than governments can, businesses are important drivers of research and development. By focusing on producing a product as cheaply as possible and in large quantities, they can lower a product’s green premium and make it widely available.

Like governments, businesses can use their buying power to drive demand for low-carbon products. When companies consume clean technology, they help build a market for that product, which, in turn, drives down costs and makes the product more affordable for everyone.

Individuals

Individuals can help create markets for zero-carbon products. Consumers are showing that they’re increasingly willing to pay more for climate-friendly products. Demand for products like energy-efficient appliances and electric vehicles is increasing despite the green premium they often carry. A recent study found that buying carbon-neutral soap or diapers would cost a consumer an additional 8 to 9 percent. The same study also found that more families are willing to pay that premium. Of course, not all consumers are able to choose the more expensive option, but those who can are increasingly deciding it’s worth spending more to support products that have a lower carbon impact. These choices signal to businesses that there’s demand for these products. Increased demand encourages increased production and more research, which can ultimately lower costs for everyone.

Conclusion

Moving toward net-zero emissions will be hard, and it will be expensive. Our societies have limited resources, which are distributed unequally. For the sake of our health, our environment, and our livelihoods, we need to find innovative ways to overcome the obstacles presented by the green premium. Companies, individuals, and governments all have a role to play. Together, they must ensure that the costs of climate change are distributed fairly and efficiently.