Understanding the Green Premium
Why worry about money? Isn’t saving humanity and the planet worth any cost? Governments, businesses, and individuals have limited resources. We have to make tough choices, and those choices are primarily driven by money.
For more than 200 years, we’ve focused on ways to keep fossil fuels as low-cost as possible. Cheap energy has helped global economic growth. But, it has come at a great cost. It has led to dangerous global warming. Global warming is caused by the emission, or release, of greenhouse gases when fossil fuels are burned. Greenhouse gases build up in the Earth’s upper atmosphere. Once there, they trap heat. Over time, this causes average global temperatures to rise. We need to move away from using fossil fuels as soon as possible. This means moving to sources of energy that are more expensive, at least in the short term. That added cost is the green premium.
Hamburgers are a great example for understanding the concept of the green premium. If a pound of ground beef costs $3.79 and plant-based grounds cost $5.04, the green premium of making your own burgers with low-greenhouse gas meat is RichTextPlaceholder ssa__rte-embed ssa__rte-embed--right.25. Courtesy of Breakthrough Energy.
Why does the green premium matter? Every country must change its ways to stop climate change. We need to make sure that green technology is affordable for everyone. That way, no country will have to choose between development and keeping emissions low.
Green premiums can help us decide where to focus our efforts. If a low- or zero-carbon solution’s green premium is small, we can use the solution now. If a solution’s green premium is large, we must develop it further to lower its cost. Sometimes, a solution is not used much despite having a small green premium. We need to figure out what’s standing in the way.
Let’s explore what we can do to lower the green premium.
Reducing the green premium
We need to reduce the green premium so that zero-carbon solutions are as cheap as traditional choices. This is harder to do for some solutions. For example, zero-carbon electricity costs about 15 percent more than what most Americans now pay. Switching from traditional jet fuel to zero-carbon biofuel is another story. That change would raise the cost of jet fuel by 140 percent.
The green premium is high because some products cost a lot to make. Most zero-carbon technologies are still being developed. It takes years to fully develop new products and lower their production costs.
Historically, it takes a long time to transition to new energy sources. But to lower the green premium for carbon-neutral technologies such as modern renewables, as shown in this graph, we need to speed up the pace of innovation, development, and adoption. From How to Avoid a Climate Disaster, by Bill Gates.
We need to develop new green products as quickly as possible. Governments, businesses, and individuals can help.
Governments
Governments need to help pay for research and development. Sometimes, companies are unwilling to take risks on new products because they are afraid of losing money. When that happens, governments can help cover the cost of developing a new green product. Once new products are developed, governments can buy them in large quantities. For example, they can buy carbon-negative cement for all new government building projects. This helps create a market for the cement and lower prices.
This chart demonstrates the way that technologies become cheaper with increasing production in a positive feedback cycle. By Our World in Data, CC-BY.
Governments can support low- or zero-carbon solutions by lowering production costs. Sometimes, a private company cannot make a zero-carbon product cheaply enough. If that happens, governments can help pay the production costs. This allows the company to charge less for the product.
Governments can use laws to make a difference. They can pass laws that require the use of a certain amount of low-carbon technology.
Business
Businesses often work more quickly than governments. This helps them drive research and development. By focusing on making a product cheaply and in large amounts, businesses can lower a product’s green premium.
Businesses can use their buying power to drive demand for low-carbon products. When companies use a clean technology product, they help build a market for that product. That, in turn, drives down the cost of the product.
Individuals
Individuals can help create markets for zero-carbon products. Increasingly, consumers are willing to pay more for climate-friendly products. Demand for electric vehicles is increasing despite the green premium they often carry. Products like carbon-neutral soap cost more than traditional choices. Not everyone can afford the extra cost, but those who can are increasingly deciding it’s worth spending more. This shows businesses that there’s a demand for green products. Increased demand encourages increased production and more research. In the end, this lowers costs for everyone.
Conclusion
Moving toward net-zero emissions will be hard and expensive. For the sake of our health, our environment, and our jobs, we must find new ways to solve the green premium problem. Companies, individuals, and governments have a role to play. Together, they must make sure we find the cheapest and fairest climate-change solutions.
Trevor Getz
Trevor Getz is a content editor for the Climate Project and a Professor of African and World History and affiliated with the Education program at San Francisco State University. His work centers on history and social studies as a vehicle for helping students understand contemporary issues such as climate change.
Credit: “Understanding the Green Premium”, Trevor Getz / OER Project, https://www.oerproject.com/
Image credits
This work is licensed under CC BY 4.0 except for the following:
Cover image: The green premium—the additional cost of choosing a clean technology over one that emits more greenhouse gases—can help inform decisions when it comes to climate action. Courtesy of The Gates Notes https://www.gatesnotes.com/Lowering-Green-Premiums.
Hamburgers are a great example to help understand the concept of the green premium. If a pound of ground beef costs $3.79 and plant-based grounds cost $5.04, the green premium of making your own burgers with low-greenhouse gas meat is $1.25. Courtesy of Breakthrough Energy. https://breakthroughenergy.org/our-approach/the-green-premium/
Historically, it takes a really long time to transition to new energy sources. But to lower the green premium for carbon-neutral technologies, like modern renewables shown in this graph, we need to speed up the pace of innovation, development, and adoption. From How to Avoid a Climate Disaster, by Bill Gates.
This chart demonstrates the way that technologies become cheaper with increasing production in a positive feedback cycle. By Our World in Data, CC-BY. https://ourworldindata.org/cheap-renewables-growth
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