Understanding the Green Premium
Why do we talk about money when we talk about climate change? Isn’t saving humanity and the planet worth any cost? Governments, businesses, and individuals have limited resources. We have to make choices about which policies and products we use, and those choices are primarily driven by money. For more than two centuries, we’ve focused on ways to keep fossil fuels as low-cost as possible. That cheap energy has been good for 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, where they trap heat. Over time, this causes average global temperatures to rise. We need to move away from using fossil fuels. This often means moving to more expensive sources of energy, 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? As we work to reduce carbon emissions, we need to ensure that low-cost, low-emissions options are available to everyone. That way, no country has to choose between development and keeping emissions low. Green, low-carbon technologies need to be the cheapest technologies.
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 that solution now. If a solution’s green premium is large, we will need to develop it further and lower its cost. Sometimes, a solution is not widely used 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.
Let’s explore what we can do to lower the green premiums 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, 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 transition would raise the cost of jet fuel by 140 percent.
The green premium is much higher for many products because they cost more to make. Most zero-carbon technologies are still being developed. It takes a long time to fully develop them and lower their production costs. We don’t have a long time. We need to develop new green products as quickly as possible.
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.
Governments, businesses, and individuals can help with their development.
Governments
We need governments to help pay for research and development. Sometimes, private companies are unwilling to take risks for fear 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 will help 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. If a company cannot afford to make a carbon-neutral product, governments can help pay the production costs. Once the product is on the market, the company can charge less for it.
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 can often work more quickly than governments and drive research and development. By making a product as cheaply as possible, businesses can lower its 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 it. This, in turn, lowers 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 things like energy-efficient appliances and electric vehicles is increasing despite their green premiums. Products like carbon-neutral soap cost up to 9 percent more than traditional choices. A recent study found that more families are willing to pay that premium. Not everyone can afford the extra cost, but those who can are deciding it’s worth spending more for 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 research, which lower 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 need to find ways to solve the green premium problem. Companies, individuals, and governments all play a role. Together, they must make sure that climate-change costs are distributed fairly and efficiently.
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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