Towards a green economy

Technology Advanced coal

Natural gas combined cycle

New nuclear Fuel cell

Wind power Solar PV

Investment cost reduction (%) 5-7

10-15 4-7

13-19 8-15

18-28

Table 5: Learning rates of electricity-generating technologies Learning rates of electricity-generating technologies

in bottom-up energy system models (per cent) Sources: Messner (1997), Seebregts et al. (1999), Kypreos and Bahn (2003), and Barreto and Klaassen (2004)

illustrated by Table 5. This shows a range of percentage declines in the investment cost of various technologies associated with a doubling of cumulative production capacity.15

for up to 10 per cent of the global death and disease burden; over half of which is a direct result of fossil fuel use (WHO 2009). ExternE, a project funded by the European Commission, cites increased morbidity rates, congestive heart failure, and a loss of IQ in children among the many externalities readily assessed due to air particulate matter and byproducts of fossil fuel combustion.16

A study from

Harvard Medical School showed the true cost of energy from coal in the United States to include an externalised US$ 0.27 per kWh (Epstein et al. 2011), compared to an average cost of energy production of US$ 0.09 per kWh of electricity production (EIA 2011). By way of comparison, a study of government energy subsidies to the fossil fuel industry by the Environmental Law Institute demonstrates US subsidies for coal in the same year at US$ 0.27 per kWh (ELI 2009).

Climate change-related externalities from fossil fuel Thus, the investment costs of solar PV decline,

on average, by between 18 and 28 per cent as production capacity is doubled, compared to a lower decline of between 5 and 7 per cent for advanced coal. In general, the learning rates are higher for less mature energy technologies, such as wind and solar, whose cumulative production capacity or knowledge stock is usually much smaller than conventional technologies. Consequently, the investment costs – and, hence, total production costs – may decline much faster over time for renewable- energy technologies than for conventional technologies.

Most importantly, the analysis does not take two forms of market distortions into account: energy subsidies, which heavily favour fossil fuel technologies, and the differences in unaccounted external costs, which are generally larger for fossil fuel technologies. These are reviewed in the next section.

3.3 Externalities, subsidies and cost competition

The considerable externalities generated by fossil fuel energy sources include both the current and future health impacts of various air and other pollutants, as well as the costs necessary to adapt to climate change and ocean acidification resulting from CO2

combustion affect consumers directly through changes in weather patterns, loss of arable land/agricultural yield, increased water scarcity, and diminished ecosystems (NRC 2010). Largely a result of CO2

emissions, these

impacts are difficult to assess in monetary terms and require complex cost-benefit analysis compared with energy usage. A study of the external cost of electricity production in the EU by the European Environmental Agency (EEA 2008) examined the specific damage costs associated with emissions of CO2

associated with other air pollutants (NOx PM10, NH3

, as well as impacts , SO2

generation externalities were estimated to reach 25.9 Eurocent/kWh (in the EU-27).

Figure 5, from the IPCC SRREN (2011), displays the additional cost (in US cents) per kilowatt hour of energy produced by the most common renewable and fossil sources over facility lifecycles, differentiating between costs in terms of health impacts and those due to climate change. The figure illustrates the wide range of estimates available

for both categories of external costs. In emissions.

In many cases, there is a lack of political willingness to apply mechanisms to price these externalities. Failure to do so distorts the relative costs and returns of investing in renewable energy compared to fossil fuel alternatives.

The health externalities from fossil fuel energy usage are widespread and difficult to translate into monetary terms. In a recent study on global health, the World Health Organization found external environmental risks accounted

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general, external costs from generating electricity from coal or gas-fired plants produces higher externalities than renewable energy technology alternatives, with differences on the graph being larger than they appear due to the logarithmic scale. In addition, the median external costs of climate change impacts from the use of coal or gas for electricity generation exceed the health impacts by about one order of magnitude.17 There is evidence, though, indicating that an integrated approach addressing both air pollutants and GHG emissions can be considerably less costly than dealing

15. These rates have been either assumed or estimated econometrically, based on expert knowledge or empirical studies. For a review of the literature on learning curves, including 42 learning rates of energy technologies, see McDonald and Schrattenholzer (2002) and Junginger et al. (2008).

16. See http://www.externe.info/ 17. Except where carbon capture and storage (CCS) is potentially possible.

, NMVOCs, ); in 2008 traditional fossil fuel electricity-