One idea is to charge producers for the CO2 they emit, then pay the cash to citizens
We stand on the threshold of a once-in-a-century change in a market sector worth $10tn annually, or more than 10 per cent of global gross domestic product. And as the French street protests of recent weeks have shown, this shift will impact everyone and shape the economy, the environment, international security and 21st century geopolitics. We are, of course, talking about energy. The icons of modernity — from high-speed mobility via planes, trains and automobiles, lighting and air conditioning, modern medical devices and smartphones — all are fuelled by access to affordable and reliable power. Three paradigm shifts are already shaking up the global energy landscape: the expansion of the natural gas supply due to fracking of shale formations; the electrification of transportation via lithium-ion batteries; and carbon-free electricity generation from wind and solar. All three are economically competitive today because they have benefited from decades of research and development. With room for further cost reductions, they are also becoming disruptive, undermining the value of trillions of dollars invested in traditional assets, such as coal and even clean nuclear plants. And, if used judiciously, all three could significantly reduce greenhouse gas emissions. Despite the progress, fossil fuels still comprise 80 per cent of global energy use. The science is clear that this is causing global warming. Since the beginning of the industrial revolution, the global average temperature rise is slightly more than 1C. But averages are misleading. The true impact on human lives is manifested in the moments and places where the impact has been extreme: heatwaves, droughts and excessive rainfall. It is not a question of if, but when this will reach our neighbourhoods, causing flooding, forest fires and air pollution that threaten our wellbeing. If 1C has done so much, imagine the impact of a rise double that size. To stay below 2C, we can emit only about 800bn more tonnes of carbon dioxide. The global annual emission rate is roughly 40bn, leaving us just 20 years. Thereafter, emissions must total zero. What can be done? First we need research and development to create cost-effective low-carbon solutions. These could include electricity storage that is much cheaper than present day batteries; small modular nuclear reactors that are competitive because they cost half as much as today’s reactors; refrigeration and air conditioning that do not cause global warming; zero net energy buildings that are no more expensive than ordinary construction; cutting the carbon impact of both agriculture and the production of steel, concrete and chemicals. We also must capture carbon dioxide emissions and sequester them deep underground or use them to make plastics or even fuels. The R&D that produced the three energy game-changers of today makes us optimistic that we can grasp these enormous opportunities. The response to the French gilets jaunes protests against fuel duty increases (and similar movements elsewhere) should be clear. Most people will support an energy transition if society produces attractive and affordable technological options so that citizens are not economically damaged in the process. Stanford University recently gathered leaders from energy businesses, academia, government and non-profit organisations to discuss how to find those kinds of solutions. They concluded that research is necessary but not sufficient. We have a billion tonne-scale problem, and we are seeking affordable billion tonne-scale solutions. That requires trillions of dollars in investment, which in turn depends on long-term, predictable policy signals from governments. One idea that is gaining traction in the US is to charge energy producers $40 per tonne of carbon dioxide emitted. Such a fee would prompt companies to invest in low-carbon technologies and raise about $200bn annually at current emission rates. But it would also increase energy prices, so we cannot stop there. Instead, we should return that $200bn as a transparent carbon dividend so that every US citizen would receive a $600 cheque every year, or $50 per month — reducing their costs. A household could potentially earn about $200 per month. Those who are generally more frugal could actually come out ahead. The combination of R&D investment and reliable government policies would go a long way to inspiring innovation centres all over the world, much as early US government support seeded Silicon Valley. World business leaders and the heads of the G20 largest economies must seize this opportunity for responsible growth. Time is running out.
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