Electricity decarbonization is not that expensive, so let's get on with it
by Leonard S. Hyman and William I. Tilles
Presentation to Society of Utility and Regulatory Financial Analysts
23-24 April 2020
To reduce greenhouse gas (GHG) emissions that cause global climate change, we must sharply reduce or eliminate fossil fuels from electric generation. That would reduce GHG emissions by a quarter. Then we must convince consumers to switch from direct use of fossil fuels to carbon-free electricity. Electrifying transportation would cut GHG emissions by another quarter, but only if the electricity consumed were were carbon free. Decarbonization of electricity has to go first. Otherwise, consumers would substitute one fossil fuel for another.
Cost of decarbonization cannot be considered separately from the electric industry's need to modernize and replace old plant. In real terms, over 20 years, price of electricity would rise by one half to pay to modernize and replace plant alone and would double, with decarbonization accounting for the differential. That is, real prices would rise roughly 2% to 4% annually, with the difference the price of decarbonization. The electricity bill equals 2% of GDP and the household bill only 2% of household income, so projected price increases should have little impact on the average consumer
The electricity sector would have to make capital expenditures of $5-$8 trillion over two decades, depending on the degree of decarbonization. The capital markets could easily absorb the $100-$200 billion a year of securities needed to finance the expansion, and would do so at historically low capital costs. The process should not require government subsidy.
Does the industry have 20 years to do the job? Only if it first closes coal-fired power stations and does not replace them with gas-fired ones. That would slash the industry's GHG emissions by two thirds. Can we be confident that decarbonization will cost so much more than a business-as-usual approach? Maybe not, because there is more of a likelihood that new technology costs will fall and fossil fuel costs rise than the other way around.
In sum, the electric industry can raise money at low cost to decarbonize and customers will face only single digit price increases yo pay for it, so let's get on with it before it is too late.
You can read the complete paper here:
Here are the appendices with data sets.