Global warming and climate change are among the most dangerous challenges facing the world these days and will have a negative impact in the future. In 2015, 196 parties have signed The Paris Agreement, an international treaty that aims to limit global warming to less than 2°C compared to the levels before the Industrial Revolution. This came after experts painted a gloomy picture of the future, given the increase in global temperatures.
The International Energy Agency (IEA) set a roadmap to reduce carbon dioxide (CO2) emissions during the next few decades to reach net-zero by 2050 or sooner. In order to achieve this target, enormous investments will be required, which begs the question, how much will the realization of a carbon-neutral future cost?
Social Costs: An Effective Tool for Cost Determination
In order to calculate the costs of emissions reduction, we have to consider the social costs. According to an article published on “Carbon Brief”, social costs add up all the quantifiable costs and benefits of emitting one additional ton of CO2 in monetary terms. This value can then be used to weigh the benefits of preventing global warming against the costs of cutting emissions.
This cost varies due to considering different assumptions about future emissions, such as how the climate will respond, the impacts this will cause, and the future damage assessment is conducted. A social cost is an approach that can be used for carbon pricing.
The World Bank defined carbon pricing as an instrument that captures the external costs of greenhouse gas (GHG) emissions. This includes the costs of emissions that the public pays for, such as damage to crops, healthcare costs from heat waves/droughts, and loss of property from flooding and rising sea levels. It then relates them to their sources through a price, usually in the form of a price on the CO2 emitted.
This means policymakers may face a challenge in order to decide on how much to spend on measures and technologies to reduce greenhouse gas emissions. This will take us to an important point to distinguish between two types of costs, static costs, and dynamic costs.
An article written by Kenneth Gillingham, under the title “The Cost of Reducing Greenhouse Gas Emissions,” explained that static costs focus on expenditures and emissions reduction over the life of a project. For example, suppose a government spends $20 million to establish wind farms to generate electricity, which will reduce carbon dioxide emissions by 1 million tons. The static cost of the mitigation would be $20 per ton. It is about the current costs and which is the less expensive mitigation strategy. These estimates of static costs help to inform discussions about climate policy, but they ignore that climate change is a long-term problem.
The article elaborated those dynamic costs are about how actions, if taken today, will minimize the cost of emissions reduction today and in the future recognizing that actions taken today can influence future costs. So that they are dynamic because they outlive the life of a specific project.
Estimating the Cost of Emission Reduction Technologies
To reach net-zero emissions by 2050, annual clean energy investment worldwide will need to more than triple by 2030 to approximately $4 trillion, according to IEA. While Morgan Stanley analysts in a report from Forbes had another viewpoint, estimating that the world will need to cut 53.5 billion metric tons of CO2 by spending $50 trillion in five key areas of zero-carbon technology to reach net zero emissions by 2050.
These areas include renewable investments that require $14 trillion. Electric vehicles are another option, which will require $11 trillion. Carbon capture storage will need $2.5 trillion, and the needed hydrogen projects will also require almost $20 trillion. The last key area is the biofuel that needs investments of $2.7 trillion.
Despite these huge needed costs, the experts have another opinion. Ahmed Maharek, Air Monitoring and Water Quality expert at the oil and gas sector, said “emission reduction measures came on a cost for adopting cleaner techniques, intensive to manufacturing sector and awareness programs on a short term, but on a long sustainable term, it has its positive impact on saving our ecosystem, people’s lives and nature of living and food security.”
Egypt is one of the most populous countries in the Middle East and Africa, so it has a high vulnerability to the impacts of climate change. Azza Ghanem, Environmental Economist told Egypt Oil and Gas (EOG) that “Egypt is not one of the [largest emissions producers], while it will be highly affected badly by climate change.”
According to the Egyptian Intended Nationality Contribution (INDC) report, climate change studies expected losses in crop production, especially in wheat and maize by 15% and 19% respectively by 2050, an issue which will be exacerbated by the rising sea levels caused by climate change. It noted also that 12% to 15% of the most fertile arable land in the Nile Delta is negatively affected by the rising sea levels and saltwater intrusion. Estimations indicate that if the sea level rises by 50 cm, it will have a serious impact on the Delta region. “Rising seas will not only erode shorelines and destroy ecosystems, coastal cities and towns could be displaced by rising seas,” Maharek said.
This comes in addition to the fact that the tourism sector will be affected by climate change. Ghanem elaborated that high temperature would cause the coral reefs bleaching, which is one of the country’s main tourist attractions. She concluded that climate change would be one of the socio-economic challenges for Egypt in the coming years. It is likely that there would be negative impacts on all economic sectors such as crop yields, water supply, transportation, and health infrastructure, in addition to the tourism sector, which is one of the important income sources. As a result, there would be huge financial losses along with unemployment increasing and health problems emerging.
Hamdy Hafez, Financial and Cost Expert, said to EOG “According to attributable reports to the world bank, air pollution costs Egypt an estimated EGP 47 billion a year.”
This pushes the government to take serious steps in reducing emissions. Maharek stated that “Egypt has taken several measures to reduce carbon emissions, including the use of low-carbon energy production technologies, increasing [the] use of renewable energy, [and the] use of more-efficient fossil fuel technologies.”
However, more strategies and green solutions are needed for reducing emissions in Egypt, including a carbon tax strategy. “It is time to consider an explicit carbon tax system [that puts] a price on carbon. This could generate revenues as well [and could] be used as a market mechanism to reduce emissions,” Hafez said.
An article written by Deborah Lehr about carbon pricing in Egypt explained that “Egypt would create a positive incentive for firms to reduce their carbon footprint. If a company, for example, uses less than its permitted allotment, it can sell the permits to others. If not, it may have to buy extra permits. Over time, the government will reduce the number of permits available, forcing firms to reduce their emissions or pay more for the right to pollute,” the article stated.
Though many may share the woes in making the necessary economic sacrifices to cut carbon emissions, the alternative is that humanity will have to pay an even higher price if emissions continue to destroy the planet’s natural cycles. Global climate change is not just any natural catastrophe, after which people can just rebuild and move on. It’s an existential threat that if left untamed can cause mass devastation. Putting a price tag on reducing carbon emissions may not be a simple task, but it most certainly is a necessary one.