Carbon Pricing

Published on February 12th, 2016 | by Joshua S Hill


New Study Predicts World Unlikely To Become Less Reliant On Fossil Fuels

February 12th, 2016 by  

A new study has concluded that fossil fuels consumption is likely to grow unless an adequate price is placed on carbon dioxide emissions.

Coal_mine_in_Dhanbad,_IndiaThe new study, Will We Ever Stop Using Fossil Fuels, published in the Journal of Economic Perspectives, finds that fossil fuel consumption is likely to continue to increase unless clear and decisive policies are enacted to price carbon dioxide emissions and increase clean energy technology.

“The Paris agreement laid out a dramatic new vision, but there is still much work to be done to turn that broad outline into the concrete climate policy changes around the globe that are needed to reduce fossil fuel consumption and the odds of disruptive climate change,” said Professor Michael Greenstone, co-author of the study and the director of the Energy Policy Institute at the University of Chicago. “But one thing is clear: Counting on the fickle finger of fate to point the way to cheaper low-carbon energy sources, without market and policy forces pushing us there, mistakes hope for a strategy.”

The authors, in a worst-case scenario exploration, found that burning the fossil fuels currently known to us would increase global temperatures by 10 to 15 degrees Fahrenheit — which only increases between 1.6 to 6.2 degrees Fahrenheit if fossil fuel extraction techniques open up further resources such as oil shale and methane hydrates.

Greenstone and co-authors Thomas Covert of the University of Chicago and Christopher Knittel of the Massachusetts Institute of Technology also concluded that market forces alone will not be enough to cause a reduction in fossil fuel supply or demand.

“As long as markets fail to account for the environmental damages from using fossil fuels, there will always be incentives to develop new techniques to more efficiently access these resources,” said Thomas Covert, an assistant professor of microeconomics at the University of Chicago’s Booth School of Business. “It seems unlikely that our technological abilities to recover fossil fuels should stop improving any time soon. With continually improving technology, the world will likely be awash in fossil fuels for decades and perhaps even centuries to come.”

On the flip-side of the coin, the economists also studied the cost of clean technology, and found that though the trends in clean energy towards lower costs are promising, “the trends in clean technology progress are not yet strong enough” to reduce demand on fossil fuels.

“While alternative sources of energy and energy storage technologies have vastly improved, lowering costs, they still have a long way to go before they are cost competitive with fossil fuels,” said Chris Knittel, the William Barton Rogers Professor of Energy Economics at the MIT Sloan School of Management and director of the Center for Energy and Environmental Policy Research. “To change this, governments should put a price on carbon emissions and start injecting more money towards the basic R&D that is critical to making these technologies more cost competitive.”

These findings would seem to clash with some reports that solar and wind technology are nearing (or have long-since passed) grid parity with fossil fuel.

A report from UK developer PS Renewables in September, 2015, claimed that the UK solar industry has reached grid parity for large-scale solar farms — meaning that large-scale solar farms in the UK can generate power at a levelized cost of electricity less than or equal to purchasing fossil fuels from the grid.

In fact, a report from this week by GTM Research goes so far as to find that 20 US states are currently at grid parity for residential solar, and another 42 states are expected to reach that milestone by 2020.

States at Grid Parity in 2016



(Where the extra 10 states come from, I’m not sure, as the freely provided information from GTM does not explain, though presumably it is referring to the United States protectorate states.)

Tags: ,

About the Author

I'm a Christian, a nerd, a geek, and I believe that we're pretty quickly directing planet-Earth into hell in a handbasket! I also write for Fantasy Book Review (, and can be found writing articles for a variety of other sites. Check me out at for more.

  • neroden

    I’m all for pricing carbon, but it seems the authors of this “study” haven’t been reading Lazard’s Levelized Cost of Energy analysis. Investors *have*.

  • sjc_1

    We may not become less dependent, but with planning we may not become more dependent with population increases either.

    • Calamity_Jean

      The trouble is, that isn’t good enough to halt global warming. We absolutely must become less dependent and ultimately independent of fossil fuels or human civilization will not survive.

  • Jason hm

    Global market growth is the driver of both fossil fuel consumption but also critical for growth of renewables. I think it’s a mistake to focus exclusively on emissions without accounting for the common ground of growth that the renewable market also depends on.

    At this point a global slowdown might temporary reduce emissions but it would gut capital investment just when emerging renewable energy market needs it most. Navigating the next decade or so is critical period of transition as renewable energy needs a favorable Growing economic environment to truly prosper. To me it’s worth having CO2 emissions increase in the short term to insure that alternative energy gets its roots firmly established.

    • jeffhre

      Could a global slowdown simply reduce FF use, taking FF generation facilities offline? Only to be replaced by Renewable generation at a lower cost in the future once growth resumes?

  • Brian

    This study is at least partially correct. Here’s the best example of why. The LCOE of new coal generation is $95 / MWh (EIA). Solar can and will beat that price. Nobody is going to build new coal in the US. However, if you already own a coal power plant with updated pollution controls, the cost of Powder River Basin coal is $5.15 / MWh plus transportation ($5-20 / MWh depending where you’re going). Solar and wind will never reach those prices. You’re just going to keep burning coal until the plant breaks down. In the meantime, the earth keeps warming.

    This scenario is really easy to avoid. Add a $50/tonne carbon tax, and that coal is suddenly 10x more expensive. $50/tonne isn’t even that high. Gasoline would only increase by $0.50 / gallon. Coal is just way, way too cheap.

    The point is, it’s not hard to encourage coal plants to retire. Look at what updated sulfur and mercury regulations are doing already. But if you do nothing, we’ll be burning coal for decades to come.

    • Ronald Brakels

      Solar power beats established coal power stations on price in Australia. This is distributed solar which provides the lowest cost electricity available to many Australians. Even if coal power stations were able to produce electricity at no cost at all, it would still be cheaper for Australians to use rooftop solar to generate electricity during the day. And this would still be the case even without the subsidy from our Renewable Energy Target, although without it new installations would be significantly diminished.

      With further decreases in the cost of distributed solar, it will end up providing all electricity use for large portions of the day provided it is permitted to compete with utility scale generation on a somewhat level playing field. So distributed solar has a lot of potential to reduce fossil fuel use and eliminate coal from electricity generation as it is particularly bad for its economics.

      • Brian

        No, coal is not having trouble competing on the wholesale market in Australia, especially now that the carbon tax is gone. There is an excess of coal capacity, which means utilities will likely lose money, but they’ll lose money while continuing to burn coal. Distributed solar beats the retail price of electricity, which includes transmission, distribution, and profits. Partly, this is because residential users are billed for grid maintenance on an energy basis instead of a demand basis.

        Now if you account for the environmental costs of coal, solar wins easily. If you are building a new grid from scratch, solar wins. But if you want to shut down the entire coal fleet, you’re going to need carbon pricing or strong regulations.

        CO2 is an environmental problem. You will not get an environmentally optimal solution by relying on economics unless you price the environmental damage in.

        • Ronald Brakels

          Let me get this straight. If we play pretend and say that rooftop solar falls from about $1.30 US a watt before tax or subsidy down to 1 cent a watt, that would not shut down Australia’s coal fleet in the absense of carbon pricing or strong regulations? Personally I’m inclined to think that it would and its effect would be in some ways similar to how new renewables have eliminated coal generation in the state of South Australia, but greatly exagerated.

    • Martin

      Yes a carbon tax is the way to go.
      In BC , Canada it is $ 30 ton and only adds 7 cent/l to the price. However almost all of it goes to tax breaks, people/business, and only 2-3 % to carbon reduction programs.
      What the world need is a world wide carbon tax with 50 % going to carbon reduction programs and when a mile stone is reached reduce taxes for everybody.
      Yes wishful thinking on my part.

    • Jamset

      A report recently said solar power will reach grid parity in 42 states in USA by 2020.

      California already has a massive RET.

    • Frank

      My sincere hope is that the FF industries get smaller, less profitable, and less popular, and start to loose clout as renewables chip away at their size and profits. I would love to get to a place politically where we can at least put a price on those emissions which harm people directly. We would make money at it, saving on health care costs. Being able to price CO2 and fugitive methane would be huge, and really wouldn’t cost much at all, because much of the market would transition to renewables which don’t have to pay it.

    • eveee

      That would be true if coal power plants were all brand new, but they are not. The median age of US coal power plants is about 35 years. No new coal power plants are being built, so when this crop gets old, thats it.
      Existing coal power plants don’t have to be replaced by new clean generation for coal plants to diminish.

      Further, wind energy is now cheap enough to displace existing coal plants. Taking transportation, fuel costs, and operation and maintenance costs, coal is about $25/MWhr. New wind is already about that amount in the Midwest, heart of coal country.

    • Jens Stubbe

      You are 100% wrong in your assumptions. If you swing around EIA again and read up upon their average efficiency for US coal plants and the current spot market price for coal and the current average coal transportation cost you will clearly see that you cannot even purchase coal and transport it to a coal power plant at the same cost as you on average can sign a 20 year wind PPA contract for.

      Coal is a zombie industry and will never recover and the entire US coal value chain cannot even continue without still greater subsidies – hence the very clear extreme drop in market value.

    • neroden

      Brian: “depending on where you’re going” is a big issue there. Solar can and does undercut the price of Powder River coal in, for instance, Pennsyvlania.

  • JamesWimberley

    So “the trends in clean technology progress are not yet strong enough” to reduce demand for fossil fuels? How very odd that this seems to be exactly what is happening.

    The rising costs faced by oil companies in extraction do not support the theory that unspecified technical progress will make oil and gas cheap and abundant again. Gas fracking is a short-term fix only, the wells are exhausted in a year or two. On the other side, the learning curves for wind, solar and batteries are abundantly documented.

    Political support for the transition is strong and widespread, in spite of local setbacks. We are not going to see explicit carbon taxes any time soon, but their imperfect proxies – regulations, tax breaks, subsidised FITs – are holding up well in most countries.

    You would expect this sort of a priori puffery from Chicago, but MIT is lowering its reputation.

    • Joseph Rust

      It’s called a bounding argument based on worst case scenario assumptions. They know much of what you’re saying, and that it may not work out this way, but it’s useful to know what the worst case is if optimism doesn’t rule. An old saying is “Plan for the worst, hope for the best”

    • Jens Stubbe

      Maybe just maybe they speak up for continued political leadership. Their conclusion is still of the chart idiotic as coal, fracking gas and oil in USA all are in dire need of increased subsidies and a fundamental restructure. If the hand outs stops the restructure will happen and the assets will be transferred to new companies owned by the banks that has money lost in the bottomless pit.

Back to Top ↑