When petrol prices skyrocketed in the early 1980s, I asked my father how much petrol had cost when he learned to drive as a young man in New York in the 1930s. His answer: 20 US cents per gallon, or 5 Swiss cents per litre. However, this seeming affordability was a façade: when measured against wages and living costs, driving a car in the 1930s was actually more expensive than in the 1980s. The same is the case when we compare the 1980s to today.
In fact, most things associated with energy have become cheaper. This is a tried and tested economic principle: the more an industrial society produces something, the sooner economies of scale set in, leading efficiency to rise and costs to fall. This has paved the way for affordable cars, computers and LED lamps.
To limit the effects of climate change and preserve the planet for future generations, we have around 25 years to eliminate CO2 emissions from the energy we consume. The most economic way to do this is to use electricity from renewable sources for our vehicles, heating systems and almost everything else. In the few cases where this isn’t an option – such as with aircraft – we can still use renewable energy sources to synthesise clean fuels from air and water. This may sound like a utopian dream, but it isn’t. The point is that renewable energy follows the same economic rules that govern falling costs – even more so than fossil fuels.
In the past 20 years, the overall production costs of solar power have fallen by 90 percent to approximately CHF 0.05 per kWh, which is roughly the same as energy produced from coal and natural gas. In the next 20 years, the costs involved in producing solar power are set to fall by another 50 to 75 percent.
It is a similar situation in the world of electric mobility. Ten years ago, the total cost of ownership of an electric car was many times higher than that of an equivalent petrol or diesel car. Today, electric cars are cheaper overall: although the purchase price is indeed a little higher, the cost of running one is much lower. And the purchase price of an electric car is set to fall considerably in the next ten years.
Limited increase in consumption
Should we be worried about having cheap energy? Won’t we end up using more of it as a result? I see no reason to panic. First, energy consumption is “inelastic”. In other words, a change in price has only a negligible effect on demand. When the price of energy increases, we still commute to work and we still heat our homes. After all, we have to. When the price falls, this only leads to a small increase in consumption – and this increase can be counteracted with the efficiency measures we take.
Second, there is more than enough sunshine, wind and geothermal energy to supply all the renewable electricity we need and much of the energy we require for heating. It is true to say that these sources are not distributed equally across the planet, but then neither are sources of fossil fuel. We have simulated the climate-neutral Swiss energy system in detail with hourly weather patterns and seasonal fluctuations, and we reached the conclusion that it will work most reliably and cost-effectively if we import around 25 percent of the energy we consume in the future. At present, this figure stands at around 75 percent.
Guiding the transition
The heated debate about the planned energy levies makes it easy to forget their purpose: incentive taxes make fossil fuels more expensive, thus facilitating the switch to renewable energies and making them cheaper in the long run. An incentive tax is successful when nobody has to pay it any longer because everybody has switched to the new system. Other instruments create direct incentives; for example, by relieving the financial burden on electric mobility or replacing heating installations. Most countries use both taxes and incentives to support the switch. These efforts are also reflected in the new CO2 law.
Rapid action is critical
We may need stricter regulation – as was the case with the phase-out of leaded petrol and obligatory catalytic converters – if we are to leave fossil fuels behind entirely. However, these regulations will only meet widespread support when renewable energy is so cheap and commonplace that few people and companies will want to use fossil fuels. This could well happen of its own accord, but the right measures could guarantee this acceptance and speed up the process considerably.
A strict Swiss climate policy can reduce domestic CO2 emissions and make a substantial contribution toward making renewable energy cheaper than fossil fuels ever were. This is also relevant for other countries; after all, their approach to the climate will also shape our future. In the next 20 years, a billion people in Africa and Asia will receive access to energy, and the governments in these parts of the world have shown great interest in cheaper energy sources. In other words, action is important and speed is of the essence.