Renewables generated by wind, hydro and solar now make up 25 percent of the power consumed by Minnesotans. Every year brings another step toward moving away from the fossil fuels that are driving climate change.
Congratulations, but it is not enough. Not even close.
The Dickensian technology of burning coal still accounted for 39 percent of Minnesota’s electrical production in 2017, with generators powered by natural gas providing 12 percent of the state’s electrical capacity. Nuclear power accounted for the rest of the state’s electrical output.
In other words, despite Minnesota’s considerable progress in adopting alternative energy sources in recent years, more than half of the state’s electricity remains the product of burning fossil fuel – a practice with a long history that threatens to shorten humanity’s future.
In the words of a recent call to action by the United Nations’ Intergovernmental Panel on Climate Change, averting the dangerous overheating of the planet will “require rapid, far-reaching and unprecedented changes in all aspects of society.”
I spent the better part of my career assessing risk for major financial institutions and often used mathematical modeling to understand potential outcomes. More recently I have applied the same risk assessment methodology to ask how serious climate change is. The reason it is time to slam on the brakes now is that the risk created by not doing so is exploding.
What it means to slam on the brakes in the context of climate change is that it is time to create appropriate, which is to say very strong, incentives to reduce greenhouse gas emissions and to suck carbon dioxide out of the atmosphere. The solution to this problem is incredibly straightforward.
Today the incentives to reduce emissions embedded in tax codes are backward. Globally governments heavily subsidize the production and consumption of fossil fuels, which create emissions of carbon dioxide that pollute the atmosphere. Those subsidies dwarf the meager incentives that support the production of sustainable sources of energy such as wind, solar, hydro, geothermal, and nuclear.
The fossil fuel emissions create risk that the planet crosses a tipping point at which some unforeseen chain of events leads to a positive feedback that gets out of control. Imagine a worst-case scenario, and how the risk of such an event increases over time if we don’t slam on the brakes.
Consider: By the end of this century, the earth’s hothouse gas concentrations – excess carbon dioxide – will be more than five times higher if we start pricing to reduce fossil fuel use in 2020 than if we had taken the same steps in 1980.
The ultimate impact on temperature is complex because of inherent lags in how the earth ecosystem responds, but it takes around a decade after emissions hit net zero before the planet reaches a new equilibrium and the temperature stabilizes.
Short-term tab is small compared to long-term cost
Yes, the cost of energy may be destined to rise as governments prod electricity producers away from fossil fuels. But the short-term tab surely will be far less than the long-term cost of a world plagued by drought, famine, lives cut short, forced migrations of millions of people and other disruptions that are real and loom larger with each passing year.
No one knows the exact probability of a disaster driven by climate change. What we can say with some confidence is that the risk of a disaster will grow rapidly between now and 2030 if we don’t slam on the brakes. We can also say with confidence that had we done so as recently as 2001, when Sens. John McCain and Joe Lieberman introduced climate legislation that went nowhere, the problem would be only a small fraction of what is today.
Delay is a reckless option. It is not too late, but coasting away from fossil fuel won’t do. We need to slam the brakes.
Bob Litterman is a founding partner of Kepos Capital and chairman of the Risk Committee. He previously headed risk management for Goldman, Sachs & Co. and is the co-developer of the Black-Litterman Global Asset Allocation Model. He is an advisory board member for the Heller-Hurwicz Economics Institute at the University of Minnesota.
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