Every time fossil energy is burned, carbon dioxide (CO2) is emitted. Along with other greenhouse gases, CO2 causes the greenhouse effect, which is changing our climate and increasing the average temperature on the Earth. There are basically four ways to prevent carbon emissions.9
1 Making fuel consumption more efficient and conserving energy.
2 Using fuels with less carbon content (such as natural gas instead of oil and oil or gas instead of coal).
3 Increasing the efficiency of energy conversion (for example, by making power plants more efficient and using cogeneration instead of getting electricity from conventional condensation plants).
4 Using more renewable energy.
Each of these actions entails costs, on the one hand, and a number of benefits (in addition to lower carbon emissions) on the other. To correctly determine the carbon avoidance costs, these costs and benefits have to be weighed off against each other – which is not easy.
Furthermore, we have to keep in mind what angle we come at the calculation from. If we have a macroeconomic view, the results will be different than those calculated by private investors or utility firms. Furthermore, the external costs of our energy supply (see 11.3) must be included in the calculation. Although attempts to calculate carbon avoidance costs all have their drawbacks,10 we will take a look at the general idea below.
The carbon avoidance costs are much higher for photovoltaics than for wind energy, solar thermal or energy conservation. In other words, the cost of avoiding the emission of a ton of carbon is several times greater than for other technologies at present.
Under German feed-in rates, however, the situation looks different for an average German homeowner, who also has easy access to low-interest loans for PV investments. Carbon avoidance costs are therefore very low for such investors. But whatever the case, investors generally do not base their decisions on carbon avoidance costs.
The benefit that investors get from photovoltaic arrays is not limited to the money they get in return for their solar power, but also extends to the feeling of having made a useful investment that is good for the environment, helps foster a young industry, and provides a little bit of independence from utility companies.
Such households may have been able to have the same positive environmental impact with energy-saving technologies at a lower cost, but the fact that they chose a photovoltaic array shows that subjective assessments of costs and benefits are not the same thing as theoretical macroeconomic assessments of costs based purely on economics.
Figure 10.3 Can CO2 be offset less expensively in some other way? CO2 avoidance costs (in euros per ton)
Source: The authors