The fastest route to net zero is not a carbon tax: it’s ending the $6 trillion/year fossil fuel bailout

Global business groups are calling on governments to pursue an international strategy on carbon pricing at the COP26 UN climate summit. While well-intentioned, the reality is we don’t need carbon pricing to create a level-playing field in global markets. We just need to end trillions of dollars of subsidies to the coal, oil and gas industries: because these industries are already stranded. 

Carbon polluters, like any polluters, should pay for the damages they impose on societies. But carbon pricing is not the most effective way to accelerate the clean energy disruption and get to net zero. 

Carbon pricing takes mainly two forms. A carbon tax is imposed on the greenhouse gas (GHG) emissions generated by fossil fuel producers. Or a ‘cap and trade’ approach imposes limits on how much producers can emit which, if exceeded, incur payments that can be invested in carbon offset schemes.  

The idea is that by introducing such taxes, markets will shift and companies will be incentivized to transition away from fossil production due to the higher costs. The IMF claims that a carbon tax is “the single most powerful” way to combat climate change.  

But the IMF is wrong. A study in Environment Research Letters evaluating carbon pricing policies around the world since 1990 concludes that: “Overall, the evidence indicates that carbon pricing has a limited impact on emissions.”  

That’s because it doesn’t address the root causes of the problem: the fact that the fossil fuel industries and their value chains are already technically bankrupt.  

Our research at RethinkX shows that when using accurate data for the levelized cost of electricity (LCOE), solar, wind and batteries are already cheaper than conventional energy in most regions of the world, which is getting more expensive with time. This means that fossil fuel generation assets are already vastly over-valued and will never meet hoped for returns. 

What keeps societies locked-in to burning coal, oil and gas are utility monopolies supported by $6 trillion dollars a year (or $11 million a minute) of government subsidies – without which these industries would collapse under their own economic dead-weight.  

Trying to impose carbon pricing on fossil fuels while giving them trillion dollar handouts is like trying to put out a fire in a burning building by throwing out bits of burning wood while repeatedly dousing the whole structure with petrol. It doesn’t make any sense. 

The first thing we need to do to put out the fire is to stop throwing petrol everywhere. Then we’ll be in a position to put out the flames for good.   

In this context, the most effective way to accelerate the phase-out of fossil fuels is by creating open, transparent and competitive electric energy markets. This doesn’t require carbon pricing, but rather removing trillion dollar government hand-outs to incumbent fossil fuel industries, and ensuring individuals, not just utilities, have rights to generate, store and trade electricity. For instance, the new electric Ford F150 has a battery with the technology to power the average American home for about three days. Is it really necessary for every F150 owner to ask the utility for permission to power their own home with their own truck? 

In other words, we need free-market capitalism and individual freedom in electric energy markets. 

Incumbents are now facing a vicious cycle of declining profits, mounting debt, escalating costs, plummeting performance, and overall diminishing returns. They are being outcompeted by a suite of disruptive technologies: solar, wind and batteries in the energy sector, and electric vehicles in the transportation sector. 

At RethinkX, we accurately predicted that these technologies would experience exponentially increasing performance improvements and cost reductions, anticipating before anyone else the end of coal, the rapid rise of solar, and the coming dominance of electric vehicles (EVs).

Now based on the predictable cost curve trajectories of disruptions in history, we predict that these trends are going to continue over the next two decades. At such rates of improvement, within the next 10-15 years solar, wind and batteries, as well as electric vehicles, will be able to meet several times current levels of demand for 10x cheaper than today’s incumbents. 

Our work shows that whenever disruptive technologies compete with a 10x cost differential, the resulting disruption is swift and brutal: it means that over the next two decades, conventional energy industries will become obsolete as they are replaced by a new clean energy system purely due to economic factors.  

The danger is not that the clean energy disruption can be stopped. It can’t: it’s now inevitable. But it can be delayed to the point that we risk entering a world of dangerous climate change.  

Government subsidies and utility monopolies are serving to keep technically bankrupt incumbent energy industries alive by providing them an unnecessary lifeline. Expensive and unproven ‘solutions’ like carbon capture and storage only promise to prolong this lifeline to delay the inevitable. This poses the biggest obstacle to clean energy deployment.  

Without those subsidies and monopolies, left to the mercy of genuinely open and transparent electric energy markets, these doomed industries would crumble under their own economic dead-weight while allowing solar, wind and batteries to scale even more rapidly than they are today.  

The fastest route, then, to end GHG emissions is to leverage the power of markets by removing the government lifeline to these dying industries, and ensuring individual energy trading rights. This would create a level-playing field that enables the clean energy disruption to scale to 100% in the fastest time-frame, allowing us to slash 90% of emissions in just 15 years: far beyond the speed thought possible based on the conventional thinking at COP26. 

And what about those trillions of dollars that governments were previously spending on fossil fuels? Some of it can be invested prudently elsewhere in the more difficult areas where markets alone aren’t enough: such as the electrification of heating and industry.  

With the right choices, societies can accelerate the clean energy transformation and slash GHG emissions far quicker than anyone thought possible. It’s time to move the conversation to the steps that can make the most difference.

13 thoughts on “The fastest route to net zero is not a carbon tax: it’s ending the $6 trillion/year fossil fuel bailout”

  1. The sad part is oil & gas have in the past and will quit literally walk away from their assets leaving unpaid property taxes and uncapped or leaky wells. In Ontario we have a town evacuated due to natural gas coming out of the ground from old wells and in Alberta municipal governments have not been able to collect property taxes.

  2. Let me call your attention to the book titled The Systems View of Life:
    Over the past thirty years, a new systemic conception of life has emerged at the forefront of science. New emphasis has been given to complexity, networks, and patterns of organisation, leading to a novel kind of ‘systemic’ thinking. This volume integrates the ideas, models, and theories underlying the systems view of life into a single coherent framework. Taking a broad sweep through history and across scientific disciplines, the authors examine the appearance of key concepts such as autopoiesis, dissipative structures, social networks, and a systemic understanding of evolution. The implications of the systems view of life for health care, management, and our global ecological and economic crises are also discussed. Written primarily for undergraduates, it is also essential reading for graduate students and researchers interested in understanding the new systemic conception of life and its implications for a broad range of professions – from economics and politics to medicine, psychology and law.

  3. Am so happy that you have delved into the huge problem facing the world, your study of history and the logic of it seems to be on track. I just hope the people in world’s decisive places have the information you have uncovered and positively act soon.
    You information is very important for the hope that it gives. I hope it can be available for, in particular, the younger people of the world, so they can act in a very positive hopeful way.

  4. The $6tril number includes unpriced externalities (as it should, these are a subsidy, they are just an implicit one rather than an explicit one). A carbon tax is a way to correct for unpriced externalities. Therefore, ending the $6 trillion subsidy and instituting a carbon tax are the same thing.

  5. I’ve been saying the same thing for many years. Thank you. I’m glad we are on the same page. Now, how do we get the votes to overthrow the republicans, doing it the democratic way?

  6. One term kills this article’s premis: Lithium availability. Without storage capacity, renewable energy that is intermittent and dispersed, simply cannot replace one demand forms of energy, period. And there is simply not enough chemical storage in the available reserves up to the challenge.

  7. This article is just a rant without facts or specifics! As my mother would have said, if wishes were horses, then beggars would ride.
    So be specific, how are fossil fuels subsidized? How is it different from renewables? What is process to make change?
    David Smith

  8. List and compare those subsidies along with those for planned renewables, EV’s, fuel cells, green hydrogen etc.

  9. Norman Miles Klassen

    Governments subsidize oil and gas to keep production high as do they import to supplement supply. why? to keep the end products affordable to the consumer.
    Kill the subsidies and then the refiners down the line pass the buck to the consumer. Pay triple for fuel and natural gas to heat your home.
    And then if you pull the plug on the oil gas in lets say Canada; where the royalty and tax revenues fuel the whole country; then your looking at another problem.
    I would rather subsidies then import more foreign oil and gas myself; and keep developing technology for both efficiency of oil and gas as well as renewables in tandom.

  10. This article seems to be about power generation in particular? But it talks in more general terms about fossil fuels. There are value chains in the industry that are far from dead, and in some cases, currently irreplaceable. I might agree with your article if you specifically talk about power generation, where we have alternatives. Otherwise no! And for the rest of the ff industry, CCS is crucial.

  11. Net zero that thing that can never be attained as for doing away with fossil fuel i am not willing to suffer cold or power outages because some little ouik wants to make money renting land out to wind farms that are a total farce not enough wind not generating too much wind not generating what a joke and solar the stupid inverters make so much noise i the radio spectrum they can wipe out your mobile phone signals . We will carry on with coal oil and gas thanks muchly .

  12. Виктор Родин

    Prince Charles, once considered a plant-talker, demonstrates his environmental integrity at COP26.
    Quotes: “GLASGOW, Scotland. The future King of Great Britain, Prince Charles, told world leaders at the UN Climate Summit on Monday that they should look for solutions to the problem of global warming in nature. ”
    “After billions of years of evolution, nature is our best teacher,” said the Prince of Wales. “In this regard, restoring natural capital, accelerating the development of natural solutions and harnessing a circular bioeconomy will be vital to our efforts.”
    Fantastic. The Prince of Wales, not an ecologist, found the right solution to restore the planet’s climate. Natural technology:
    Production of water, which we cool by 1.2-1.5 degrees Celsius. Irrigation of empty areas. And planting afforestation.
    And that’s all. Results:
    A natural technology that cannot be disputed: Plantations protect the soil from the sun’s rays – and cool the soil and hot air emissions by half – from fifty degrees Celsius – to twenty-five.
    Second natural technology. Quote: “One hectare of afforestation absorbs 6.5 tons of carbon dioxide and releases 5 tons of oxygen.” That is, the forest plantations will work for three hundred years, and every year they will destroy carbon dioxide in the atmosphere for free and produce oxygen.
    And both natural technologies will eliminate warming:
    stop the rise in temperature – and bring it to zero.
    And they will completely destroy greenhouse gases in the atmosphere.
    Respectfully yours, developer of environmental and economic programs, Victor Rodin. Ukraine. Khmelnytsky NPP. Tel. Kiev Star: 961336344. Mail: dorosydos@gmail.com, rodinviktor@lenta.ru.
    — — —
    Принц Чарльз, которого когда-то считали чудаком, говорящим о растениях, демонстрирует добросовестное отношение к окружающей среде на COP26.
    Цитаты: «ГЛАЗГО, Шотландия. Будущий король Великобритании принц Чарльз заявил мировым лидерам на саммите ООН по климату в понедельник, что им следует искать решения проблемы глобального потепления в природе».
    «После миллиардов лет эволюции природа – наш лучший учитель», – сказал принц Уэльский. «В этом отношении восстановление природного капитала, ускорение разработки природных решений и использование биоэкономики замкнутого цикла будут иметь жизненно важное значение для наших усилий».
    Фантастика. Принц Уэльский, не эколог, нашёл верное решение восстановления климата планеты. Природная технология:
    Производство воды, которую мы охлаждаем на 1,2-1,5 градуса по Цельсию. Орошение пустых территорий. И посадка лесонасаждений.
    И всё. Результаты:
    Природная технология, которую оспорить невозможно: Лесонасаждения закрывают почвы от солнечных лучей – и охлаждают почвы и выбросы в атмосферу горячего воздуха в два раза – с пятидесяти градусов Цельсия – до двадцати пяти.
    Вторая природная технология. Цитата: «Один гектар лесонасаждений поглощает 6,5 тонн углекислого газа, и выделяет 5 тонн кислорода». То есть, лесонасаждения будут работать триста дет, и каждый год бесплатно уничтожать в атмосфере углекислый газ, и производить кислород.
    А обе природных технологии устранят потепление:
    остановят рост температуры – и приведут его в ноль.
    И полностью уничтожат в атмосфере парниковые газы.

  13. John L Faulkner

    The $6 trillion subsidies are mainly implicit subsidies, which means not charging for pollution, carbon emissions, and other external costs. The IMF estimated that the explicit subsidies were $450 billion in 2020. How do you eliminate implicit subsidies without pricing pollution, carbon emissions, etc.?

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