The Climate Policy Initiative (CPI) indicates that climate finance worldwide must increase from $1.3 trillion in 2021/2022 to $9 trillion by 2030 to keep the goals of the Paris Agreement alive. The CPI is an international organization launched with initial funding from George Soros, with offices in the United States, China and other countries. It finds that the annual climate finance needed immediately increases to $8.1 trillion and then steadily increases to $9 trillion by 2030, jumping to over $10 trillion each year from 2031 to 2050. Where is that kind of money going to come from? Countries raised a record $104 billion last year by charging firms for emitting carbon dioxide through carbon pricing and cap and trade systems, but that is a drop in the bucket to what CPI stipulates is needed. Thus, taxes and fees must rise enormously at a time three-quarters of energy consumers say they have already done as much as they can to be sustainable, according to a survey of 100,000 people over 20 countries by the research arm of accounting firm Ernst & Young.
In 2021/2022, average annual climate finance flows reached almost $1.3 trillion, doubling compared to 2019/2020 level of $653 billion driven primarily by a significant acceleration in mitigation finance, particularly in the renewable energy and transport sectors. Mitigation finance was increased by $439 billion from 2019/2020 levels. Despite the increase, current financial flows represent only about one percent of global GDP. And, those financial flows are already taking a toll on home owners, businesses and consumers via skyrocketing energy costs which flow through the cost of all human endeavors, including agriculture and transportation.
Impact of Climate Rules in Europe
Europe was at the forefront of policies to cut carbon dioxide emissions. The European governments tried to reduce climate price increases by motivating consumers with subsidies. But now these governments are cash-strapped and many are passing their climate policy bill to consumers while scaling back subsidies, phasing in taxes tied to carbon emissions, and implementing rules that require expensive renovations. Many consumers, including those who broadly supported the energy transition, are unwilling to pay the exorbitant costs. For example, farmers have protested against plans to remove diesel-fuel subsidies (in most cases negating carbon fees imposed on fuel) and German households have rebelled against requirements to replace gas boilers.
The host of climate measures enacted years ago when interest rates were low and energy supplies seemed abundant are now taking their toll. Wars in Ukraine and Gaza are forcing Western governments to spend more on defense while higher energy costs and inflation are affecting their residents. French President Emmanuel Macron suggested Europe might require a “regulatory pause” so its economy can absorb the impact of the Ukraine war, and the European Union has recently trimmed some of its climate measures. The United States under President Biden, however, is ramping new programs up to achieve his promises to the U.N.
When Russia invaded Ukraine in early 2022, energy prices in Europe skyrocketed, as natural gas was no longer a cheap commodity from Russia, fueling inflation and driving up costs for companies. Germany, the continent’s economic powerhouse, who had already closed many of its nuclear and coal plants, faced soaring electricity and gas bills, which caused German manufacturers to look elsewhere for cost-effective energy as they were no longer competitive, particularly against Chinese goods made with cheap coal power. Germans now pay electricity prices 70 percent higher than the European average.
As Germany’s constitutional court ruled that the government could not tap unused funds left in pandemic-era special-purpose funds to cover the energy transition, the government was forced to cut spending by about €60 billion ($65 billion). Germany then had to raise carbon prices, making heating costs and gasoline and diesel more expensive, and introduce an aviation fuel tax for domestic flights and a tax on plastics. It also ended subsidies for grid fees and scrapped a subsidy for buyers of electric vehicles. A tax rebate on diesel fuel used in agriculture was cut as well as incentives to build solar panels and renovate heating systems.
Last year, German lawmakers adopted an experimental policy requiring all new heating systems installed after 2024 to use at least 65 percent renewable energy. In its original form, the law amounted to a de facto mandate to install heat pumps, and it would have entailed catastrophic renovation costs for the owners of many older buildings. The law proved so controversial that even some of the establishment press criticized it. Robert Habeck, the Green Party minister behind the plan, had to modify the legislation, but it still contained many complex subsidies and exceptions. Habeck told a town hall that the original law “was honestly a test of how far society is prepared to go in terms of climate protection when it becomes a reality. And I went too far.” He said the plan’s mandates will be eased because public anger “would probably have ended up knocking the entire climate protection program off its feet.” Not surprisingly, these mandates and the public backlash were for a policy that would only reduce German carbon dioxide emissions over the next six years by the same amount as China emits in a single day.
France passed climate legislation in 2021 that, starting this year, barred homes from the rental market if they scored low on energy-efficiency inspections. One apartment owner found he would need to spend €25,000 ($27,000) for renovations to the heating system, windows and insulation to meet the new requirements. Because the resulting thickened walls would cut into the square-footage of the apartment, lowering its value, the homeowner decided to sell the apartment at a lower value, losing a portion of his investment. These are the type of problems occurring when heady ideas composed in office buildings confront the reality of the lives of people.
Impact of Climate Measures on U.S. Consumers
Households are getting hit with the ballooning costs of building or upgrading electrical grids and other critical infrastructure to support the energy transition. Electric rates under California utility Pacific Gas and Electric (PG&E) have increased 127 percent in the past decade along with surging costs for wildfire prevention and grid upgrades. Nearly a quarter of the utility’s customers are now delinquent on their bills. A state law that makes higher-income people pay more for their electricity than their actual demand to subsidize lower income residents has split the state’s clean-energy community.
California homeowners and small businesses seeking to install solar panels are running up against new metering rules that cut by roughly three-quarters the amount of money they can get for selling electricity back to the grid. The original net metering system was helping wealthier households who could afford solar panels, with less fortunate residents having to pay for transmission and distribution costs that were not being covered. California, which expects to run on 100 percent renewable energy by 2045, generates much more solar power than its electric grid can handle during the day. The state’s change to the metering rules is an attempt to spread the cost of grid development and push homeowners to install expensive batteries to store excess power. As a result, new rooftop solar installations in the state plummeted 75 percent, and an estimated 17,000 workers at companies that put panels on rooftops have been laid off.
Illinois, which is requiring 50 percent of its electricity to be renewable by 2030, had its power regulator reject grid-improvement plans from two utilities, stating the state’s households should not be “unfairly asked to shoulder undue costs tied to the state’s energy transition.” The CEO of one of Illinois’ utilities, Exelon, protested because the requirement “is going to cost money.” The question is who is going to pay. If the state does not, utilities could go out of business, thereby transmitting no power to residents, who expect lights to go on 24/7, as needed.
Conclusion
The transition to renewable energy was sold as being cost-effective as wind and solar power have no resource cost. Home owners are finding that to be a myth as those intermittent sources require expensive back-up power in the form of batteries that are fueled by excess wind and solar power should the sun shine and the wind blow and the addition of miles of transmission lines to get the power from remote sites to demand centers. The costs for battery back-up and transmission lines are just beginning. Those costs were hidden from consumers, who believed the rhetoric. Now, the spiraling energy costs from the transition are becoming known and will only grow, despite the rhetoric from politicians. To stop the exponential spending needed, consumers need to inform their politicians of the spiraling costs that they do not want to pay and the inconveniences they are experiencing, particularly as President Biden is pushing the United States into renewable power and electric vehicles at a frantic pace.
