Where to innovate first The Green Premium

The Five Grand Challenges tell us where we need to act. But to figure out what to do first, we use a calculation our founder, Bill Gates, calls the Green Premium.

What is the Green Premium?

The Green Premium is the additional cost of choosing a clean technology over one that emits more greenhouse gases.

Right now, clean solutions are usually more expensive than high-emissions ones, in part because we don’t factor the true economic and environmental costs of existing options like fossil fuels into the price we pay for them.

For instance: The average retail price of ground beef is $3.79 per pound, while a plant-based burger is $5.76 per pound. The Green Premium for a zero-carbon burger is the difference in cost between the two, or $1.97. But the regular burger doesn’t reflect the true cost of emissions generated in its production (usually in the form of methane released by livestock.)

Moving our immense energy economy to net-zero solutions will cost something—but with the right policies and focus, we can lower the Green Premium. Ultimately, we need that premium to be so low that everyone everywhere can choose the clean alternative. It’s crucial to understand what getting there will cost.

Why is the Green Premium useful?

The Green Premium helps us measure the progress we’ve made toward addressing climate change and see which barriers we still need to overcome. Calculating the Green Premiums for all the big zero-carbon options can help us to understand:

First, which zero-carbon options should we be deploying now?
Technologies with low Green Premiums should be our priority to incentivize and use as much as possible right now. Zero-carbon electricity in the U.S. is a good example. Mostly because of the dropping cost of solar, getting all our power from non-emitting sources would only increase electricity costs by 15%, or $18 each month for most homes. Such a low premium means renewable energy sources can play a substantial role in getting the U.S. to zero, and we should be deploying them quickly wherever it’s economical.

Second, where do we still need to innovate?
For some technologies, the Green Premium may be too high to pay. In those cases, we need to focus the greatest amount of R&D investment on reducing that premium and making those clean options more affordable as quickly as possible.

Cement, for example, is especially difficult, as it produces CO₂ not just from burning fossil fuels for heat, but also as a byproduct resulting from the chemical reactions required to make it. In this case, the Green Premium shows us we need more innovation in carbon capture and in cement production.

What can we do to bring the Green Premium down?

There are three ways to lower Green Premiums and make the transition to zero.

  • Governments can implement public policies that make carbon-based technologies more expensive, or make the clean counterparts cheaper—or, ideally, do both. These policies can include rules about how much carbon a technology can emit, regulations that shape financial markets, and public investments in R&D.
  • Companies and investors, meanwhile, can commit to buying cleaner alternatives to help drive their costs down, investing in R&D, supporting clean energy startups, and advocating for government policies that bring down the cost of getting to zero.
  • Individuals can play a role, too. We can hold our elected officials accountable, and we can vote with our wallets. For example, when we buy an electric vehicle even though it may cost more, we show there is demand for these cleaner technologies, and if companies make more, we’ll buy them.

We’ve already driven down the Green Premium for some technologies. For example, air-sourced heat pumps use clean electricity to draw heat from the outside air, so they replace two pieces of equipment—a furnace and an air conditioning unit—with one. They also use less energy over time. Across the United States, innovation has made heat-pump technologies the more economical choice. We can do the same for other zero-carbon technologies.

Other Green Premiums.

Together, the Five Grand Challenges and the Green Premium provide a roadmap for avoiding a climate disaster.

Click below for additional examples of the Green Premium across different sectors.

How to Avoid a Climate Disaster