The Five Grand Challenges tell us where we need to act. But how do we figure out what to do first? A good way to answer these questions is by using 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 a greater amount of 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 energy options like fossil fuels into the price we pay for them.
Take for example, meat. 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 methane, which is emitted by all livestock and is a more potent (if not as long lived) greenhouse gas than carbon dioxide. In fact, if cows were their own country, they’d be the third-largest greenhouse gas emitter in the world ahead of India.
Moving our immense energy economy from inputs and products that emit greenhouse gases to ones that don’t will cost something. However, with the right policies and focus, we can lower the Green Premium. Ultimately, we need the premiums to be so low that every place in the world can choose the clean alternative, so it’s crucial to understand how much getting there will cost.
Why is the Green Premium useful?
The Green Premium helps us to both measure the progress we’ve made toward addressing climate change and understand where we still have barriers to overcome. Once you figure out the Green Premiums for all the big zero-carbon options, you can begin to answer some big questions.
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?
When we decide the Green Premium is too high to pay, that is an indicator of where we need to focus the greatest amount of research and development investment, and our best and brightest minds, on 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 that are essential to the creation of cement’s inputs. There are ways to slightly reduce emissions from this process through material innovations, but we don’t yet know of a way to completely eliminate CO2 from the cement production process other than carbon capture technology, which adds an estimated 75-140% to the cost per ton of cement. 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 the Green Premiums and make the transition to zero carbon.
- Governments can use policies to either make the carbon-based version of something more expensive, or make the clean version cheaper – or, ideally, some of both. Rules about how much carbon can be emitted, regulations that shape financial markets, and investing in research and development all help.
- Companies and investors, meanwhile, can commit to buying cleaner alternatives, investing in R&D, supporting clean-energy startups, and advocating for helpful government policies.
- Individuals can play a role, too, by holding their elected officials accountable and voting with their wallets. When you buy an electric vehicle even though it may cost more, you’re saying to the companies that make these products: “There’s demand for these items. Make more and we’ll buy them.”
We’ve been able to successfully drive the Green Premium down before. In the case of space heaters, for instance, the lower-carbon technology is now cheaper than the higher-carbon option. Air-sourced heat pumps both heat and cool buildings using clean electricity to draw heat from the outside air. Not only can they be used to replace two pieces of equipment with one – a furnace and an air conditioning unit – they also use less energy over time. Through innovation, we’ve been able to make heat pump technologies the more economical choice in a range of climates, whether it's Houston or Chicago. If we each play our part, we can do the same for other zero-carbon technologies.
Other Green Premiums.
When we use the Five Grand Challenges and the Green Premium together, we can start to build out a roadmap for how we can avoid a climate disaster. Our current view shows us that we have some of the things we need to get to zero carbon, but not all of them. We can see what stands in the way of deploying the solutions we have and developing the breakthroughs we need. And we can see all the work we must do to overcome those hurdles.
Click below for additional examples of the Green Premium across different sectors.