The Five Grand Challenges tell us where we need to act. But how do we figure out what to do first? How do we tell where we need further innovation? How do we know what policies or innovations to prioritize?
A good way to answer these questions is by using a calculation our founder, Bill Gates, calls 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, though this is in part because we don’t usually factor the true economic and environmental costs of existing energy options like fossil fuels into the price we pay for them.
When the Green Premium is at or near zero, then consumers and industries will choose clean technology. So when we keep the Green Premium in mind, we can tell where to focus on deploying relatively inexpensive technologies that already exist and where we need to innovate to bring costs down.
Take gasoline, for example. The average retail price in the United States over the past few years is $2.43 per gallon. Electrofuels cost around $8.20 per gallon. The Green Premium for low-carbon fuel is the difference between the two prices, or $5.77 – which means the clean choice is more than three times as expensive as the current greenhouse gas emitting option.
Click below for additional examples of the Green Premium across different sectors.
Similarly, meat free burgers still typically cost more than beef, and low carbon cement or steel cost more to produce than their greenhouse gas emitting equivalents. But sometimes, the Green Premium is negative, which means that going green is already cheaper than sticking with fossil fuels. For example, depending on where you live, it can be cheaper to replace your natural gas HVAC system with an electric heat pump.
The Green Premium gives us part of the road map to zero. It helps us to see what technologies we should scale up now and where we still need more breakthroughs. It also helps entrepreneurs, policymakers, and decisionmakers think about what their priorities should be.