Yair Reem’s Post

I love the green-discount concept you guys are pushing at Extantia, because I believe it's spot on. Working in renewables, I can see it. However, there remains the challenge of switching costs. Those costs are a transition bottleneck. Even if the grass on the other side is actually greener (at lower costs), we are facing a big challenge to move there if a big river inbetween is holding us back. Personal observation: We focus a lot on solutions, very little on the transition to make them accessible, once they are available. In addition to the solutions, we need to have discussions about enablers as well.

100%, the green premium needs to go, a point also made by Sean O'Sullivan recently. Sustainable products need to start competing on the fact that they are better and/or cheaper than their fossil fuel-derived equivalents—and they often are. To take just one example, electric aircraft aren't only zero emissions; they are quieter and cheaper to operate and can restore connectivity to a lot of communities that, over the past three decades, have lost their air services.

Yair, I couldn't agree more that transferring the cost of green innovation to customers as a premium has to stop. Businesses serious about #climatechange (or ESG in general) should roadmap their agenda like any other transformation, and build products/services cost-effectively without making their CFOs or customers lose their sleep! I can cite numerous examples from Schneider Electric, and I continue to help my clients do this even today. On a side note, I feel there are many people who care about climate, though I understand the sentiment behind your US election reference.

This would be an easier argument to make if we didn’t already have a fossil subsidy in place. Which is the key point: The reality is that any energy transition will have a cost, and people do have to pay for it. You can ignore it for a while, but not forever. And even when we say there are now cheap green solutions (which is great to be clear!) they do also come with costs. For example: the first wave of renewable deployments in Europe cost the listed utilities almost €500bn euros, a figure so large that it became a front page feature on the Economist. This was money lost from people’s pensions and insurances. Now to be clear - this was a good thing because the losses meant coal and gas plants closed, reducing CO2 and local emissions (PM 2.5 etc). But let’s not pretend there isn’t a cost. There is and we all need to consciously accept it, and make it. Last final thought - the key to the energy transition, and cheapest form of decarbonisation, is to invest in energy efficiency. Therefore it seems ironic and certainly against all economic analysis to date, to suggest that making green energy cheaper than fossil fuels will actually help encourage people to invest in energy efficiency. Sadly - the opposite happens.

You are right about one thing: we should not be using the term green premium. This is not a nice to have or white glove service that cannot be afforded during a war, recession, by a small country, etc. The excuses not to pay a premium will always be there. But the real problem is not that green must be cheaper (because no/less fuel is cheaper and poor families in the US still drive F150s and vote on the price of gas). What is missing in the lexicon is the “dirty discount”. Green solutions appear more expensive than fossil fuels because fossil fuels enjoy huge direct and indirect subsidies totaling over US$11 trillion per annum. These costs are socialized to ordinary taxpayers. On top of that, if we build at scale we CAN make green solutions even cheaper than alternatives enjoying their dirty discounts and some other advantages should be applauded more often. These include reliability of pricing. Renewables based green fuels will cost pretty much the same over a 25 year period while oil and gas prices are almost capriciously variable. If Ukraine had microgrids running renewables they would have been able to withstand more attacks on energy infrastructure without importing diesel generators. Renewables can even mean energy security.

While I agree that green technologies can be less expensive in the long run, the fundamental problem is it is not a level playing field. We are competing against industries that can exteralize their costs and initial energy requirements, while the 'green' technologies, by their nature, must interalize those costs. Competing against fossil fuels outside of electrification means competing against an industry that extracts the net energy of 200M years of sunshine, heat and pressure with subsidized techniques and can exteralize their entropy in the form of CO2. If those advantages were priced, then we can talk about competing. Otherwise, I'd argue a lot of the 'green premium' is simply full cost accounting vs an industry that gets to socialize those costs.

I couldn’t agree more Yair! Green brings financial benefits beyond emotional aspects and the avoidance of regulatory imposed penalties. Day in, day out my team at node.energy educates the commercial and industrial consumers that they can save 10-20% on their energy costs by sourcing electricity directly from wind and solar powerplants. And I am not talking about on-site generation to save grid fees (this can save even more). No, with the help of our PPA-as-a-Service offering we can replace any conventional (grid-based) power supply contract.

Its tough to find a green discount for underlying processes and industry that have been actively searching for less expensive ways to do things since day #1. This suggests 3 reasons a cheaper, greener alternative hasn’t happened - Fundamental research and invention is required to make a solution practical. This makes for risky, sustained investments long before feasibility is clear. (e.g. fusion) - The wrong thing is done in the wrong areas to get economics to work. This moves the problem around and creates more net pollution. (e.g. rare earth minerals, lithium mining, manufacturing in low cost countries using dirty energy) In winter, A solar panel in Germany is much less productive than one in Morocco driving a green premium. - There is a capital wall that prevents initial demonstrations or economies of scale from happening. Once batteries were capable enough, electric vehicles were partially held back by this. There are only a few horizons where a green discount can appear: biotech, material science, fundamental physics, and space. Of that list all are fundamental research problems except space. Space is an engineering problem. With cheaper launch, space based solar power offers a massive green energy discount.

There isn’t many green solutions I’m aware of that produces a positive ROI in comparison to traditional methods. That’s why all projects required either subsidies or investors willing to pay the premium!