MIT Study: Carbon Tax Needed to Cut Fossil Fuel Consumption

In recent years, proponents of clean energy have taken heart in the falling prices of solar and wind power, hoping they will drive an energy revolution. But a new study co-authored by an MIT professor suggests otherwise: Technology-driven cost reductions in fossil fuels will lead us to continue using all the oil, gas, and coal we can, unless governments pass new taxes on carbon emissions.

“If we don’t adopt new policies, we’re not going to be leaving fossil fuels in the ground,” says Christopher Knittel, an energy economist at the MIT Sloan School of Management. “We need both a policy like a carbon tax and to put more R&D money into renewables.”

While renewable energy has made promising gains in just the last few years — the cost of solar dropped by about two-thirds from 2009 to 2014 — new drilling and extraction techniques have made fossil fuels cheaper and markedly increased the amount of oil and gas we can tap into. In the U.S. alone, oil reserves have expanded 59 percent between 2000 and 2014, and natural gas reserves have expanded 94 percent in the same time.

“You often hear, when fossil fuel prices are going up, that if we just leave the market alone we’ll wean ourselves off fossil fuels,” adds Knittel. “But the message from the data is clear: That’s not going to happen any time soon.”

This trend — in which cheaper renewables are outpaced by even cheaper fossil fuels — portends drastic climate problems, since fossil fuel use has helped produce record warm temperatures worldwide.The study concludes that burning all available fossil fuels would raise global average temperatures 10 to 15 degrees Fahrenheit by the year 2100; burning oil shale and methane hydrates, two more potential sources of copious fossil fuels, would add another 1.5 to 6.2 degrees Fahrenheit to that.

“Such scenarios imply difficult-to-imagine change in the planet and dramatic threats to human well-being in many parts of the world,” the paper states. The authors add that “the world is likely to be awash in fossil fuels for decades and perhaps even centuries to come.”

The paper, “Will We Ever Stop Using Fossil Fuels?,” is published in the Journal of Economic Perspectives. The authors are Knittel, who is MIT’s William Barton Rogers Professor in Energy; Michael Greenstone, the Milton Friedman Professor in Economics and the College at the University of Chicago; and Thomas Covert, an assistant professor at the Booth School of Business at the University of Chicago. The scholars examine costs over a time frame of five to 10 years, stating that further forecasts would be quite speculative, although the trend of cheaper fossil fuels could continue longer.