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Coined by Bill Gates, the term "Green Premium" refers to the additional cost associated with using products or services that do not emit CO2 compared to their traditional, polluting counterparts. This concept is crucial for understanding the economic implications of transitioning to a zero-carbon economy and serves as a vital indicator for identifying areas where innovation is most urgently needed to achieve Net zero emissions by 2050.

What is green premium

The concept of the Green Premium refers to the cost difference between a product that involves emitting carbon and an alternative that doesn't. This cost difference is a measure of how much more we have to pay to use clean technologies over those that contribute to carbon emissions. Understanding Green Premiums is crucial for evaluating the economic feasibility of climate change solutions, encouraging innovation to reduce these premiums, and making zero-carbon solutions economically viable for more people and countries. Although Green Premiums are not a perfect measure, they are a useful tool for tracking our progress toward eliminating carbon emissions and serve as a guide for where innovation is needed to close the price gap between clean and carbon-emitting technologies.

Why green premium exist?

Green Premiums exist because the prices of fossil fuels don't factor in the damage they inflict by making the planet warmer. In many cases, clean alternatives appear more expensive because fossil fuels are artificially cheap. This price discrepancy arises from the failure to account for the environmental and health costs associated with carbon emissions. Therefore, Green Premiums highlight the additional cost of choosing a zero-carbon alternative over a carbon-intensive option, reflecting the economic, environmental, and social impacts not currently priced into the market.

What's the benefit for the concept of green premium?

1. Measuring Progress: It helps measure progress towards eliminating carbon emissions by quantifying the additional cost of choosing clean over carbon-emitting technologies.
2. Guiding Innovation and Action: By identifying where Green Premiums are high, it signals the need for innovation to make clean technologies more affordable or to increase the cost of carbon-emitting ones, guiding investments and research towards reducing these premiums.
3. Creating Market Demand: It serves as a call to action for governments, companies, investors, and individuals to support and adopt cleaner alternatives, even if they are currently more expensive, thereby driving demand and further investment in clean technology.
4. Incorporating Environmental Costs: Green Premiums acknowledge the external costs of environmental damage caused by fossil fuels, advocating for a more comprehensive accounting of energy costs that includes environmental impacts.

Examples to illustrate the usefulness of Green Premiums

1. Electricity: The Green Premium for electricity is the additional cost of sourcing all power from non-emitting sources like wind, solar, nuclear, and carbon-capture-equipped fossil fuel plants. While the Green Premium for electricity is high globally, clean alternatives are within reach in regions like the U.S. and Europe, suggesting that most of their electricity can be generated carbon-free at the cost of a few cups of coffee each month.
2. Manufacturing: Specifically, the manufacturing of cement is highlighted, where the process releases carbon dioxide both from burning fossil fuels for heat and from chemical reactions in the manufacturing process. Currently, there's no way to make cement without releasing carbon, and the best option is to capture and store it, which significantly increases the cost. This and other high Green Premiums in manufacturing indicate a need for innovation to make clean manufacturing economically viable.

What can we do to bring the Green Premium down?

To effectively reduce the Green Premium and advance towards a sustainable, zero-emissions future, a coordinated effort across governmental, corporate, and individual levels is essential. Governments should spearhead this movement by enacting policies that both incentivize clean technologies and discourage carbon-based solutions. This can be achieved through regulatory measures, such as emissions caps and financial market adjustments, alongside substantial investments in research and development. On the corporate front, businesses and investors are tasked with not only investing in clean technology research and startups but also prioritizing the procurement of cleaner alternatives to foster market demand and reduce costs. Advocacy for policies that lower the financial barriers to achieving a carbon-neutral status is also crucial. At the individual level, the power lies in holding elected officials accountable and making conscious consumer choices that favor environmentally friendly options, such as purchasing electric vehicles despite their higher initial costs. Demonstrating demand for clean technologies can spur increased production and investment, ultimately driving down the Green Premium and making sustainable choices more accessible and economically viable for all. This comprehensive approach embodies the synergy needed between policy, investment, and consumer behavior to catalyze the transition to a greener economy.