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Real Price of Carbon: 185 USD/tCO2e

Updated: Jan 17

Once we apply the real price of carbon, it completely changes the economic picture! It immediately become evident that renewable energy is a much cheaper choice than fossil fuels, as exemplified in the recent article "Carbon pricing: Making it work for Malaysia". In this article, climate consultant Darshan Joshi, shows how different levels of carbon pricing affects the electricity price in peninsular Malaysia, where the grid electricity mostly is produced from fossil fuels (coal and natural gas). Versus the price of clean electricity produced from renewable energy sources such as biomass, biogas, small hydro and large scale solar photovoltaics.


How carbon pricing affects electricity costs in peninsular Malaysia from different energy sources

The above graph shows that even with Malaysia's lack of carbon pricing (0 Malaysian Ringgit per ton of CO2 equivalents), the cheapest source of electricity is still from solar energy. The graph shows that the electricity tariff from the latest large scale solar (LLS4) tender from year 2020 is 20.64 Malaysian cents per kWh. For comparison, electricity from coal and natural gas are 19% and 67% higher, respectively. And once a modest carbon price of 40 MYR/tCO2e (or 8.6 USD/tCO2e) is applied, all the renewable energy sources give a lower carbon-adjusted levelised tariff that electricity produced from fossil fuels.


So, what is the correct price of carbon to use?


One of the latest and most comprehensive estimates published recently in the peer-reviewed international journal Nature, determined a carbon pricing of 185 USD/tCO2e (or 864 MYR//tCO2e) by following the social cost of carbon methodology that calculates all the societal damages caused by human greenhouse gas emissions. When applying this carbon price to the Malaysian electricity prices we get:


The real cost of fossil fuels is much more expensive than renewable energy

The graph shows that while the price of electricity from renewable energy remains the same, the electricity prices from the fossil fuels sky-rocket once carbon pricing is added. Even if Malaysia was to follow the recommended carbon pricing of the Paris Agreement (40-80 USD/tCO2e, or 187-374 MYR//tCO2e), the conclusion would be the same: Fossil fuels are simply a much more expensive option than renewable energy sources.



Download article + graphs from @green magazine


 

References:


[1] Comprehensive evidence implies a higher social cost of carbon. Nature | Vol 610 | 27 October 2022, page 687 - 700. DOI: https://doi.org/10.1038/s41586-022-05224-9


[2] @Green magazine, March-April 2023 issue. Online version: https://einkmedia.com/green-march-april-2023/0325762001682047218?checked=1

The article by Darshan Joshi, from which the above graphs were taken, can be viewed/downloaded here:


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