Copyright 1997 U

December 1, 1997, p.58

Greenhouse common sense

By Gregg Easterbrook; Brian Palmer

Why global-warming economics matters more than science

If you are tired of inconclusive theories about global warming, join the club. Everyone has heard that artificial greenhouse gases might cause the Earth to warm. But in the endless pro and con on the subject--rising in crescendo with next week's greenhouse summit in Kyoto, Japan--neither the alarmists nor the naysayers can prove their positions. At best, the science of global warming is ambiguous; at worst, it's a realm of computer-simulated jabber. Estimates of risk vary by factors of three or four. Policy makers are asked to craft solutions based on scientists' "best guess." But guesses they are: Earth's climate is simply too vast and complex for anyone yet to understand it.

Yet while greenhouse forecasts are uncertain and likely to remain so, it is incontestable that the chemistry of the atmosphere is changing. Airborne carbon dioxide has increased by one third since the industrial revolution and appears on its way to doubling. Altering the atmosphere must eventually have some effect--and we may not like it, especially since even relatively mild climate change might affect the high-yield agriculture on which human prosperity depends.

Recognizing this, many economists--a group not normally accused of green zeal--have begun to argue for reform. Recently more than 2,500 economists, including eight Nobel Prize winners, endorsed a statement sponsored by the organization Redefining Progress saying that "sound economic analysis" shows greenhouse emissions can be cut "without harming American living standards."

At Kyoto, the Western heads of state will promise action to restrain greenhouse emissions. The proposals to be debated involve a bewildering array of timetables and targets, some of which gamble with the climate, others with the economy. President Clinton's middle-of-the-road plan roughly calls for capping greenhouse emissions around the year 2010 at the level that existed in 1990.

Hopeful outcome. Since it is inconceivable that Kyoto will transfigure the greenhouse trend--even the most ambitious proposal would knock only percentage points off total future emissions--what really matters is whether greenhouse control programs will work from the standpoint of economics. If global-warming reforms are "sound" economically, there may be a hopeful outcome in which society actually benefits from the actions necessary to prevent greenhouse damage.

The history of pollution control shows that the benefits usually exceed the costs. In 1972, only about one third of American lakes and rivers were safe for fishing and swimming; today, almost two thirds are safe, a stunning improvement that occurred even during sustained economic growth. Since 1970, smog in the U.S. has diminished by nearly a third; the number of cars has almost doubled. Most studies suggest the health benefits of declining smog exceed the price of controls by a clear margin--as much as $ 40 in health-care costs saved for every $ 1 in anti-smog investment, according to a recent Environmental Protection Agency analysis.

Of course, not every reform works well in economic terms, the Endangered Species Act being a prominent counterexample. But more often than not, in environmental initiatives a cycle of negative to positive occurs. First, all sides condemn the new idea: Environmental advocates say it isn't enough; some business executive say it will be impossibly expensive. Next comes a phase of general unhappiness in which lawyers rule. Then innovations occur--such as the invention of the catalytic converter, which made automotive smog-control practical--and efficiencies result. Ten years later both pollution and costs are declining, though this never prevents the same institutional parties from making the same gloomy predictions about the next round of reforms.

If the same pattern is repeated in global warming, technology and market forces may find solutions for many dilemmas that now seem unsolvable. "Costs always seem high and progress unlikely until scientists, engineers, and business people begin to apply their imagination to a problem, and that is only now beginning to happen for greenhouse technology," says Robert Socolow, a professor of engineering at Princeton University.

Because artificial greenhouse gases are released mainly when fossil fuels are burned, any effort to check them will for all intents and purposes be an energy-conservation initiative. Energy conservation has carrots at the end of its stick, since using less fuel saves money. "The greenhouse effect is an interesting intellectual question," says the energy-efficiency advocate Amory Lovins, "but it's irrelevant to energy policy. We should be using less energy simply because we will turn a profit on the savings."

The phrase "energy conservation," associated with the oil crunch of the 1970s, has an unpalatable, age-of-limits connotation. Yet efficient energy use can actually be the muscular approach and need not imply deprivation. There is a big difference between putting on a sweater and switching to a high-efficiency heat pump so the house can be as warm as you like.

Despite the widespread impression of unbridled American energy extravagance, BTU consumption per dollar of U.S. economic output has been declining since the Eisenhower administration. Between 1970 and 1995, U.S. energy consumption per dollar of gross domestic product went down 32 percent, which means the economy saved up to $ 200 billion yearly in fuel costs that it would have spent if old energy inefficiencies had remained. Yet in this same period more and more people enjoyed the lifestyle benefits of energy--air conditioning, electronics, jet travel. Western society is already engaged in "decarbonization," using decreasing amounts of fossil fuel relative to a rising standard of living, as Jesse Ausubel of Rockefeller University has shown. "Greenhouse projections boil down to your tolerance for risk, but if the goal is the moderate reduction the president's plan suggests, it's hard to imagine technology cannot handle that," he says.

Energy savings. Opportunities abound for new advances in energy conservation, and some argue that nothing more is needed than to let market forces take their course. Compact fluorescent light bulbs, for example, may cost a breathtaking $ 15 but save $ 50 worth of electricity through their lifetimes. New insulation rated at R25 to R40 can dramatically reduce heating bills. Almost all new refrigerators and air conditioners use less energy than models they supplant. Solar cells, hyped in the past, are falling in price sufficiently that roofs in sunny climes really will soon be covered with these zero-emission energy devices. Today, environmental orthodoxy holds that people should stop moving to the Southwest, because of water scarcity. In the future the Southwest may be considered the responsible place to live because solar power will enable homeowners to kiss fossil fuels goodbye.

Opportunities also exist for substantial energy conservation at the industrial level. Boeing has cut its lighting costs--a significant expense to a company whose manufacturing sites must be large enough to contain 747s--by up to 90 percent using conservation techniques. The large process motors that drive factory equipment are the No. 1 consumers of U.S. electrical current: A new generation of these devices requires just half the power of older models. Replacing existing industrial-process motors with the advanced models would, in itself, reduce the country's electricity consumption by about a quarter.

Early in the next century, cars may have "hybrid" engines that achieve much higher gasoline mileage by combining the features of electric and piston power: Toyota will soon market in Japan the first hybrid, a four-door sedan that gets 66 mpg. Cars also may run on "fuel cells," clean electrochemical generators that convert a much higher percentage of fuel energy into forward motion than does internal combustion. Ethanol, a petroleum substitute, may soon be manufactured economically from a genetically engineered form of switch grass: Fuel distilled from vegetation is greenhouse friendly because as plants grow they withdraw carbon dioxide from the air.

Waste. But setting such developments aside, estimates suggest $ 300 billion in energy waste could be eliminated from the U.S. economy using only technology practical now. Lovins points out that the United States runs the equivalent of five nuclear reactors solely to power devices that are turned off, such as color televisions in standby mode. A recent study led by Oak Ridge National Laboratory concluded U.S. greenhouse emissions could be reduced roughly a third with energy savings "equal to or exceed[ing the] costs" of conservation investments. Rather than be harmed by greenhouse reforms, the country would come out ahead.

Such predictions raise an obvious "if you're so smart why aren't you rich?" objection. If R40 insulation pays back its cost in just a few years, why doesn't everybody install it? Energy use fell in the early 1980s when buyers, worried about fuel supplies, made conservation a priority. Seemingly to the day in 1986 when the Organization of Petroleum Exporting Countries price structure collapsed, saving energy dropped away as a national concern. Today, with gasoline as cheap in real-dollar terms as when James Dean was behind the wheel, energy use is rarely a leading consideration, as the popularity of lumbering sport utility vehicles attests.

Yet, even if energy is inexpensive, one can still save by conserving it. American corporations labor to reduce their reliance on cheap materials; why not try to cut dependence on cheap energy? The obstacle may be the tyranny of the pragmatic. New factories under construction employ improved, low-energy process motors. But if a factory already has older motors in place, with years left on their capitalization, it may not make sense to rip out walls to move in new equipment. Similar problems impact consumer decisions. Anyone building or renovating a house will come out ahead by installing high-resistance insulation. But this not only costs more up front, the buyer must stay in the home months or years to realize net savings.

For reasons such as this, even economists who favor greenhouse reforms fear they will not come cheaply. Robert Stavins of Harvard University, a leading environmental economist, estimates that greenhouse controls might cost up to 2 percent of GDP--about what America now spends on all environmental programs combined.

Such estimates make economists intensely concerned with least-cost approaches to greenhouse control. Energy efficiency is the obvious choice but may not necessarily take off unaided. The barrier is an area of economics called "diffusion," which posits that without a clear benefit or price incentive, buyers may resist new technology. Reducing greenhouse emissions does not directly benefit individuals, while markets cannot trade in "external" costs, such as pollution, that are not priced. "The market is no good when it comes to factoring greenhouse control into energy prices, because there is no way anyone can buy the benefits of preventing climate change," notes Kenneth Arrow, a Nobel economist at Stanford University.

Regulations are often used to circumvent the "externalities" problem, but regulations are unpopular with economists. Car mileage rose steadily through the 1980s, to a peak of 28.8 mpg in 1988, because the government required increases under the Corporate Average Fuel Efficiency (CAFE) program. But though successful as a conservation initiative, CAFE was disliked by economists as an expensive means to an end. CAFE has not been tightened since 1988, and the lack of stricter standards has caused mileage gains to come to a dead halt, with new cars averaging 28.2 mpg, below the achievement of a decade ago, while petroleum imports head up after a period of stability.

In lieu of regulation, many economists prefer that carbon emissions be taxed. Economic theory holds that whatever you tax, you get less of. Today, taxes fall mainly on capital and labor, which society wants more of. Why not tax pollution, which we want less of?

All major proposals by economists on this score are designed to be revenue neutral: Money raised by taxes on carbon would be used to reduce corporate and personal income taxes. Carbon taxes would be disruptive to some industries, notably coal, but otherwise leave consumers free to decide how best to improve energy effiency. If companies and consumers had to pay for greenhouse gases, the reasoning goes, carbon pollution would be seen as a cost to be cut rather than as a free good, and market responses would follow. "If you want pure economic efficiency, carbon taxes would be the first choice," Arrow says.

Unlike gas taxes, unpopular with many economists, carbon taxes would focus on planning by business leaders, rather than consumer decisions at the gas pump. But not even the revenue-neutral version of carbon taxes stands a chance of being enacted by lawmakers now. During the 1996 presidential campaign, a 4.3-cent increase in gasoline taxes was enough to set off a ruckus, though it represented a $ 20 annual increment for the typical driver. Clinton's advisers urged him not to include anything sounding like an energy tax in his Kyoto policy, lest it set off a political backlash.

Finally, there are those advocating a system under which companies would buy and sell the right to emit carbon. A trading system to reduce acid rain, enacted in 1990, has been a spectacular success. Major U.S. acid rain emissions have fallen 30 percent in the past three years alone, while costs have been much lower than expected, because market trading in acid-rain permits has enabled companies to reduce emissions in efficient ways.

Free market. Americans don't like regulations, but they do like to buy and sell. A carbon-trading program that creates a free market in techniques for greenhouse reduction might be both efficient and an opportunity entrepreneurs would find exciting, backers say.

Clinton's Kyoto plan endorses carbon trading but says no program would go into effect for a decade. Environmental lobbyists have condemned this timing, saying requirements should go into force immediately. But even a crash program of U.S. carbon limits couldn't reverse the short-term global trend. As Robert Solow, a Nobel economist at the Massachusetts Institute of Technology, says, "Gradual reforms will be less costly than anything done in a hurry. The greenhouse situation has built gradually and can be addressed gradually." Even if Kyoto goes well, economists and diplomats might require a decade to perfect an international carbon-trading system that could be trusted.

International cooperation will be imperative for any greenhouse trading system because, unless the world acts in concert, even the most impressive U.S. reductions will be swamped by increases elsewhere. America bears the main responsibility for greenhouse gases emitted in this century, one reason it is fair for other nations to expect the United States to act. But at current rates, China will pass the United States in about 2020 to become the No. 1 source of fossil-fuel emissions. The focus will shift from the developed world to the developing.

Energy demand is certain to continue growing in the developing world--indeed, it should grow, to bring material equality to the world. This means a plan to reduce greenhouse emissions in the West alone might backfire: If even one American factory were to close because of greenhouse restrictions imposed so that other countries could merrily pollute more, public support for energy conservation might disintegrate. In light of this, Clinton has said he will not sign any Kyoto treaty unless developing nations such as China and India "meaningfully participate."

Most developing nations say they will not cooperate with global-warming initiatives because their economic development must come before climate protection. Some even think greenhouse fretting is a Western stratagem for holding the developing world back: China called Kyoto an exercise in "ecocolonialism." In a chain of logic both infuriating and understandable, developing countries reason that since the West became affluent in a time of unrestricted carbon emissions, rising greenhouse numbers actually are good.

Self-interest. Yet moderate amounts of energy used effectively can achieve more than large amounts wasted. When the Berlin Wall fell, per capita energy consumption was higher in East Germany than in West. But because of rampant inefficiency, the impressive power generation of East Germany could not bring that nation's standard of living up to that of West Germany. At some point, the developing world is likely to realize it has an economic self-interest in energy efficiency and to become interested in greenhouse reforms.

The typical efficiency of an American coal-fired power plant is 36 percent. This means a third of the energy value in coal is transformed into kilowatts, the rest lost as waste heat; that is a stark way of stating just how far even the sophisticated United States must go to improve energy use. But in China, thermal efficiency of power plants may be as low as 6 percent, meaning six times as much coal burned per kilowatt, and hence six times the greenhouse gases. Merely extending to nations like China the levels of energy efficiency now standard in the West would do more to contain greenhouse increases than any likely Western reform.

The developing world also may discover it has a stake in the fact that regardless of whether global-warming theory is right, greenhouse-gas production is closely tied to air pollution, which damages human health. Already, 1 Chinese death in 8 is linked to air pollution; in some cities it reaches 10 times the World Health Organization danger level. A joint study by the WHO and the World Resources Institute estimates that, at current rates of fossil-fuel increase, by the year 2020 there will be 700,000 premature deaths from greenhouse-related pollutants annually, with the most fatalities in the developing world.

International carbon trading might function by allowing Western utilities to purchase credits from power-plant efficiency improvements in nations like China. For example, a Norwegian firm is already working to improve an inefficient coal-fired power station in Datong, a heavily polluted, medium-sized city in China; Westinghouse is expected to join the effort next year. Firms might also attain credits by funding forest protection in the developing world (burning forests release carbon dioxide, but growing trees remove greenhouse gases from the air). Early experiments with carbon trading suggest a dollar buys 10 times as much greenhouse reduction in the developing world as in the Western nations.

Buried within greenhouse economics is a potential surprise that could render all other calculations obsolete: The price of oil might not stay depressed forever. Predictions of decline in oil reserves always have proved mistaken. But more than a few experts now believe world oil production will peak in a generation or so, while global demand will continue to rise, which may engage a cycle of oil-price escalation.

A temperate rise in oil prices might cause businesses and consumers to put energy conservation back on their priority lists on sheer market grounds. A serious increase once again could make energy supply a political crisis, triggering efficiency steps taken in the national interest that are stronger than anything climate policy can justify.

In the literature of ecological ideology, one finds wistful laments that developments like zero-emission cars are not really being advanced with the Earth in mind. Rather, the argument goes, they are a conspiracy to sustain the consumer lifestyle by making resource consumption environmentally benign. That is exactly what they are--and it is good news, because everything society should do to prepare for the end of the oil age has positive greenhouse implications.

The next generation of automobiles will use half as much gasoline as present models or run on fuel cells with no greenhouse byproducts at all. The next generation of power stations will burn fuel much more efficiently and may even pipe carbon output directly to the sea, mimicking the natural cycle by which airborne carbon dioxide is absorbed by sea water. Replacing petroleum with fuels made from plants would result in a guilt-free fill 'er-up with greenhouse-neutral fuel. Practical solar converters will enable commercial electricity to be made from sunlight. For good or ill, renewable, efficient, climate-friendly energy will be the salvation of the consumer lifestyle.

Some people look at the greenhouse-effect calculations and lose hope, thinking Doomsday approaches. But the Earth has withstood much worse assaults than this. Others conclude the trend lines are so powerful there is nothing any individual, or even any one nation, can do. But the iron law of trends is that the more unchangeable they seem, the faster they change. As Soviet leaders learned, nothing creates a better environment for change than the belief there cannot be change.

The first step in greenhouse policy is for everyone to calm down. Affordable reforms can sustain global affluence while moving society beyond dependence on fossil fuels. No doom awaits us; but there is plenty of work to do, and it's time to get started.

GRAPHIC: Pictures: No caption (Photography by Kevin Horan for USN&WR; Scott Goldsmith for USN&WR)