Perspective on Global Warming
Each day, humans pump two billion pounds of carbon into earth’s atmosphere — the industrial exhaust from activities that have dramatically improved our lives. The extent to which the earth’s climate is changing more than it would change anyway, how much warming is a valid scientific concern vs. noise in very complex models, the contribution our nasty habits make to whatever share of the warming is man-made, and whether the benefit of curbing our enthusiasm for carbon is worth the cost are now all the subject of a very emotional global debate.
Some of it is beside the point: regardless of your view of global warming, few thoughtful people think that carbon loading our atmosphere is something we want to keep doing for another century. Fewer still have any clear plan to stop. Three important ideas about global warming are often missing from these discussions.
First, reducing carbon pollution is an economic, scientific, and technological challenge not a moral or political one. This is not a battle of good vs. evil. Second, our approach needs to maintain a historical perspective. We have been wildly wrong about scientific findings in the recent past. This is not a reason to reject science, but is should be reason for caution — especially with regard to those who regard trade and technology as fundamentally damaging to the environment when commerce and scientific innovation have been the twin engines of global prosperity. Third, energy productivity is increasingly as important to the global economy and our planet as labor and capital productivity and can usefully be measured and improved accordingly. Accomplishing the same work with less energy is a big part of the solution since at present most of the energy we consume adds carbon to our atmosphere and we don’t have sufficient alternatives to carbon-based energy that are both economically attractive and politically acceptable to make a sudden and drastic shift in our sources of energy.
Economic Alternatives, Not Good vs. Evil
Media now fashions fears like it fashions clothes or music. Global warming plays on an irresistible combination of rich country guilt, anti-business chic, and vague beliefs about environmental degradation. The combination makes for a tempting religious crusade. The temptation is entirely misplaced — and the reverend Al Gore has done more than anyone to misplace it. (Comments on Gore’s delusional grandstanding here, here, here, here, and here).
Global warming is not a simple fight between black hats and white hats. Newsweek’s Robert Samulson points this out in a recent discussion of coal technologies. Coal is carbon and burning it provides about 40% of the world’s energy — placing coal at the heart of the global warming challenge.
Global warming has gone Hollywood, literally and figuratively. The script is plain. As Gore says, solutions are at hand. We can switch to renewable fuels and embrace energy-saving technologies, once the dark forces of doubt are defeated. It’s smart and caring people against the stupid and selfish. Sooner or later, Americans will discover that this Hollywood version of global warming (largely mirrored in the media) is mostly make-believe.
Most of the many reports on global warming have a different plot. Despite variations, these studies reach similar conclusions. Regardless of how serious the threat, the available technologies promise at best a holding action against greenhouse gas emissions. Even massive gains in renewables (solar, wind, biomass) and more efficient vehicles and appliances would merely stabilize annual emissions near present levels by 2050. The reason: Economic growth, especially in poor countries, will sharply increase energy use and emissions.
The latest report came last week from 12 scientists, engineers and social scientists at the Massachusetts Institute of Technology. Called "The Future of Coal,” the report was mostly ignored by the media. The report makes some admittedly optimistic assumptions: "carbon capture and storage” technologies prove commercially feasible; governments around the world adopt a sizable charge (aka, tax) on carbon fuel emissions. Still, annual greenhouse gas emissions in 2050 are roughly at today’s levels. Without action, they’d be more than twice as high.
Carbon capture and storage (CCS) is a bright spot: catch the CO2 and put it underground. On this, the MIT study is mildly optimistic. The technologies exist, it says. Similarly, geologic formations — depleted oil fields, unusable coal seams — provide adequate storage space, at least in the United States. But two problems loom: First, CCS adds to power costs; and second, its practicality remains suspect until it’s demonstrated on a large scale.
No amount of political will can erase these problems. If we want poorer countries to adopt CCS, then the economics will have to be attractive. Right now, they’re not. Capturing CO2 and transporting it to storage spaces uses energy and requires costlier plants. Based on present studies, the MIT report says that the most attractive plants with CCS would produce almost 20 percent less electricity than conventional plants and could cost almost 40 percent more. Pay more, get less — that’s not a compelling argument. Moreover, older plants can’t easily be retrofitted. Some lack space for additions; for others costs would be prohibitive.
To find cheaper technologies, the MIT study proposes more government research and development. The study’s proposal of a stiff charge on carbon fuel — to be increased 4 percent annually — is intended to promote energy efficiency and create a price umbrella to make CCS more economically viable. But there are no instant solutions, and a political dilemma dogs most possibilities. What’s most popular and acceptable (say, more solar) may be the least consequential in its effects; and what’s most consequential in its effects (a hefty energy tax) may be the least popular and acceptable.
The actual politics of global warming defy Hollywood’s stereotypes. It’s not saints versus sinners. The lifestyles that produce greenhouse gases are deeply ingrained in modern economies and societies. Without major changes in technology, the consequences may be unalterable. Those who believe that addressing global warming is a moral imperative face an equivalent moral imperative to be candid about the costs, difficulties and uncertainties.
Maintain Historical Perspective
Michael Crighton, who frequently comes in a close second in the science debates on global warming, makes a useful point nonetheless when he recalls that
In the first Earth Day in 1970, UC Davis’s Kenneth Watt said, "If present trends continue, the world will be about four degrees colder in 1990, but eleven degrees colder by the year 2000. This is about twice what it would take to put us in an ice age." International Wildlife warned "a new ice age must now stand alongside nuclear war" as a threat to mankind. Science Digest said "we must prepare for the next ice age." The Christian Science Monitor noted that armadillos had moved out of Nebraska because it was too cold, glaciers had begun to advance, and growing seasons had shortened around the world. Newsweek reported "ominous signs" of a "fundamental change in the world’s weather."
Back in the 90s, [much less in the Population Bomb 1970s, ed] if someone said to you, "This population explosion is overstated. In the next hundred years, population will actually decline." That would contradict what all the environmental groups were saying, what the U.N. was saying. You would regard such a statement as outrageous…. More or less as you would regard a statement by someone in 2005 that global warming has been overstated.
But in fact, we now know that the hypothetical person in 1995 was right. And we know that there was strong evidence that this was the case going back for twenty years. We just weren’t told about that contradictory evidence, because the conventional wisdom, awesome in its power, kept it from us.
Maintaining a historical perspective requires those who wish to reduce greenhouse gasses to respect the astonishing accomplishments of economic growth, technological change, and free trade — frequently overlooked or denounced by environmentalists. These forces have produced a planet that is healthier, wealthier and freer than ever before. Some perspective on the twentieth century from Indur Goklany, writing in Reason Magazine
..the 20th century saw the United States’ population multiply by four, income by seven, carbon dioxide emissions by nine, use of materials by 27, and use of chemicals by more than 100.
Yet life expectancy increased from 47 years to 77 years. Onset of major disease such as cancer, heart, and respiratory disease has been postponed between eight and eleven years in the past century. Heart disease and cancer rates have been in rapid decline over the last two decades, and total cancer deaths have actually declined the last two years, despite increases in population. Among the very young, infant mortality has declined from 100 deaths per 1,000 births in 1913 to just seven per 1,000 today.
These improvements haven’t been restricted to the United States. It’s a global phenomenon. Worldwide, life expectancy has more than doubled, from 31 years in 1900 to 67 years today. India’s and China’s infant mortalities exceeded 190 per 1,000 births in the early 1950s; today they are 62 and 26, respectively. In the developing world, the proportion of the population suffering from chronic hunger declined from 37 percent to 17 percent between 1970 and 2001 despite a 83 percent increase in population. Globally average annual incomes in real dollars have tripled since 1950. Consequently, the proportion of the planet’s developing-world population living in absolute poverty has halved since 1981, from 40 percent to 20 percent. Child labor in low income countries declined from 30 percent to 18 percent between 1960 and 2003.
Equally important, the world is more literate and better educated than ever. People are freer politically, economically, and socially to pursue their well-being as they see fit. More people choose their own rulers, and have freedom of expression. They are more likely to live under rule of law, and less likely to be arbitrarily deprived of life, limb, and property.
Social and professional mobility have also never been greater. It’s easier than ever for people across the world to transcend the bonds of caste, place, gender, and other accidents of birth. People today work fewer hours and have more money and better health to enjoy their leisure time than their ancestors….
Man’s remarkable progress over the last 100 years is unprecedented in human history. It’s also one of the more neglected big-picture stories. Ensuring that our incredible progress continues will require not only recognizing and appreciating the progress itself, but also recognizing and preserving the important ideas and institutions that caused it, and ensuring that they endure.
These historic accomplishments were hard won. (Some perspective from deep history: for 99% of mankind’s existence, our average life expectancy has been 18 years). Sadly, those who cannot recognize humanity’s gains cannot possibly defend them. The early stages of economic development often cause environmental deterioration as societies address basic human needs. Once people are fed, clothed, and housed and have access to health care, education, mobility, and energy environmental quality becomes a basic human need. When this happens, economic development and technological progress changes from becoming a source of environmental problems to a driver of environmental solutions. Notes Goklany
All of which is why we today find that the richest countries are also the cleanest. And while many developing countries have yet to get past the "green ceiling," they are nevertheless ahead of where today’s developed countries used to be when they were equally wealthy. The point of transition from "industrial period" to "environmental conscious" continues to fall. For example, the US introduced unleaded gasoline only after its GDP per capita exceeded $16,000. India and China did the same before they reached $3,000 per capita.
This progress is a testament to the power of globalization and the transfer of ideas and knowledge (that lead is harmful, for example). It’s also testament to the importance of trade in transferring technology from developed to developing countries-in this case, the technology needed to remove lead from gasoline.
This hints at the answer to the question of why some parts of the world have been left behind while the rest of the world has thrived. Why have improvements in well-being stalled in areas such as Sub-Saharan Africa and the Arab world?
The proximate cause of improvements in well-being is a "cycle of progress" composed of the mutually reinforcing forces of economic development and technological progress. But that cycle itself is propelled by a web of essential institutions, particularly property rights, free markets, and rule of law. Other important institutions would include science- and technology-based problem-solving founded on skepticism and experimentation; receptiveness to new technologies and ideas; and freer trade in goods, services-most importantly in knowledge and ideas.In short, free and open societies prosper. Isolation, intolerance, and hostility to the free exchange of knowledge, technology, people, and goods breed stagnation or regression.
Despite all of this progress and good news, then, there is still much unfinished business. Millions of people die from hunger, malnutrition, and preventable disease such as malaria, tuberculosis, and diarrhea. Over a billion people still live in absolute poverty, defined as less than a dollar per day. A third of the world’s eligible population is still not enrolled in secondary school. Barriers to globalization, economic development, and technological change-such as the use of DDT to eradicate malaria, genetic engineering, and biotechnology-are a big source of the problem.
Moreover, the global population will grow 50 percent to 100 percent this century, and per capita consumption of energy and materials will likely increase with wealth. Merely preserving the status quo is not enough. We need to protect the important sustaining institutions responsible for all of this progress in the developed world, and we need to foster and nurture them in countries that are still developing.
A historical perspective also requires that we respect the profound limits on our ability to predict the future — especially if attempts to do this come at the expense of improving the present. A child is orphaned by AIDS every 7 seconds. Fifty people die of waterborne disease every minute. As I reported at the end of a long post here, investments in HIV/AIDS prevention, nutrients for the hungry, trade liberalisation, and malaria prevention all have immediate payback in saved human lives that vastly exceed any arguable expected value from investments in preventing global warming. I linked to the presentation by Bjorn Lomborg of the Copenhagen Consensus, and several of you thanked me for it. Here it is again — once again highly recommended.
Measure and Improve Energy Productivity
The third important idea is energy productivity, which turns out to be amenable to many of the same analytic tools used to measure and improve capital and labor productivity. This idea has been discussed in many places, but never perhaps as clearly as in a recent report published by the McKinsey Global Institute (MGI). MGI approached energy productivity as the ratio of value added to energy inputs, i.e., using the same definitions and tools that they have previously brought to highly insightful studies of global labor productivity. The report, authored by Diana Farrell, Scott S. Nyquist, and Matthew C. Rogers, notes that "Like labor or capital productivity, energy productivity thus measures the output and quality of the goods and services generated with a given set of inputs." For those keeping score at home, MGI advises that it today stands at $79 billion of GDP per quadrillion British thermal units (QBTUs).
Energy prices, business practices, market forces, and government policies all influence energy productivity. Japan leads the world here thanks to consistently high energy prices and strict government energy efficiency standards based on the best practices of leading companies. Japanese gas- and coal-fired power plants are 70 percent more energy productive than Russian ones, and Japan’s 2007 standards for room air conditioners are nearly 50 percent stricter than their Chinese counterparts. The Arab Gulf, by contrast, is among the least energy-productive parts of the world as a result of large, sustained energy subsidies and an energy-intensive growth model. Similarly, US cars are 15 percent less energy efficient than European ones in the same class, partly because European gasoline taxes are roughly seven times higher and partly because US regulatory exemptions have long helped automakers market SUVs as light trucks, which are subject to less stringent fuel-efficiency rules than passenger vehicles.
Economies can improve energy productivity two ways: by conserving energy (smaller or more efficient appliances or using more efficient energy sources), or by shifting to less energy-intensive businesses. Both matter, because that overall energy demand, which has increased by 1.6 percent a year for the past decade, is now on track to grow by 2.2 percent annually over the next 15 years. Improved energy productivity could achieve the same level of growth however, with only a .6 percent increase in energy usage.
The report poses the obvious question:
In view of today’s high oil prices, why haven’t companies and consumers already seized these opportunities? The answer is that systematic market failures involving consumers, businesses, and governments dampen the demand response to changes in price. Any effort to boost energy productivity must take these issues into account.
- Consumers, information, and capital. Most consumers lack information about the range of energy productivity improvements available to them, even though exploiting these improvements would serve their economic interests. Furthermore, to capitalize on energy productivity opportunities, consumers must often make up-front capital investments for which they have neither the funds nor the desire. Another issue, particularly in developing countries, is the fact that energy savings are often highly fragmented and their impact on household expenditures murky. As a result, the benefits of greater energy productivity are often obscured by the consumer’s focus on using energy for comfort, convenience, style, and health or safety. And since few consumers are willing to pay now for energy savings in the future, suppliers of energy-consuming products (such as cars and appliances) have less incentive to develop, produce, or market energy-efficient technologies and features.
- The relative unimportance of energy costs to business. Total US energy costs now represent less than 10 percent of the value of the output in all nonenergy sectors-indeed, less than 5 percent for most economic activities. Energy efficiency is thus typically a minor consideration, at most, when businesses invest in equipment such as automated- manufacturing tools or IT hardware. Many companies require a payback of three years or less (corresponding to an IRR of more than 30 percent) for capital expenditures to reduce energy consumption.
- Governments and subsidies. Energy productivity is systematically undermined by government policies. For starters, many developing-world industries that transform energy or use it intensively are state owned, which often reduces the financial incentives to improve energy productivity. What’s more, at least 20 percent of current global energy demand is subsidized or priced in a nonmarginal way, and both practices reduce or eliminate incentives to use energy as productively as possible. These energy-distorting policies include fuel subsidies in oil-producing countries in the Middle East and elsewhere, a lack of metering for the gas used in Russia’s homes (setting energy’s marginal cost at zero), and widespread energy subsidies for state-owned enterprises. Not surprisingly, energy efficiency in these areas lags behind global best practice dramatically.
The report rightly calls for governments to remove subsidies that discourage energy productivity and to use building codes and appliance-efficiency standards to promote more efficient heating and lighting. They note that codes and standards are help address what economists like to term an "agency" problem in the building construction: "builders of offices, apartments, and homes often have little incentive to focus on energy efficiency, because the potential occupants may be reluctant to spend more now for a building that promises energy savings in the future". The report calls for innovative companies to create sales terms, "perhaps developed through collaborations between utilities and the companies that sell the relevant technologies", to make energy efficient solutions more economically attractive.
Legislation is a more complex topic. Fuel standards and taxes can promote energy productivity but subsidies and loopholes offset much of these gains. The US declares most SUVs to be light trucks and exempt from fuel efficiency calculations. We subsidize ethanol, which contributes little to progress against global warming, but it wins a lot of votes in the Iowa caucuses. (The problem with ethanol is that the energy returned on energy invested for ethanol is close to 1, which means that it takes nearly as much energy through natural gas based fertilizers, farm equipment, transformation from corn or other materials, and transportation to create ethanol as the ethanol itself produces when put to work).
On balance, there are several steps that make immediate sense. Conservation programs work and are economically straightforward. California, which embraced conservation efforts seriously a generation ago is now about twice as energy efficient as the rest of the country, even adjusting for our weather. Government tax credits can reduce the ten year paybacks on some technologies that become cheaper with scale (notably home solar, which is now cheap enough that folks pitch the panels and installation as you enter our local Costco). CAFE standards are important as are gasoline taxes. Countries with $4/gallon gas use fuel more efficiently and send less money to the Middle East than we do. Fine with me if we reduce income taxes to offset gas or carbon taxes — this is not an argument for larger government spending, just an argument that there is no such thing as cheap oil.
Many of the technologies that will wean us from carbon-based energy are still in development. Green technologies are at the moment receiving hundreds of millions of dollars of venture capital and are the source of an entire sector of startups. Many of these startups are located in Silicon Valley, where the air pollution comes increasingly not from crowded freeways, but from China. Others are located elsewhere. Suntech Power Holdings is one of the ten largest makers of solar panels in the world and intends to become the world’s low cost producer of photovoltaic solar power. Suntech went public on the NASDAQ last December; its shares are up more than 70% since the IPO. The company’s headquarters? Wuxi, China.
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