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Energy, Economic Growth Can Be Compatible with Environmental Preservation
By Lawrence B. Lindsey
Lawrence B. Lindsey
We all know that scientific research lies behind our nation's long-term economic success. Good science is also the key to both defining and addressing many of the great policy challenges facing our country, including energy and global climate change. Ultimately it will be the work of scientists - in laying the foundation for new technologies and increasing our understanding of the world around us - that will enable our nation to address these important policy challenges.
During his campaign, then-Governor Bush spoke of energy as a storm cloud forming over the economy. America's reliance on energy had continued to grow, but its supply had not kept pace. We now know the consequences. A few years ago, many people had never heard the term "rolling blackout," but now everybody in California knows the term all too well. Throughout the country, we've seen sharp increases in fuel prices, from home heating oil to gasoline hitting $2 a gallon in Chicago. In the Northeast, communities face the possibility of electricity shortages this summer. Energy costs as a share of household expenses have been rising, and families are feeling the pinch.
Similarly, we confront a potentially major challenge in human effects on the global climate. We also face the need to improve the quality of the air we breathe and the water we drink. The absence of a clear, coherent energy strategy means we will neither have energy nor a clean environment. One cannot stress enough the interdisciplinary nature of determining public policy on these issues. Economics and engineering are both involved in the process, but so too are physics, biology, chemistry, environmental science, law and political science.
To some, the task of providing energy and economic growth is incompatible with the preservation of a clean environment. But the data suggest that science, technology, and sound economic and public policy make both possible. Since 1973 the US economy has grown four times faster than our energy use. In recent years, very robust growth in the nation's GDP has been accompanied by a slowdown in the growth of greenhouse gas emissions. In both 1998 and 1999, US GDP grew by more than 4% each year while CO2 emissions grew by less than 0.15% in 1998 and 1.3% in 1999. Our success in reducing other, more immediately health-threatening emissions has been even greater. Since 1970, for example, the economy has grown nearly 125%. But our emission of sulphur oxide is down 36%, and we have 98% less lead in our air. We have cut nitrous oxide emissions almost in half per unit of GDP.
These successes are due to major improvements in technology, which have already led to significant reductions in pollution from coal-fired plants. Coal currently provides half of all the fuel for electricity generation in this country and will, of necessity, play an important role for decades to come. But further progress is still possible. Two-thirds of the energy used in a conventional coal-fired power plant is wasted in the production of electricity. These losses can be minimized through numerous innovations, including the installation of high-efficiency steam turbines, reducing steam leaks, and using software to optimize combustion efficiency. New coal-burning power plants can achieve efficiencies of over 40% using existing technology and companies are investing in the search for even more efficient technologies. In addition, wasted energy can also be recycled for use in industrial processes or for heating buildings.
Technology also allows us to make efficient improvements in our use of energy on the demand side. For example, advanced sensors and controls enable buildings and factories to operate more efficiently, and allow equipment and lights to be turned off or dimmed when not in use. Furthermore, new technologies are allowing the market to work better. One example is time-of-day pricing, which provides consumers with an incentive to smooth out their electricity use, thereby minimizing the need for peak power production. The same type of improvements in energy efficiency can be obtained by a more interconnected electric grid.
It is an economic fact of life that science and technology, as well as the environment, prosper in a growing economy. Prosperity allows us to commit ever-increasing resources to cleaning up our environment, and to developing S&T which will lead to future economic growth and environmental improvements. This is not principally the case for larger commitments of public sector resources made possible by larger tax collections from a bigger economy. In fact, the great majority of scientific and technological advances and their applications take place in the private sector.
Currently, the average annual real rate of return on corporate investment in America is about 9%, including both plant and equipment investment, as well as research and development. A stream of research that yields 9% return over a century will lower the cost of doing something by a factor of 5000. For example, in 1900 a light bulb cost roughly $20 in today's currency; today it costs 40 cents, lasts at least 10 times longer, and uses a fraction of the electricity to generate the same amount of candlepower. When confronting long-range challenges like the environment, investments in the R&D of new technologies, with actual applications decades in the future, are far more cost-effective than trying to act with existing technologies.
It is precisely for this reason that the Bush Administration opposes the Kyoto Protocol. We believe it could damage our collective prosperity and, in so doing, put our long-term environmental health at risk. We believe the protocol both will fail to significantly reduce the long-term risks posed by climate change, and, in the short run, will seriously impede our ability to meet our energy needs and foster economic growth. Furthermore, by imposing high regulatory and economic costs, it may actually reduce our capacity both to find innovative ways out of the environmental consequences of global warming and to achieve the necessary increases in energy production.
Under the terms of the agreement, the estimated level of greenhouse gases expected in the year 2010 will instead be delayed by a little over a decade. Few of the developed nations who claim to support the treaty have, in fact, undertaken domestic policies to lend credibility to the idea that they will meet Kyoto's targets, with two exceptions: Britain and Germany.
In Britain, the abandonment of intensive use of coal and a switch to the use of new natural gas discoveries made the conversion fairly easy, while in Germany, the inclusion of the industrial base of the former DDR after reunification made attainment easy. It would have been cost-effective to shut down much of East Germany's highly polluting electricity generation even without Kyoto. However, looking at other nations, attainment of the treaty's goals is not realistic. A further 27% reduction by Japan and a 22% reduction by Canada are as unlikely as the 30% by the US from its projected 2010 levels.
The treaty does little to promote investment in new technologies, even though these advances offer the greatest long-term potential reward in terms of reducing the effects of global warming and improving quality of life on the planet. Technological solutions are most likely to succeed if investment and research are allowed to take place over a long period of time. Kyoto, by requiring dramatic upfront reductions in greenhouse gas emissions by those countries with the greatest ability to do such research, turns this on its head. The treaty makes innovation largely irrelevant by imposing onerous restrictions before technological solutions can be developed. Kyoto compounds this problem by making no requirements for much longer-term greenhouse gas emission reductions or for mitigation of the environmental effects of global warming.
A study done by the Clinton Administration estimated that the Kyoto Protocol would involve costs of between 0.6% and 4% of GDP. Electricity prices would run anywhere between 20% and 86% higher than current levels. There would also be an increase in gasoline prices of between 14 and 66 cents per gallon. In light of the very limited environmental benefits, a commitment as structured as this is not prudent. Worse, the treaty goes out of its way to raise these costs. This anti-economic reasoning involves treaty-imposed inflexibility in allowing the use of a number of creative options. Proponents of Kyoto have worked against such promising solutions as reforestation and more sensible agricultural land use that would likely provide enormous quality of life externalities for people on all parts of the planet, and these options should not be excluded from consideration.
And of course, it is natural that the US government would object to a treaty that requires twice as much reduction in emissions from the US as from Europe and Japan combined. This is not a judgment of the Bush Administration, but reflects a long-standing view of the political process. In 1997, the Senate approved a resolution by a vote of 95-0 not to ratify the Kyoto agreement in its present form. In last year's presidential election, neither party platform supported ratification of the Kyoto treaty.
We oppose this failed attempt at negotiating a solution to excessive emissions of greenhouse gases. Sound public policy should encourage efficiency, not dictate austerity by telling families and businesspeople to choose how to ensure their health, safety and happiness by restricting the efficient use of energy. While our plan reduces wasteful energy, it does not seek to shrink our economy or lower living standards.
To speak exclusively of conservation, of environmental protection, or of increased energy production is really to duck responsibility for all the consequences of what one proposes. Sound, comprehensive energy, economic and climate change policies require that we focus on multiple objectives. Happily, if we make the right decisions today and establish an environment where innovation can flourish, these objectives are achievable. America's energy and environmental challenges are serious, but not unsurmountable, and it is impossible to overstate the role that science and technology will play in solving these problems.
Lawrence B. Lindsey is the Assistant to the President for Economic Affairs. This article was adapted from his keynote address at the AAAS Colloquium on Science and Technology Policy on May 3, 2001. The full text is available at AAAS's website.
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