Can CO2 Emissions Be Cut Without Hurting Growth?

Wall Street Journal, September 21, 2009

No: Alternatives Are Too Expensive

The U.S. and Western Europe can point to a remarkable achievement over the past 40 years: significant reductions in air pollution with only a modest effect on our economic growth and prosperity. So, why can’t we expect to do the same with greenhouse-gas emissions?

Greenhouse gas isn’t a traditional air-pollution problem. It is an energy-use problem, and that makes a world of difference. Traditional air pollution is an unwanted byproduct. Reducing it does not require any constraint on fossil-fuel use. Indeed, over the past few decades, we’ve doubled consumption of some fossil fuels while making huge cuts in pollution.

Carbon dioxide, however, is the result of complete fuel combustion. Apart from still-unproven technologies, there’s no way to remove it from the process. The only way to reduce emissions is to burn less fuel, which means less energy output.

So, to meet the target the climate campaigners have set, the U.S., Europe and Japan will have to replace virtually their entire fossil-fuel energy infrastructure. For the U.S., the 80% target means reducing fossil-fuel greenhouse-gas emissions to a level the nation last experienced in 1910. On a per-capita basis, we’d have to go back to the level of about 1875.

It is not even clear the goal of replacing fossil fuels can be accomplished at any cost, a point the International Energy Agency raised in its most recent annual energy forecast: “Even leaving aside any debate about the political feasibility of the 450 Policy Scenario, it is uncertain whether the scale of the transformation envisaged is even technically achievable, as the scenario assumes broad deployment of technologies that have not yet been proven. The technology shift, if achievable, would certainly be unprecedented in scale and speed of deployment.”

The basic problem is that current and proposed alternatives—solar, wind, biofuels, hydrogen, more nukes—are much more expensive than fossil fuels. Credible estimates for implementing low or noncarbon energy in the U.S. over the next generation start in the low trillions of dollars. Reasonable people will argue how much this will pinch economic growth, but no one can doubt that the sign will be negative.

The Master Resource
Why? Energy is not like other goods that can be substituted or done without. It has rightly been called the master resource, because it is fundamental to everything else in the economy. There are no examples of a nation that grew wealthy on expensive energy.

True, we have a track record of success in this area. Over the past few decades, the U.S. has become more carbon-efficient while boosting its economic growth. But, for all our efforts, emissions keep going up. Hitting the 80% target by 2050 would mean roughly tripling our efficiency improvements and sustaining them for years to come—surely an impossible feat.

Maybe there will be some energy-technology breakthroughs, but even if so the cost to the economy will still be very large. Power plants, refineries and transmission grids are long-lasting assets, so a rapid switch to new technology will mean retiring assets before their useful life is over and diverting trillions in capital from other sectors. It is the equivalent of replacing your car, all of your household appliances, and your roof to boot, before they are worn out. This will obviously affect other consumption significantly.

Some climate campaigners argue for making gradual changes, using methods like trading licenses to produce carbon. But those plans are based on extremely rosy predictions about how much we can achieve and how much they’ll cost. The optimistic price estimates in the Waxman-Markey bill, for instance, assume we’ll set up an international system to trade offsets. This free market, the thinking goes, will help keep energy costs relatively steady and protect U.S. consumers from much hardship.

But the obstacles to getting an international system in place are huge—if not insurmountable. Already, Australia, New Zealand and Russia are showing signs of backing out of the existing emissions-cutting framework. The diplomatic house of cards can’t withstand further gusts of national self-interest.

Then there’s problem of developing nations. If the world is going to hit the 80% target, nations like China and India need to be held to big emissions cuts. Why? Even if the U.S. and other industrialized nations somehow achieved the 80% reduction target, it would have virtually no climate benefit because of soaring emissions from developing nations. As the International Energy Agency concluded, the major nations in the Organization for Economic Cooperation and Development “alone cannot put the world onto the path to 450-ppm trajectory, even if they were to reduce their emissions to zero” (emphasis added).

A Slim Chance
And the chances of getting emerging economies on board with an ambitious emissions plan are slim to none. Yes, world-wide treaties have been hammered out in the past to curb pollution. But, once again, things are different where energy is concerned. Developing nations need to bring huge new amounts of energy online over the next 40 years; is there any realistic chance they will adopt expensive energy on a scale that even rich nations can’t afford?

Proponents suggest that we give developing nations lower goals to start with, to help them catch up to the rest of the world. But some of the biggest developing nations—and biggest greenhouse-gas emitters—have indicated they won’t accept any kind of cap. For one, India has been pretty straightforward for a long time: They’ll think about emissions limits when they are as wealthy as the industrialized world is today. How many times do India and China have to say “no” to emissions limits before we believe them?

Finally, the idea that we must act now to avoid bigger costs down the road just doesn’t hold water. Simply put, the world of tomorrow will be considerably richer than today—and much better able to absorb the costs of climate change. Yale University’s William Nordhaus, one of the top climate economists, thinks it is sound to allow about half or more of the prospective damage from climate change to simply occur—since the world 40 or 60 years from now will be in a much better situation to handle the economic effects.

–Mr. Hayward is F.K. Weyerhaeuser fellow at the American Enterprise Institute, and the author of the annual Index of Leading Environmental Indicators. He can be reached at [email protected].

Printed in The Wall Street Journal, page A17

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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