Conscious Choice: The Good News About Climate Change

July 1999

The Good News About Climate Change

by Dave Aftandilian

Climate change can bring us together around what America does best — we innovate, we compete, we find solutions to problems, and we do so in a way that promotes entrepreneurship and strengthens the American economy. If we do it right, protecting the climate will yield not costs, but profits; not burdens, but benefits; not sacrifice, but a higher standard of living.

— President Clinton, at the National Geographic Society, October 1997

Although we know (all too well) that President Clinton can stretch the truth on occasion, in the speech quoted above he was right on the money. Far from the doomsday scenarios that some backward-looking economists and businesspeople have constructed based on faulty models and promoted with massive disinformation campaigns, acting now to avert the potentially catastrophic consequences of climate change can strengthen the economy, create thousands of new jobs, and reduce energy costs for almost every household and factory in the U.S.

Sound too good to be true? Consider the following:

• More than 2,500 members of the American Economic Association, including eight Nobel laureates, have this to say about climate change: "Economic studies have found that there are many potential policies to reduce greenhouse-gas emissions for which the total benefits outweigh the total costs. For the United States in particular, sound economic analysis shows that...these measures may in fact improve U.S. productivity in the long run."

• Christopher Flavin, Senior Vice President and Director of Research for the Worldwatch Institute, told me there’s "no question but that if you end up needing to replace the current [energy] system it would create tremendous economic opportunities — potentially tens of billions of dollars in new environmental technologies."

• In a study entitled " Energy Innovations: A Prosperous Path to a Clean Environment," members of the Alliance to Save Energy, the American Council for an Energy-Efficient Economy, Natural Resources Defense Council, Tellus Institute, and the Union of Concerned Scientists show how "by 2010, U.S. emissions of carbon dioxide, the chief global warming pollutant, could be cut to ten percent below 1990 levels while national energy costs are reduced by $530 per household annually and nearly 800,000 new jobs are created."

• Amory and Hunter Lovins, energy efficiency experts with the Rocky Mountain Institute, judge that "engineering economics has made climate protection not costly but profitable. Therefore, debates about climate science, who should save energy first, and how to share the alleged pain of the savings are all misconceived and irrelevant."

What do we need to do to cope with climate change? Because carbon dioxide and the other greenhouse gases that lead to climate change are mainly released through the burning of fossil fuels, we need to use fossil fuels more efficiently in the short term, and move to renewable energy sources such as solar and wind power in the medium to long term. We can make money doing both.

Energy Efficiency, Pollution Prevention, and Increased Productivity

Why do some people say "the sky is falling" when they talk about climate change, while others say "the sky’s the limit"? According to Amory and Hunter Lovins of the Rocky Mountain Institute, these diametrically opposed conclusions stem from models that start from different assumptions. Most climate/economy models assume that almost all profitable energy efficiency measures have already been taken, so that the only way to get businesses to save more energy would be to levy draconian energy taxes. These, in turn, would depress the economy by a large amount — the so-called "cost" of protecting the climate. But the Lovinses, and the 2,500 economists cited above, think these assumptions underrate American ingenuity, ignore the market barriers to innovation that are keeping currently available energy efficient technologies from being adopted, and undervalue the many "side" benefits of energy efficiency measures such as significantly reduced pollution and waste of raw materials.

Why are energy efficiency measures such a good idea, and if they’re such a good idea, why aren’t more people taking advantage of them? To answer that, let’s take a simple example outlined by the Union of Concerned Scientists. An ordinary incandescent bulb costs about 75 cents, needs replacing after 750 hours, and uses 75 watts. A compact fluorescent light bulb, by contrast, costs about $20, but lasts 10,000 hours, and uses only 18 watts. If electricity costs eight cents per kilowatt-hour in each case, ordinary light bulbs would cost about $70 to operate for 10,000 hours, while one compact fluorescent bulb would last that whole time, and cost only $35 to operate — half the operating cost of the ordinary bulb. When you add in the reduced pollution of the more efficient bulb — over half a ton of carbon and many fewer sulfates and particulates emitted (assuming coal-powered plants) — and the saved labor costs of having to replace and dispose of many incandescent light bulbs, compact fluorescents start to look a whole lot cheaper than regular bulbs.

But are there really that many opportunities for increasing energy efficiency? According to the Lovinses, opportunities for energy savings exist at all levels, from light bulbs to "valves, ducts, dampers, fans, motors, wires, heat exchangers, insulation, and most of the other design elements, in most of the technical systems that use energy, in most applications, in all sectors." And that’s not including the potential savings from reducing the vast inefficiencies in automobiles, which typically use only one percent of their fuel to move the driver.

So why aren’t more people using compact fluorescents and other more efficient products? Probably because they don’t know the magnitude of the long-term energy savings and because the initial costs of switching to newer, more efficient models look so much higher than sticking with "[inefficient] business as usual." The same principle holds true on a larger scale in industry, where investments in more efficient technology cost more up-front, and where the paybacks don’t come until later.

Public and private policies can also hamper the adoption of innovative, efficient new technologies. The Lovinses have developed a fascinating list of these "obstacles" and ways to turn them into "opportunities." A big one is that most regulatory policies and market systems reward utilities for selling more energy, not less; thus, the utility industry has no incentive to adopt more efficient technologies. There’s a similarly perverse incentive in the way architects and engineers are paid for designing a building or a piece of equipment — typically, they receive a percentage of the cost of the building or equipment specified. So why should they want to cut costs?

Another particularly bad set of signals are the many subsidies we provide to the fossil fuel industry, both directly and indirectly. In their report "Fueling Global Warming: Federal Subsidies to Oil in the United States," Greenpeace calculated that "the U.S. government provided net subsidies of between $5.2 and $11.9 billion to the oil sector during 1995, excluding the cost of defending Persian Gulf oil supplies." Roland Hwang of the Union of Concerned Scientists writes that these subsidies include "reduced corporate taxes for the oil industry, lower-than-average sales taxes on gasoline, government funding of programs that primarily benefit the oil industry and motorists, and‘hidden’ environmental costs caused by motor vehicles [but paid for by all of us] — namely air, water, and noise pollution."

Looking on the bright side, the links between combustion of fossil fuels to drive automobiles and other machinery and pollution mean reducing greenhouse gas emissions will also reduce other forms of pollution. For instance, Daniel Lashof, a senior scientist with the Natural Resources Defense Council, writes that sulfur dioxide emissions (which lead to acid rain and particulate air pollution, a serious danger to human health) and carbon dioxide emissions often come from the same fossil fuel sources, "so reducing carbon dioxide can simultaneously reduce sulfur dioxide."

One way to make energy efficiency measures look more attractive to industry is to include the benefits of such pollution prevention (including saved fines for pollution), lower input costs and saved disposal costs (because less materials are wasted), process efficiency, increased productivity, and enhanced corporate image in the cost/benefit analyses for energy efficiency measures. Miriam Pye of the American Council for an Energy-Efficient Economy calls this "total financial benefit analysis," and says that it makes a more persuasive case to industry because it offers greater potential cost savings than either energy efficiency or pollution prevention alone. In fact, Pye suggests that "probably the most effective way to get management’s attention is not to even mention energy efficiency or pollution prevention, but to call it simply‘efficiency,’ since efficiency has always had a positive connotation in the business community."

If we can lower the regulatory and market barriers, and provide incentives to jump-start the process, we can expect businesses to come up with creative, economical means of achieving energy efficiency. We already know this will work because of the lessons learned in the rush to reduce CFCs. According to Christopher Flavin of the Worldwatch Institute: "most of the reduction of CFCs (which have been reduced 80 percent from their peak) occurred as a result of companies reengineering production processes that used CFCs. These reengineered processes ended up being more economical than what they had been doing before. If you suddenly made it legal to produce as much CFCs as industry wants, CFC production wouldn’t return," because the reengineered processes are so much cheaper.

Skeptics might say that this isn’t a good example, because CFC reductions only involved a handful of industries, while our entire industrial system is based on the use of dirty-burning fossil fuels. But this difference may be a boon, not a bane, because it involves that many more bright, competitive minds. Many forward-thinking companies are already starting to do just that, by investing in development of renewable energy sources.

Investing in Renewable Energy for Our Future — and for Profit Too

Even major oil and electricity companies are starting to heed the advice of London’s Delphi Group, which has informed its institutional-investor clients that renewable energy industries offer "greater growth prospects than the carbon fuel industry." Both BP Amoco and Shell have significant and growing investments in solar energy, and Shell is also working on biomass fuels. Enron recently acquired Zond, a major developer and manufacturer of wind turbines; British Borneo has become a 20-percent stockholder in the Wavegen company (a British firm working on producing energy from ocean waves); and so on.

After it bought Enron’s 50-percent share in the Solarex company (formerly a 50-50 joint venture between Amoco and Enron) for $45 million this past April, BP Amoco became one of the biggest solar energy companies in the world. Considering that the solar industry is pretty small right now, this isn’t saying much, but it’s still a telling move for the world’s third largest private oil company to make. And because solar energy doesn’t involve combustion, and thus produces far less pollution and greenhouse gases (a one kilowatt solar electric panel can save one ton of carbon dioxide emissions every year), this is a good move for the world’s climate too.

Rodney Chase, Deputy Group Chief Executive for BP Amoco, said last November that "we’re investing in the development of solar power — pushing the technology forward to create a business which we hope will be able to compete commercially with nonrenewable energy sources within the next ten or fifteen years. Over time we believe power generated from photovoltaic cells and from other renewable sources of supply could meet a substantial proportion of world demand." Chase even suggests instituting government incentives for the use of renewable energy by requiring that a small percentage of electricity supplies come from renewable sources.

The Royal Dutch/Shell Group must agree with BP Amoco regarding the potential profitability of renewable energy, because in 1997 it consolidated its solar, biomass, and forestry divisions into Shell International Renewables, in which it will have invested at least $500 million by 2002. Jeroen van der Veer, one of Royal Dutch/Shell’s Group Managing Directors, expects renewable sources "to provide between five and ten percent of the world’s energy within 25 years, perhaps rising to over 50 percent by mid-century." Shell Solar is currently building one of the world’s largest solar cell manufacturing plants in Germany, which will add to the company’s existing major facility in Holland.

While BP Amoco and Shell have been focusing on solar energy, Enron has been developing wind power. Enron Wind Corporation, formerly Zond Corporation (which Enron bought in 1997), is the largest U.S. manufacturer and developer of wind turbines, and one of the top five worldwide; since 1981, it has developed and constructed projects involving 3,400 wind turbines for a combined 700 megawatts of capacity, including the world’s three largest wind contracts (all in the Midwest — 107- and 100-megawatt projects in Minnesota and a 113-megawatt project in Iowa). Although wind power currently contributes only about one percent of the world’s electricity, its ever-decreasing costs and very low pollution emissions make it a safe bet for future growth.

Again, such growth will be good news for the world’s climate: the Lake Benton wind facility in Minnesota, dedicated this past September, "will displace greenhouse gases equivalent to removing 50,000 new cars and light trucks from the road" (according to the U.S. Department of Energy).

With solar power growing at more than 14 percent a year, and wind at about 20 percent a year, these clean, renewable energy sources will rapidly become affordable alternatives to fossil fuel, if governments provide incentives along with subsidies for research and development. BP Amoco suggests requiring that a certain percentage of electricity come from renewables. Stipulating a minimum percentage for renewables is especially important with the current utility restructuring, to make sure we don’t get cheaper electricity from dirty coal plants instead of renewables.

Other Benefits of Coping with Climate Change

The good news about the potential effects of coping with climate change doesn’t end with the benefits of increased energy efficiency, reduced pollution, and development of renewable energy sources. It also can reduce deforestation and allow us to plant more forests, which have been shown to soak up carbon dioxide. It can reduce America’s dependence on foreign oil, which would not only improve our security (and perhaps avert future Gulf Wars), but also keep more of the $50 billion we spend annually for oil imports here at home instead, to strengthen our own economy. It can allow us to export environmental technology through joint ventures with developing nations.

The bottom line is that protecting the climate need not cost us jobs, profits, or market share; instead it can make us all richer, while at the same time making our environment cleaner and our future more secure. As the Lovinses’ Rocky Mountain Institute observes, protecting the climate can actually be good for the economy. "In fact, it doesn’t even matter whether global warming is happening or not, because the most effective climate-protection measures are things we should be doing for economic reasons anyhow."

Resources

American Council for an Energy-Efficient Economy, 202-429-8873, info@aceee.org

"Energy Innovations" report

Greenpeace USA, 202-462-1177, greenpeace.usa@wdc.greenpeace.org

Rocky Mountain Institute, 970-927-3851, outreach@rmi.org

Union of Concerned Scientists, 617-547-5552, ucs@ucsusa.org

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