TCS Daily

Collaboration or Conflict?

By James K. Glassman - June 11, 2002 12:00 AM

ROME -- In many areas involving energy, Europe and the United States share common cause. We are both struggling with the difficult challenge of moving monopoly power companies into the arena of free-market competition. I take note of both the recent action of the Italian parliament in liberalizing the electricity market as well as the broader decisions taken in Barcelona.

The European energy market is huge, generating over 350 billion euros a year in revenues, and it needs liberalization. The measures taken this year do not go far enough, but they move in the right direction. In addition to joining Europe in ending non-competitive monopolies, the US is seeking ways to continue the progress in reducing pollution caused by the use of energy. Enormous strides have already been taken.

(Let me also take this time to thank Italy and all Italians for the support they have given the United States in the war on terrorism. Thirteen persons of Italian birth died in the attack on the World Trade Center and a total of more than 100 Europeans. This a fight that all the world is waging. We are, as I said, close to Europe in many ways.)

A Different Vision of Energy's Future

I would like to take my time, however, to address an issue that divides Europe and the United States. This is more a matter of culture and outlook - or vision - than of science, and I would like to explain the U.S. point of view.

An orthodoxy has developed around matters of energy and the environment that many of us in the U.S. believe is unhealthy. Bjorn Lomborg, the Danish statistician who wrote The Skeptical Environmentalist, calls it "the Litany." It is often excessive in its rhetoric, with a fervor that is almost religious. This set of ideas can be summed up this way: the world's air and water are getting dirtier, we are running out of resources, we are despoiling the environment. Moreover, the use of energy is considered -- let's be blunt -- bad.

Certainly, this is not simply a European idea. Mr. Lomborg, who is now part of Danish government, does not share it, but I would say many Europeans do. Nor is the point of view that I will present to you today, in opposition, a unanimous American point of view. Many Americans agree wholeheartedly with the Litany - which is based on misperceptions first promoted in 1972 by the Club of Rome on the depletion of natural resources. These "Limits to Growth" predictions were simply wrong.

Cheap, Abundant Energy Makes a Better Environment

But let me start with this counter-proposition: cheaper, more abundant energy makes a better environment. The argument runs like this:

  1. There is a direct, close and logical correlation between economic prosperity and an improved environment. You can see this through simple observation: few if any rich countries have environments as poor as the poorest countries. The US, Europe and Japan have the cleanest environments; nations like Haiti, China and India have the worst. Thirteen of the 15 worst polluted cities in the world are in developing Asia. The correlation was established in a 1995 World Bank study of 31 countries by Dasgupta, Mody, et al., and it has been confirmed in other research. Another World Bank study found that pollution has risen in countries with per-capita incomes below $5,000 (about the level of Chile, Hungary and Korea), then starts falling sharply in a bell-shaped curve - a phenomenon known as the Kuznets Curve. It seems very clear that with prosperity comes, inevitably, a desire to improve one's air and water. And, in addition, a greater moral awareness of the evils of pollution. (Poor countries don't have the luxury of thinking about such things. They are just trying to get by.) Studies have shown that countries that don't pollute at home are far less likely to pollute abroad - another argument, in case one is needed, in favor of globalization. It helps the environment.

  2. The essential element in economic progress is energy. It is not a coincidence that until the advent of reliable fossils fuels, there was essentially no economic progress in the world. From 1000 to 1820, according to economic historians, the world growth rate of GDP was about 0.2 percent annually. Since 1820, it has been ten times that, or about 2 percent annually. The physical power of humans alone is about the same as that used to power a 100-watt light bulb. Not much. But, in Europe and the U.S., per-capita energy use is the equivalent of 200 to 250 light bulbs - or, if you prefer, servants. In India, energy use is the equivalent of just 15 light bulbs. Energy has tremendous leverage. It represents only about 2 percent of GDP, yet without it, no modern economy could exist. The leverage works down as well as up. Restrict energy use and you cripple economies, especially poor economies.

  3. The source of about 85 percent of the energy we use today is remarkable, miraculous really. It comes from the waste products of vegetable matter decaying in the earth over thousands and millions of years - that is, fossil fuels: coal, gas and oil. These fuels are surprisingly inexpensive. In the U.S., even with taxes, a gallon of gasoline costs far less than a gallon of bottled water. The inflation-adjusted price of gasoline has fallen by half over the past 20 years, and it is lower today than it was in 1973, when the modern era of OPEC-led price increases began.

  4. It is clear, then, that the fastest route to improving the world's environment lies in encouraging the world's economic growth. And when I say that growth improves the environment, that is an understatement. Growth does a lot more. It improves health as well. Africa's malaria problem - a true horror - is a direct result, not of climate, but of poverty. Disease rates are far higher on the Mexican side of the Rio Grande than on the U.S. side; higher in Singapore than in Malaysia. Abundant, cheap energy is good, not bad.

How will this economic development happen? A few broad policies are needed:

First, leave energy - responding to market forces, with little intervention from government, except in matters of research and development and externalities like air and water pollution -- alone to develop on its own course.

Over time, fossil fuels are likely to be replaced. The Stone Age did not end when people ran out of stones. The oil age will end long before we run out of oil. But we need to be honest. In 2000, the world used about 400 quadrillion BTUs of energy. By 2020, that figure will grow to about 600 quadrillion BTUs - an increase of 50 percent. Overall, in North America, Europe and industrialized Asia, the growth will be far lower - about 25 percent, or about 2 percent a year, which is below the rate of economic growth. But in developing Asia, Central and South America, Africa and the Mideast, total growth will be about 100 percent.

It is immoral to deny countries like China, Bangladesh and Honduras the means to do what the U.S. and Europe have done - that is, to use energy to boost economic growth. The bulk of the increase will occur in China and India, which will account for about one-quarter of all energy use on the planet by 2020. These countries have no choice today. They can't erect millions of windmills. They need to use fossil fuels now. Today, alternative fuels are simply too expensive, but the incentives to develop them, to lower costs, are phenomenal. And, under the pressure of competition, costs are falling and efficiency is increasing.

In the US, energy consumption per dollar of GDP has dropped by more than one-third in 25 years. (In developing countries, the leverage is even greater. China uses half the energy per unit of GDP today that it used in 1980.) This figure -- energy intensity or efficiency -- is what President Bush has concentrated on in his aims for US energy policy. Efficiency is far greater for industrialized countries - twice that of developing countries, four times that of the former Soviet Union and Eastern Europe. But in those other countries, efficiency is expected to rise sharply - not by government fiat, but simply to reduce costs in a competitive world economy.

The U.S. now generates 8 percent of its total power from a category that the EIA calls "renewables." But nearly all of that power comes from water and biomass, mainly wood. Wind and solar represent just 1 percent - not of total power, but of the power generated by renewables. It's important to get real here. Yes, the US takes wind power seriously - it is one of the top three producers in the world, along with Denmark and Germany. But, despite generous government subsidies since 1982, renewables have not made a dent in the dominance of oil, gas and coal - for the simple reason that they are too expensive. At this point in history, renewables are not a serious source of energy.

Scientists Mike Oliver and John Hospers, writing in the American Enterprise magazine, use an apt analogy. "There are untold millions of tons of gold in the earth's oceans. Why aren't we taking this gold from the seas? It is the dilution that stops us. If we can't obtain at least $8 worth of gold from a ton of water, we will go broke from the costs of extraction." But, given time, market forces, with perhaps a little push from government-funded research, will almost certainly replace fossil fuels with renewables. Lomborg calculates that if solar costs fall by 30 percent per decade, we will be completely solar-driven on the planet by 2100. But in the meantime, there is no need for apology.

Supply and Demand

Next we should concentrate at least as much on supply as on demand. U.S. policy has proceeded from a realistic platform. President Bush, unlike his predecessor, has focused his attention on increasing the supply of energy. Today, the US supplies about three-fourths of its own energy - about 73 quadrillion BTUs per year. Domestic policy seeks to increase that. Recently, Congress denied the president's proposal to open up a tiny part of the Arctic National Wildlife Refuge for drilling, but other federally controlled sites, currently closed, will be opened.

(In his book, Hard Green, Peter Huber makes the point that decreased drilling footprints mean that oil production is probably the least disruptive to the environment of all energy technologies. The ANWR drilling site was only 2,000 acres. To produce the same amount of energy, windmills would have to cover 1,600 square miles.)

Foreign policy, in a clear-eyed way, is aimed at insuring energy continues to flow from the Arabian Gulf - the main source of oil for the world -- and from Venezuela and Mexico (which rank numbers three and four as foreign oil sources for the U.S., after Saudi Arabia and Canada). Unfortunately, three of these four leading sources have state-owned oil companies, which are subject to political manipulation, but that should change over time. Meanwhile, the prospects are good for increased supply from Russia (with its rapidly liberalizing economy) and for Africa and the former Soviet republics in the Caspian region. The U.S. also has well-balanced sources of energy: about one-fourth from coal (and the U.S. is the Saudi Arabia of coal, which is getting cleaner and cleaner), one-fourth natural gas, three-eighths oil and one-eighth other sources. Nuclear energy represents only 8 percent of US energy sourcing.

Free Trade

Thirdly, we need to promote free trade, which allows people in poor countries like Jamaica and Chad to sell their goods - through the magic of comparative advantage to richer nations. And remember that free trade is only one manifestation of general economic liberalization, which is sweeping the planet.

Sadly, we are seeing a backlash against liberalization in Europe. We see it in the rise of reactionaries of both the left and right, who oppose immigration and prattle on about protecting culture from outside influences. Writing in L'Express, Bernard Guetta put it very well, "Europe is frightened of the new century." The decline of European influence has been proceeding for the past century. In 1870, Europe accounted for one-third of the world's GDP, the US just one-tenth. By 1998, Europe had fallen to one-fifth and the US had risen to one-fourth. Surprisingly, Asia has a higher proportion of GDP than the US. I often think that the U.S. these days has more in common with the aspiring nations of Asia -- like Korea and perhaps China -- than it does with Europe.

Essentially, Europe has built a welfare state that has subtracted about one percentage point of growth. That's a lot, not just to Europe but also to the developing world, which, as an exporter, would be the beneficiary of European success. While the US grew GDP at 3 percent annually from 1973 to 1998, Europe grew at 2 percent.

And the employment picture - a direct result of inflexibility and problems of moral hazard in the welfare system - is abysmal in Europe. In Western Europe employment has gone from 111 million in 1950 to 140 million in 1998. In the US, employment has risen from 62 million in 1950 to 133 million in 1998. Very shortly, the US will have more workers than Europe for the first time in history. Europe did not gain workers at all in the 1990s.

I would argue, in fact, that by deterring economic progress - in large part through retrograde energy polices - Europe is hurting its environment. The latest Environmental Sustainability Index, composed for the World Economic Forum, ranks 142 countries. While I have some disagreements with the composition of the index -- since it puts far too much weigh on greenhouse gases -- the U.S. still ranks 45th. Germany ranks 50th. Italy, 84th. Let me be very clear: Free trade and economic liberalization in general mean a better environment.

Climate Change Science and Costs vs. Benefits

Lastly, we must Always consider costs and benefits. This brings me to climate change and the Kyoto Protocol, which is essentially a European document and which Americans (not just President Bush but nearly the entire US Congress) reject. Global warming is a subject that divides the US and Europe profoundly and a subject on which I want to elaborate.

A couple months ago in Berlin, I debated a noted activist from the German Bundestag. With my argument about cheaper energy leading to a better environment (the one I related here today), he was in general agreement - with one important exception. Yes, it is true, he said, that people will choose clean air and clean water as they get richer, but will they choose lower levels of CO2 - something that does not pollute, that does not make their water or air dirty? This is an important question, and here I express the same doubts as many sober environmentalists - normal political rules of mitigation may not apply. I can tell you this: If the link between greenhouse gases were more firmly established and, if the benefits clearly outweighed the costs, then I would support mitigation measures such as those proposed in the Kyoto Protocol of 1997. In my opinion, the first condition is suspect, but even if it is accepted, the second is not met with Kyoto - not by a long shot.

First, what do we know about warming? I will be brief here. I am not a scientist but a journalist and concerned citizen. The basic facts, however, are not difficult to understand - though they have been obscured by politicians (and, in fact, some scientists) who prefer not to recognize sound science.

We know that the temperature of the earth has increased about 1 degree F (about 0.6 degrees C) in the past century, but that trend is not straight up. There was warming during the early part of the century, then cooling from the 1940s to the 1970s, then warming again. We also know that satellite observations in the lower troposphere, where we expect to see substantial warming, have shown essentially no warming - one-20th of one degree vs. one-half of one degree expected by the models - since 1979. Satellites cover 80 percent of the globe every 24 hours.

We do not know how much of the warming is natural and how much is human-caused. A recent academic paper, published in the journal Science, confirmed that the Medieval Warm period, roughly 800 to 1000 years ago, when the Vikings settled Greenland, had similar characteristics to our own period - and there was no heavy industry, no SUVs at the time. Worries about warming over the next century are based not on observation, but on computer models that, at this point, have not been proven.

Those models depend on assumptions in areas of vast speculation. Just one example: The IPCC report says that "the sign of the net cloud feedback is still a matter of uncertainty." That's a big deal since the assumption of cloud positive feedback accounts for 50 percent of the projected temperature increase according to models through the 21st century.

There may indeed be other causes for rising temperatures in the 20th century. One is solar activity, as the work of Nigel Calder and Sallie Baliunas posit. As sunspot intensity dies down in the next few years, we may see cooling, if their postulation is correct.

I think the uncertainties are huge, but let's for a moment accept the assumptions of scientist-activists.

It is upon cost/benefit analysis that Kyoto has foundered, not just in the US but anywhere the policies are seriously considered. It was recognition of the costs, when weighed against the benefits, that led President Bush to call the treaty "fatally flawed." The only realistic way to reduce CO2 emissions today is to reduce energy use. Period. However that is done, by government order or by tax or even with emissions trading, the result will be lower output, or GDP. How much lower is hard to say, but the bill is very high. The Department of Energy in the Clinton administration placed it at $300 billion to $400 billion in the US alone, or 3 to 4 percent of GDP. There are lower projections as well - as little as $85 billion to $350 billion annually throughout the world.

But what would be the gain from such losses? Not much. Simply pushing the date on which high surface temperatures will be reached out by six years over a century. The cost to the US alone is easily enough to solve the world's single most pressing problem: providing clean drinking water to hundreds of millions of people who need it. The money could be used to fight malaria today - rather than the Kyoto approach, which is to lower world temperatures over 100 years and make the world less hospitable to mosquitoes.

The best antidote to global warming or cooling or any calamity, natural or human-caused, is resilience - the capability, for example, to build dikes, such as those that today protect Holland and the Mississippi Basin. The developed world already has this economic ability. The poor do not, but they should. Knock three or four percentage points off US growth and you hurt not just the US. You hurt the developing countries far more. Just look at the last recession, when Mexico and developing Asian nations were damaged by the US slowdown more than the US was damaged.

Here is where our differences lie. Yes, Kyoto was rigged to favor Europe - whose CO2 reductions were already accomplished by clever benchmarking, which took into account reductions already achieved in Britain and Western Germany, for example (the treaty also gave the US no credit for substantial CO2 reductions achieved by forest and agricultural sinks). But that is not the big problem. Instead, it is a different outlook that divides us. The European view, frankly, is based not on sound science but on sentiment. It ignores cost-benefit analysis in favor of vague aspiration.

Embrace the Unknowable Future

My main message to Europe is to reject the fears, the reactionary allures, the superstitions - and to embrace the unknowable future. In the early part of the 20th century, there was enormous concern about icebergs in the North Atlantic. How can we develop technology - and at what cost - to keep shipping lanes open in the winter? That was one of the key puzzles. But within a few short years, icebergs were being overflown by airplanes. Much the same could happen with energy. In our grandiose hundred-year schemes, we ignore the likelihood of transforming technologies. This does not mean we should neglect long-range problems, but it does mean that we should not rush headlong to solve them at great cost.

Speaking of icebergs: In the 1970s, the concern, as you may remember, was global cooling. Newsweek ran an article saying that some scientists had proposed covering the polar icecaps with soot to absorb heat. I am glad we didn't do that.

This article was based on an address to the conference on "Confronting the Challenges of the 21st Century: A US-Italian Dialogue" sponsored by the Cultural Section, US Embassy, Rome.


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