TCS Daily


Giving Power to the People

By Benedikt Koehler - February 8, 2005 12:00 AM

The World Economic Forum handed researchers a list of countries ranked by pollution levels and asked them to identify explanatory factors. The findings were a surprise.

Think of the usual suspects you might expect to promote pollution. Urbanization? Car ownership? Big Oil? Wrong, wrong, and wrong again. None of these factors has predictive power. In fact, countries that score highest when it comes to clean environments also score high in terms of per capita income. On the other hand countries with poor records of environmental protection tend to have poor showings in the league tables compiled by worldwide corruption watchdog Transparency International. Nature thrives in a habitat of efficient economies and an arms length relationship between business and government. These findings offer important conclusions for environmentalists, economists and energy regulators.

Vijay Vaitheeswaran spells out the implications in his book Power to the People. Energy is a global business and Vaitheeswaran knows his beat. The author was born in Madras, went to MIT, and covers energy issues for The Economist. Vaitheeswaran has academic credentials and street cred, too. He discussed the future of energy with board members at BP, as well as with board members of Bombay Suburban Electric Supply (a private sector company servicing slums).

His message is that environmentalism and free markets share a common cause and need each other. The sooner they recognize this, the better. Vaitheeswaran is at his most persuasive when he illustrates his views with examples.

Enlightened self-interest drives the search for clean energy sources, nowhere more apparent than in the race for developing fuel cell technology. Environmentalists at the Rocky Mountain Institute share a common agenda with DaimlerChrysler, which has already invested over $1 billion to bring fuel cell buses to a neighborhood near you. If you live in Sacramento or Munich, you can go see fueling stations at work in your neighborhood already.

This brings Vaitheeswaran to the second part of his message. Markets can create a cleaner environment, but not when command-and-control government policies stand in the way. The power sector puts more capital to work than any other industry in the world, bar none. By capitalization power is bigger than the telecom sector. That makes it even harder to fathom why it attracts so many subsidies, even more than agriculture. It makes no sense for governments to flaunt their green credentials by subsidizing wind farms, and to curry favor with vested interests with hand outs to the coal industry. Simultaneous subsidies for renewables and for fossil fuels cancel each other out and drive up prices for both. The only result government interference in power markets achieves is to discourage use and cut growth prospects for everyone.

Once governments pull back from intervening in markets, regulation of power markets can aim to create a level playing field for entrants and incumbents, and consumers will be able to exercise choice in markets undistorted by government intervention. Vaitheeswaran's market-based environmentalism is a win/win scenario for jobs, innovation and the environment.

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