TCS Daily

Limits to Growth

By Marlo Lewis - February 3, 2006 12:00 AM

Congress is back in session this week, and once more the heat will be on President Bush and the Republicans to embrace Kyoto Protocol-style greenhouse gas-reduction policies. Three December 2005 reports shed new light on the economic feasibility -- and political sustainability -- of the Kyoto agenda to limit, reduce, and ultimately eliminate emissions of greenhouse gases, chiefly carbon dioxide (CO2) from fossil fuel combustion. U.S. policy makers would do well to examine those reports and ponder their implications.

Kyoto proponents often claim that technological advances have "de-coupled" energy production from economic growth, or will soon do so, enabling governments to mandate substantial reductions in CO2 emissions without inflicting economic harm. But the International Energy Agency (IEA) report, CO2 Emissions from Fuel Combustion: Highlights 1971-2003, makes clear that no such "de-coupling" has occurred or is in prospect.

Since 1971, notes the IEA, "world total primary energy supply (TPES) has almost doubled, increasing by 23 percent in the period 1990 to 2003 alone." Fossil fuels are the world's "primary energy source," accounting for 84 percent of 2003 TPES in industrialized countries, and growing shares of TPES in developing countries. World TPES is expected to increase by "almost 60 percent between 2002 and 2030," with fossil fuels providing 85 percent of the projected increase.

As energy use has increased, so have CO2 emissions. World energy-related CO2 emissions grew by 20 percent during 1990-2003, from 20.7 billion to 25.0 billion tons.

In short, the global economy is consuming more and more fossil energy and emitting more and more CO2. The implication is clear: Government regulators cannot halt and reverse CO2 emissions growth without risking severe economic dislocation and hardship.

A key factor driving emissions growth is economic growth. Thus, unsurprisingly, emissions increased faster in regions with high-growth economies, such as North America and developing Asia, than in regions with low-growth economies, such as Europe. During 1990-2003, energy-related CO2 emissions increased by 22 percent in developing Asia and 19 percent in North America, but only by 6 percent in Europe.

The only regions where emissions actually declined were the former Soviet Union and Eastern Europe. Also unsurprisingly, this was "due to the collapse" of those countries' economies. During 1990-2003, their emissions dropped by a whopping 29 percent. However, their emissions hit bottom in 2000, and since then emissions have grown along with the countries' economies, increasing by 4 percent in 2002-2003.

The U.S. Energy Information Administration (EIA) report, Emissions of Greenhouse Gases in the United States 2004, demonstrates the same linkage between energy production and economic growth. U.S. energy-related CO2 emissions increased every year from 1990 through 2004 except in 1991 and 2001, when CO2 emissions decreased by 49 and 60 million metric tons, respectively. What did 1991 and 2001 have in common? Each was the low point of a recession.

In addition to analyzing CO2 emissions from different countries and regions, the IEA report also looks at emissions from different economic sectors. Among sectors, the largest and fastest growing source was electricity and heat, which accounted for 40 percent of world emissions in 2003 and produced 44 percent more emissions in 2003 than in 1990. As the IEA indicates, emissions from this sector will increase in the foreseeable future and indeed must do so if the "more than 1.6 billion people [who] remain without access to electricity" are ever going to escape from poverty.

The transport sector was the second largest global source of energy-related CO2 emissions. Transportation emissions accounted for 24 percent of the total in 2003, and increased by 31 percent since 1990. Emissions from this sector will also increase, especially as people in China and other developing countries become wealthy enough to buy cars. The IEA soberly comments: "Controlling transport-related emissions is a challenge for all countries, as none has managed to introduce an economically viable alternative to oil. In fact, demand for mobility is constantly increasing, even in countries with high taxes on transportation fuels."

Kyoto supporters claim that America and other nations could reduce emissions without economic pain if they just learned to use energy more efficiently. But improvements in energy efficiency and productivity go hand in hand, and as societies become more productive (i.e., wealthier), they find more and new ways to use energy. Thus, historically, improvements in energy efficiency have been accompanied by increases in overall energy use and emissions. For example, China, according to the IEA, cut its CO2 emissions per unit of GDP in half during 1990-2003. Yet thanks in part to such impressive efficiency gains, China's economy grew by 236 percent, with the result that China's annual CO2 emissions increased by 64.9 percent.

The EIA's report on U.S. emissions shows a similar pattern: Carbon intensity -- tons of CO2 per unit of GDP -- declined while total emissions increased. In 2004, U.S. CO2 emissions per dollar of economic output were 21 percent lower than in 1990. However, this efficiency gain was more than offset by population growth -- more people using fossil energy -- and economic growth -- more opportunities to use fossil energy. In the aggregate, U.S. CO2 emissions were 19 percent higher in 2004 than in 1990. The EIA -- in a just-published preview of its forthcoming Annual Energy Outlook 2006 -- expects these trends to continue, with U.S. aggregate emissions growing by 1.2 percent annually during 2004-2025 despite a 1.8 percent annual decline in emissions intensity.

According to the EIA's preliminary estimate, CO2 emissions from the U.S. transportation sector rose by 3.1 percent in 2004 alone, the highest growth rate of any one year during 1990-2004. This is noteworthy, because gasoline prices were higher in 2004 than in any of the previous 13 years.

Therefore, to bring the U.S. transport sector into compliance with Kyoto, Congress would have to significantly increase our pain at the pump via new motor fuel taxes or their regulatory equivalent -- and do so even though many law makers use words like "unconscionable," "gouging," and "obscene" to condemn today's gasoline prices.

Particularly sobering is the Traffic Lights report by the London-based Institute for Public Policy Research (IPPR), a pro-Kyoto research and advocacy group. According to IPPR's analysis of European Environment Agency data, CO2 emissions are rising in 13 of the 15 European Union (EU) countries, 10 out of 15 EU countries "will fail" to meet their Kyoto targets "even with planned additional measures," and three others will fail unless "planned new policies are implemented." Denmark, Ireland, Portugal, Spain, and Italy are projected to exceed their respective Kyoto emission reduction targets by 10 percent or more.

This should give U.S. policy makers pause. Despite having stagnant economies, static populations, and gasoline taxes two to three times higher than ours, most European countries are set to miss their Kyoto targets. How then could the United States, with its growing economy, growing population, and much greater per capita motor fuel consumption afford to comply with Kyoto or anything like it?

By disrupting key U.S. energy infrastructure, hurricanes Katrina and Rita already gave us a taste of Kyoto-level energy prices. The President and his allies in Congress should ignore calls to enact policies that would lock in and ratchet up today's menacing and unpopular energy prices. To do otherwise would court economic -- and political -- disaster.

Marlo Lewis is a Senior Fellow at the Competitive Enterprise Institute.


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