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Jun 5, 2014

U.S. Climate Action—The Truth About Its “Costs”


Earlier this week, the United States Environmental Protection Agency announced new guidelines under the Clean Air Act limiting carbon dioxide emissions from existing power plants. The move comes in the wake of the federal government’s Third National Climate Assessment, exposing the serious risk climate change poses to the nation’s economy and security. Applauded by environmentalists, the EPA move was quick to draw the ire of climate change skeptics and myopic economists who fail to see the forest for the smog-obscured trees.

Critics say that limiting carbon emissions from existing power plants in the name of combatting climate change will undermine the U.S. economy and hurt the American people. But more than half a century’s worth of data from the Energy Information Administration shows that the United States’ GDP grew by more than 720% between 1950 and 2013, while energy consumption per dollar of GDP declined by more than 60% during the same period. The U.S. has retained its place as one of the most robust economies in the world while steadily decreasing the energy and carbon intensity of that economy. Lately this has been especially true of electricity: in 2012 alone, weather-adjusted electricity used per dollar of GDP fell by 3.4%.

But we must do better, the new EPA regulations take us an important step in that direction, and other countries show that we can do better without sacrificing our economy in the process. For example, among the U.S., Germany, and Japan—three of the world’s top four economies—Germany and Japan’s CO2 emissions per capita are nearly identical, while per capita emissions in the U.S. are an unconscionable 93% higher.

The United States’ own economic, energy, and carbon trajectories, and the even more impressive trajectories of some of our peer nations, show that addressing climate change is very unlikely to incur the economic costs fear-mongering critics say they would.

The loudest such critic of late has undoubtedly been the U.S. Chamber of Commerce. In a report released last week, the group attempted to strike fear in the hearts of Americans, claiming that the EPA’s new carbon emissions regulations would cost the U.S. economy $51 billion per year. As many have noted, the Chamber’s report grossly overstates the potential costs, for example by assuming exceedingly high per capita energy demand growth, when in fact stagnant annual nationwide electricity consumption has proved itself the new norm. (Electricity use has in fact been driving down ever since 2007 even as the economy rebounded.) But even if we take the Chamber’s outsized numbers at face value, they fail to hold weight.

Simply consider the economic impact of the severe weather the U.S. can expect to get worse under continued global warming. Eight of the ten most expensive hurricanes in U.S. history have occurred in the past decade. They include Katrina ($148 billion) and Sandy ($71 billion) and a long list of others that make $51 billion a year to stop loading the dice in favor of superstorms seem like a drop in the bucket, which it is.

As Paul Krugman noted in a New York Times op-ed last week, the U.S. boasts a $17 trillion economy, so $51 billion amounts to one-third of one percent. Against the sheer size of the U.S. economy, it’s nothing more than a decimal place rounding error to take meaningful action against one of the greatest threats to the nation’s people, environment, and economy.

In fact, upon closer scrutiny, we discover there isn’t a cost at all, but rather an opportunity. The prevailing attitude suggests that we cannot afford not to spend the requisite, substantial money fighting climate change. However, fighting climate change actually turns out to be not just exceedingly cheap but economically profitable, even if its avoided costs, like storm damage and underwater coastal real estate, were worth zero. That’s right: the Chamber of Commerce, purportedly the voice of American business, got the sign wrong, representing a profit as if it were a cost.

Indeed, RMI’s own rigorous analysis, Reinventing Fire, found the U.S. could transition to a 2050 economy energized by tripled efficiency and 75% renewables for a $5 trillion net-present-value savings—not net cost—while supporting a 158% bigger U.S. economy and slashing carbon emissions to 82–86% below 2000 levels. (This conservatively values climate change and all other hidden or “external” costs at zero.) That economically robust, climate-friendly future for the United States includes building a new electricity system powered 80% by renewables, half of them distributed on places like homeowners’ rooftops, and highly resilient against cascading blackouts—for essentially the same cost as simply maintaining the dirty, insecure, fossil-fuel-burning electricity system we have today.

Equally importantly, it positions the U.S. economy much better for a new reality where competitiveness does not come from burning coal, oil, or gas with a multitude of health, resilience, and environmental downsides, but instead from building on the rapidly increasing competitiveness of solar, wind, battery, and efficiency technologies that all create jobs and prosperity. In this energy revolution that is already well on its way, the U.S. stands much to gain from being at the leading edge, rather than denying or thwarting it.

With the EPA’s new carbon emissions regulations, the U.S. at last takes meaningful action to tackle the root causes of climate change. Let’s not get distracted by those who’d have us believe this move will harm Americans’ wallets and pocketbooks. The question we should be debating is: who will seize the biggest piece of this tremendous opportunity? As Rocky Mountain Institute co-founder and chief scientist Amory Lovins wrote in a 1997 paper on climate change economics, “What costs? The interesting thing is who should get the profits!”

Image courtesy of Shutterstock.

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Showing 1-6 of 6 comments

June 8, 2014

I beg to disagree with your numbers, because there is one thing you failed to factor in. While I believe the cost of energy will go down, I believe it will go down far more than you anticipate.

The analogy I would use is computer memory. When I first used a computer, in 1968, I was working with a somewhat old machine that cost $1.5 million used and had 10 kB of memory. The memory was stitched together by hand at a cost of $1 per bit. Today, I can go into a stationery store and buy a computer memory card for a camera for less than $20, getting 3GB. What had cost $1 per bit now cost less than a millionth of a cent per bit.

Unsurprisingly, when I went to WordPress to start a blog, I found that use of the site was not only free, I was given free use of 3 GB of memory, which would have cost over $25 billion in 1967. That is not for one blog, but for each and every blog I choose to start, with no limit on the number. In other words, memory, or use of memory, has become free for some applications, and is approaching zero for nearly all others.

Solar power can be paid off today in less than ten years. In some circumstances, it can be paid off in less than three. When the payoff is finished, the cost of maintenance is so low that the cost of power approaches zero. Furthermore, we really have no idea how long solar PVs last, but the experience we have had indicates they could last for many decades. With the passing of time, the proportion of our power capacity from solar will increase, and the proportion of that power with costs approaching zero will increase. I expect that the point that this has profound effects on the costs of power will happen well before 2050.

Meanwhile, the cost of storage is going down. As a result, the cost of the solar/battery combination is already becoming competitive with nuclear and coal. Given reasonable expectations about improvements of already existing technology, that combination will be very competitive in the very near future, possibly the next five years. (That would be before the first pilot of the Small Modular Reactor is tested.)

I am suggesting that the savings rising from introduction of greater amounts of renewable power will be much greater than $5 trillion in present value because the economics of power for electricity, heat, and transportation, will change radically.

If this is correct, a comparison of the price any physical thing one might buy, from real estate to food, regardless of whether it increases or decreases, will be incomparably greater than the cost of power. This, in turn, will place ever-greater value on the things that can be destroyed by climate change, while the value of the power generated that can produce climate change approaches zero.

Without doubt, we will see a lot of destruction due to climate change. People may not care about snail darters or spotted owls, and they may not even care about polar bears, but they do care about their health and the values of possessions. I am not very optimistic about the futures of many species. My guess is that for every bird killed by a North American wind turbine in the next thirty-five years, we will lose multiple species to climate change. But I still count myself as an optimist.

June 9, 2014

I might also add that the cost and availability of batteries for grid storage is very likely to be affected by the EV market. The demands of EVs are such that the batteries used in them need to be replaced when they still have more than two-thirds of their service life for grid or home electric storage.

Some analysts are projecting that EVs will dominate the automotive market by as soon as 2020. That being the case, we may have hundreds of thousands of used batteries appearing on the market every year that would be quite suitable to store intermittent renewable power. It might be interesting to do a study to see what effect this could have on the electricity storage market. My guess is that it could provide a large part of what we need by well before 2050.

June 13, 2014

You may want to distill this counter point down to something like, "...no, UR wrong."

I don't believe anyone at the US Chamber of Commerce even read that proposal. Even more telling, check out American Petroleum Institute (API) website for bios on its executives. Most, almost all, are not chemical or petroleum engineers comfortable with mass and energy balances and economic analysis for decision making. If API isn't staffed with squids, I'm sure C of C is staffed mostly with public relations, lawyers, and lobbyists.

EPA kind of put themselves into this squabble by doing way too much consultant level try-harder work. As a matter of fact, I believe the proposal is from one of its contractors. My guess is that they attempted to overwhelm critics with words and numbers, like 645 pages of double spaced text, backed up with spreadsheet after spreadsheet of number crunching EIA data on 50 states energy use.

The thing with assumptions is that they are exactly that. They are assumptions. And easily ripped apart by someone with another perspective. The assumptions are what the planet cookers are going after. Sometimes it's best to present a short preliminary proposal with premise (why we're doing what we're doing), where we are (2005? emissions), where we will have to be (2030) to not cook the planet, and a short list of assumptions to be used in the proposal. Leave the squishy issues out. EPA's proposal tries to dovetail too many human happiness issues into what is really just a process optimization exercise.

Anyway, I hope something gets done. Given Washington's move towards libertarianism and theological capitalism, I'm a bit nervous anything will.

June 13, 2014

The economic theory that states economic growth correlates to capital, labor, and efficient use of available energy is the best theory, in my opinion. Efficient use of available energy to do useful work is highly correlative to economic growth in Germany and Japan, more so than capital or labor (from Crossing the Energy Divide by Robert U. Ayres). To grow the economy, we should encourage the efficient use of energy to do useful work, but with strong preference for renewable energy sources because they are abundantly available and don't harm the environment. There are geniuses out there waiting to unleash their brilliance, in some form of useful work, that might be inspired by the knowledge that their system's energy source is abundant and environmentally safe. Renewable energy now costs about the same as conventional, in the case of SRP's residential solar rate, which is 9.9 cents per kWh. This is about half way between their standard winter rate of 8 cents and the summer rate of 11 cents. According my SRP account in Mesa, AZ.

June 14, 2014

Does the figure of a 60% decline in energy/$GDP take into account that China now burns lots of extra energy to make our stuff -accounting for some of our GDP?

June 14, 2014

The reference to "extreme weather" is perplexing. The IPCC acknowledge that this is not supported by data or even models and that, if anything, they will reduce in both severity and frequency thanks to a lessening of temperature gradients.

To claim that increasing costs of hurricane damage is proof is deceptive as adjustments to constant dollars and for increased population will show that costs are in fact decreasing.

With just those two pieces of misinformation I have no difficulty in dismissing this entire article as being simple activism for the AGW cause. Ridiculous.