Considering the developments of the past month or so, the ambitions of the upcoming Copenhagen Climate Summit have no doubt been dampened. However, I felt that it would nonetheless be interesting to take another look at the IEA's World Energy Outlook. Following is a summary of the report with an additional analysis of the economic benefits that nations may be able to achieve by embracing the development of green technology. Whatever side of the climate change debate one finds themselves, the promotion of economic growth is one area everyone in a recessionary environment should be able to agree upon. If the result is a healthier world, I am sure no one will complain.
In what is essentially a teaser to its full report due early to mid-November, but is in and of itself a useful document, the International Energy Agency (IEA) recently released an excerpt from its World Energy Outlook for 2009. 1 The IEA is an autonomous body developed within the framework of the Organisation for Economic Co-operation and Development (OECD) and is the main forum for energy discussion and cooperation between many of the OECD nations. As a point of reference, the US, UK, and many EU nations in addition to Japan and Australia inter alia are included in the group. Therefore, it represents most of the large, developed nations in the world and any agreements reached by the group have an impact on a majority of the world’s GDP. With that backdrop in mind, a few other items should be noted. First and foremost, the IEA meetings are not the forum for climate change skeptics. Many of the assumptions in the report, and indeed the report itself, presuppose the idea that if some of its proposed changes do not occur, the result to the global environment would be disastrous. Although this viewpoint was not shared by previous US administrations, the current White House has, at least in rhetoric, shared this idea, which has, of course, been a foregone assumption throughout Europe for much longer.
Any holdout climate change skeptics, perhaps emboldened by a historically chilly 2009 and the specter of October snowfalls in the Midwest and Northeast can still find value in this report however, as it focuses on the economic impact of green development in addtion to the downside environmental factors of the current state of the world. For example, though the report is very realistic about the dollar costs projections of some of its ideas, it also points out the long-term cost savings that would occur if some of its measures were adopted. For example, as it has been noted on these pages previously, it may cost consumers an initial outlay to purchase an automobile with hybrid or electric technology. However, cost savings on gasoline over the long term tend to even these costs out. Additionally, long-sighted supporters of green technology would be able to point to the future potential of electric cars functioning as storage units for excess capacity and the potential for consumers to become suppliers of energy, whether on a net or supplemental basis, releasing their extra energy back into the grid for a cost. With the report’s view toward reducing automobile emissions among all nations, even those developing ones it grants overall Co2 increases to, this type of technology could be pushed to the forefront. So too could more domestic technologies, such as roof top photovoltaic cells, which could afford consumers the same potential to profit on production rather than purely spend on consumption.
Enough table setting however. What is this report all about? Well, the IEA is planning a round of meetings in Copenhagen and the organizer’s stated goal is to gain end up with the participants’ signatures affixed to a comprehensive energy policy agreement. Although ambitious, and perhaps overly optimistic in the face of past failures, there may be enough support politically among developed nation leadership to make the document a reality. Additionally, the natural reduction in consumption over the past year due to the downside of the business cycle has pushed global energy demand a bit lower, and has potentially set the stage for a more realistic discussion based on a lower set of base numbers.
With this goal in mind, the report’s main function is to highlight the differences in projected greenhouse gas parts per million (ppm) if world economies continue on the paths they are currently treading, vs. the projected ppm with dramatic changes made. The former scenario includes some assumptions regarding the natural course of industrial development and concluding that certain bills currently in front of various legislatures, parliaments, and houses will pass. Even accounting for legislation currently on the table, however, the resulting picture is grim. Essentially, in this do-nothing scenario, by 2030, global greenhouse gas ppm will reach 1,000. In contrast, the report’s projections factoring in its assumptions would put 2030 global greenhouse gas ppm in the neighborhood of 450. This latter scenario assumes an overall rise, with a peak above this target level, and would, the IEA assumes, result in a net increase in global temperatures of approximately two degrees Celsius. However, this type of long term change would be more manageable than the current trend, particularly in the face of potentially spectacular growth continuing in the developing areas of China, India and South America.
One may ask what changes the IEA is advocating which would produce an end result of less than half the greenhouse gases than the present trend. This is where the political battles will of course take place. The IEA is advocating for net reductions in CO2 production in developed countries based on a system of infrastructure and technology spending and an increasing reliance on cap and trade measures for emissions. It allows for a net rise in developing country emissions. However, on balance, the thought is that the developed nations should be able to cut emissions by a high enough amount that the drop will compensate for the rise in the less developed countries. This would allow developing countries to continue developing, albeit in a more responsible way. It also assumes some cost to developed nations in the form of technology sharing and development of infrastructure.
This is where stumbling blocks may occur. Though the global recession has reduced demand for energy recently, providing some benefit for the IEA in that its start point is slightly lower than it could have been, it also means that huge amounts of spending on new technology are likely to be decried in some sectors. For example, with unemployment hovering around 10% in the US, it is unlikely that middle class America will look favorably upon multi-trillion dollar estimates of costs. Neither is it likely that factory owners will be particularly happy about increased fixed costs due to the necessity to employ green technology.
In my opinion, this is where the ‘green revolution’ has gone wrong in the past. Instead of focusing on the environmental benefits when speaking with people who are struggling to put dinner on the table, the long-term economic benefits should be the focal point of discussion. For example, the failing (perhaps failed…) US auto industry could have avoided much of its current pain if it had gone the way of Toyota and invested heavily in electric and hybrid technology from the time it became commercially viable. Instead, Detroit embarked upon a campaign to put a Hummer or Suburban Extra Length in every American driveway. It was an incredibly short-sighted strategy with backfired mightily when US oil gas prices hit levels that Europeans chuckled to see us become furious over. Though late to the table, it has been heartening to see Detroit increase its use of electric technology, and hopefully it is a trend that continues.
Additionally the potential benefits of the aforementioned abilities of consumers to one day supplement energy spending with sales back into the grid, and the potential benefits of smart grid technology in influencing consumption behavior have been grossly under-promoted by interested parties. These are very real, and already available technologies that should be known and understood by the general public. Further, the broader employment opportunities that will stem from green technology should be noted by industry, unions and politicians alike.
The energy policy of the US and all of the implications for the economy, security, and long-term sustainability leaves much to be desired. Despite squabbles over the potential for drilling in areas such as Alaska and the gulf, and despite slightly lower current price of oil, the sustainability of the economy does not rest with fossil fuels. In addition to the security risks posed by depending on unfriendly nations for the majority of our oil supply, utilizing green technology is good for the long-term viability of American industry. Finally, the American worker will benefit from a transition to a more sustainable energy policy, as leading the way in this area of technology will provide the jobs of the future and opportunities for savings over the current cost of fossil fuel-based energy consumption. This is the argument that needs to be sold to the American public if something like the IEA’s proposal would ever have a chance politically.
1 You can find the full excerpt here: http://www.iea.org/weo/docs/weo2009/climate_change_excerpt.pdf