Energy, Climate Change, and the Economy

Do we have enough resources to build a global renewable energy infrastructure?

By Gerry Greaves

Geralt via Pixabay

I began my climate change journey in the year 2000.

I was working as an engineer on the energy saving effects of cool roofs on buildings. Soon the discussion changed to their effect on what was then called global warming. I had heard about it of course, but didn’t really understand it. After some digging, I came to three conclusions: it was real, we were causing it by emitting CO 2 from the burning of fossil fuels, and the effects, while uncertain, looked bad. Once one comes to this conclusion, there is a moral imperative to do something about it.

So, I started working on improving the energy efficiency of buildings with more urgency. There really are huge opportunities to improve energy efficiency in buildings and other areas like transportation and industry. We have been doing it for decades. Think of cars of the 1960s — those behemoths were called gas guzzlers for a reason. Still, in spite of energy efficiency improvements, CO 2 emissions continued to grow. What was going on here?

Energy efficiency alone is not enough

I soon began to understand how much energy really drove the economy. To get a better grip on it, I found some historical data on global energy use in MTOE (million tons of oil equivalent — see BP Data Workbook) and global gross domestic product in constant 2005 dollars (see Penn World Table). In analyzing that data, I found that from 1969 to 2013 the global GDP increased by about 3% per year (see chart and presentation). I also found that global energy use increased by about 2.25% per year. So, energy efficiency improvements decreased the growth of energy use by about 0.75% per year. To avoid dangerous climate change we need to dramatically reduce CO 2 emissions. Clearly, energy efficiency improvements can help but they alone will not get us where we need to be.

Energy Use vs. Economic Growth — Graph created by Gerry Greaves.

Enter renewable energy sources. Wind turbines and photovoltaic cells together have the potential to meet our energy needs. The Economics of Renewable Energy, (p. 15–16) shows that we can meet all of our energy need many times over with renewable sources (mostly wind and solar). This includes converting to electric cars, trucks, trains and buses, expected population growth, and an increasing middle class in the developing world. These sources emit no CO 2 emissions in the generation of electricity. However, they supply less 3% of the world’s energy. Why is that so low? We have built an enormous infrastructure to extract, refine and consume fossil fuels. Renewable energy sources are cost competitive with existing sources only in certain niches where renewable sources are abundant and conventional electricity is costly, or where incentives tip the balance.

The case for a carbon tax

The cost of renewables has been coming down for decades and is expected to continue, especially solar photovoltaic cells. The rate of this cost reduction depends on the amount of renewable energy equipment we manufacture which depends on the cost. Yes, there is some circular thinking here, but this cost reduction will continue. Only the rate depends on the amount of renewable energy equipment we manufacture. In my opinion, the best way to accelerate the cost reduction is to put a cost on carbon emissions like a carbon emission tax. What is the optimal level of such a tax? And do we have enough resources to build another global energy infrastructure around renewable energy sources?

To answer these questions and others, I modified a climate-economy integrated assessment model called DICE. A paper describing this work and a spreadsheet of the model is available on my website. My answer to the first question is to enact a tax on greenhouse gas emissions of $2 per ton of carbon dioxide equivalent emissions, and increase the tax $2 per ton per year for 100 years with the base and increment adjusted for inflation. It could then be slowly reduced. A tax on imports from countries with lower (or no) price on greenhouse gas emissions should also be put in place at a rate to compensate for the greenhouse gas emission tax. This could be applied by industry or sector possibly with the option for individual companies to show that they have lower greenhouse gas content by conducting an independently verified life cycle analysis. It could be made revenue neutral by reducing other taxes. This would provide the market with the information it needs to make appropriate investments. Other countries would be encouraged to follow.

A question of political will

My analysis also shows that with a price on carbon emissions like this, we can easily afford a global renewable energy infrastructure with a small fraction of our existing investments. An effort like this could essentially wean us off fossil fuels by the end of this century.

To make this happen, we need the political will to put a price on carbon emissions. I encourage you contact your political representatives to support putting a price on carbon. There is a sample letter to political representatives on my website.

This does not mean that the economy can continue to grow indefinitely. If we are able to rise to the climate change challenge successfully, there is still a list of other constraints waiting to become the most critical constraint on economic growth. To me the fresh water-food supply nexus is at the top of that list. Related to that is the global supply of phosphorus, a key ingredient in fertilizer that is in limited supply (see Phosphorus Supply and Demand). Others are rare earth elements and rare metals. These may not wait until climate change is behind us.

The analysis I did also looked briefly at the global economic growth over the last 50 years. While there is considerable variability from year to year, the trend in global economic growth is clearly coming down and asymptotically approaching zero.

How to live well beyond economic growth

There is significant ongoing research on the question of how to live well beyond economic growth. For example, Prosperity Without Growth (by Tim Jackson) concludes that prosperity without growth is possible and developed 12 steps to a sustainable economy in three groups; building a sustainable macroeconomics, protecting capabilities for flourishing and respecting ecological limits. Managing Without Growth, Slower by Design, Not Disaster (by Peter A. Victor) models the Canadian economy and shows how it can manage quite well without economic growth, and recommends policies to make the transition. The above website also includes models, slides and speeches. The Global Development and Environment Institute at Tufts University have also developed a series of teaching modules that address different areas including Environmental Issues in Economics.

We must learn to prosper without economic growth. I am optimistic that we will be successful.

Originally published in September 2015 on the Post Growth Institute (PGI) blog. Find out more about the PGI here.



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Post Growth Institute

Writing by team-members, guest contributors, and Fellows of the Post Growth Institute (PGI).