The Close Connection between Fossil Fuels and Economic Growth


One of my favorite economics journalists, Eduardo Porter, has a column which appears each Wednesday in The New York Times.  His column this week, “Imagining a World Without Growth,” shows that economic growth took off consistently around the world only about 200 years ago and that two things powered it: innovation and lots of carbon-based energy from fossil fuels.
Capture0The United Nations climate conference, meeting this week in Paris, is asking all countries to greatly cut back on their use of fossil fuels.  Mr. Porter, in an earlier column, described what severe cutbacks in fossil-fuel energy could look like:

  • In order to meet the consensus goal of keeping the earth’s atmospheric temperature from rising more than 2 degrees C from preindustrial times (and we’re half way there already), CO2 emissions will have to fall to at most 1.6 tons per year for every person on earth by 2050. This is less than 1/10 of the present U.S. average and less than 1/3 of the present world average.
  • Within about 15 years every car sold in the U.S. will have to be electric. By midcentury more than half of the U.S. economy will run on electricity. Up to 60% of power will have to come from nuclear sources.
  • To meet these ambitious goals the U.S. will have to decarbonize its energy supply at an average pace of 4% per year for the next 40 years. This is 10 times faster than the Energy Information Administration’s current plan.
  • This is not achievable by going after low-hanging fruit such as replacing coal with natural gas in power plants. Rather, for example, carbon capture and storage will have to become widely available starting within about 10 years.

Meeting the goal of limiting the average world-wide temperature increase to 2 degrees C will thus require a severe regimen of regulatory actions which will have negative economic consequences.  In fact it is difficult to image how such a strict regimen could ever be put in place or enforced without much public dissatisfaction.
We thus have two options for dealing with global warming.  We can ignore it at our peril or we can introduce a market mechanism to change people’s fundamental behavior and attitude about energy use.  What market mechanism?  A (revenue neutral) carbon tax, of course!  How else?

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A Path for Climate Change beyond Paris


The United Nations climate conference has just opened in Paris.  The pledges that countries are making fall way short of what many say is needed to solve the problem of climate change.  The Deep Decarbonization Pathways Project based in Paris and New York describes what will be needed to get the job done:

  • The 2 degree C temperature increase benchmark is used even though it is an arbitrary threshold. “Hell is not going to break loose at two degrees – it will take hundreds of years to unfold.” The world has so far warmed .9 degree C since 1880, halfway to the threshold.
  • The technologies available today, such as solar power and wind turbines, while good enough to get a running start on the transition, are not good enough to finish it.
  • Many countries will need to keep burning coal or natural gas to generate power while capturing the carbon dioxide emerging from smoke stacks, compressing it and injecting it deep underground. In fact most fossil fuel energy producers do not appear to be putting much effort into this approach.
  • Governments could easily flub the energy transition by failing to plan far enough ahead. Most countries are setting 10 and 15 year targets that can be met with incremental changes.
  • To achieve emissions goals, entire economies, including transportation, needs to be electrified as much as possible. Spending a lot of effort, as the U.S. is doing, trying to make gasoline cars more efficient, may be going down a blind alley.
  • Another potential dead end would be an overreliance on natural gas, which emits only half as much carbon as coal. This helps in the short run but gas has to go away within a few decades. Thus heavy investment in natural gas pipelines and power plants now could undermine long term goals.

The point is that the DDPP, designed to hold a global temperature increase to just 2 degrees C from preindustrial times, is extremely demanding.  It will require massive governmental interference in the energy economies of both developed and developing countries all over the world.    A far, far better approach is for leading world economies such as the U.S., Western Europe, China and Japan to provide leadership by implementing a tax on carbon emissions and thereby create an economic incentive for the fossil fuel industry to decarbonize itself.

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