Imagining the Unimaginable: Reducing U.S. Greenhouse Gas Emissions by Forty Percent
By David Hodas
INTRODUCTION
Economic worry and fear of change are two fundamental motivations behind opposition to U.S. participation in the Kyoto Protocol and to the adoption of mandatory limitations on greenhouse gas (GHG) emissions. The prospect of the United States reducing its GHG emissions to seven percent below its 1990 emission levels is viewed by some as too expensive,1 with some economists predicting that costs of Kyoto compliance will top three hundred billion dollars. Many Americans do not believe that GHG reductions can be achieved without significant hardship and reduced economic competitiveness with developing nations. Moreover, it is difficult for individuals to perceive how their actions will have anything but a miniscule impact on the climate change problem, even though the cumulative effect of individual efforts to reduce GHG emissions would be significant and long-lasting. Each unit of carbon dioxide (CO2) not emitted is one unit that will not persist in the atmosphere for 100 years, and each reduction, no matter how small, reduces overall GHG concentrations in the atmosphere. As individuals and as a nation, we enjoy the economic and social benefits of burning fossil fuels; however, we also share the cost of these activities with the entire world. In terms of social and political norms, the Bush administration believes that these factors explain why using energy more efficiently is not in our genes and remains resistant to addressing global warming in any venue. But efficient use of energy reduces pollution, makes the world more politically secure, and is a low-cost solution. Intensifying this worry is the prospect that even if achieved, GHG emission reductions under the Kyoto Protocol would only have a small impact on the world's global warming trajectory, and that much more will be required. The recently-released Stern Review on the Economics of Climate Change, a comprehensive review of the economics of climate change, suggests that stabilizing the atmosphere at 550 parts per million CO2 equivalents would require reducing global emissions to roughly twenty-five percent below current levels, and, to allow economic growth, reducing emissions per unit of GDP to seventy-five percent below current intensity. These challenges make Kyoto look like an easy warm-up. Both the U.S. House of Representatives and the U.S. Senate are considering proposals that will move the nation in this direction.
The perception that reducing GHG emissions is impossible without seriously damaging the national economy is premised on a fundamentally incorrect underlying assumption about the cost of reducing GHG emissions. Most economic models predicting future environmental compliance costs seriously overestimate such costs. These models reflect a mistrust of the market's ability to innovate and invent solutions not imagined before the relevant environmental controls are in place. This is a serious flaw because until the market is required to innovate to meet a mandate, there is little economic incentive for businesses to invest in technology to meet that mandate. On the other hand, once a mandate is in place, competition to meet that new demand becomes fierce, innovation is rapid, and costs often plummet. Removing lead from gasoline, controlling benzene in the workplace, eliminating CFCs use to protect stratospheric ozone, and reducing sulfur emissions to mitigate acid precipitation are a few examples of seemingly unimaginable reductions achieved at remarkably low costs.
Predictions should be based on how markets actually respond, rather than on models that ignore these realities. If California's method of GHG reductions is used as an example, then not only is a thirty percent reduction possible, but forty percent would be relatively easy. If the nation's average annual per capita GHG emissions of twenty tons CO2 per person, using 2001 data, were at the level of California's level of 11.4 tons per person, we would emit roughly forty-three percent fewer GHGs than we do now. California trusts this experience and is attempting to reduce emissions an additional twenty-five percent below its current levels. California emitted over 211 million tons of CO2 from transportation alone in 2001--more than the total CO2 emissions of all but six states. If the average annual U.S. per capita emissions were twelve tons, however, the United States would emit forty-percent less than it currently does; this would still leave it with the fourteenth highest per-capita emissions in the world.
Looking at the national and state CO2 emission data maintained by World Resources Institute, some individual states would rank high on the world list of GHG emissions by country. For example, Texas would rank seventh in the world, between Germany and the United Kingdom; California would be twelfth, slightly below Mexico and above France. In fact, the top thirty-five states would rank within the top fifty CO2 emitters in the world. Even Vermont, the lowest CO2 emitting state in the United States, would rank 105th in the world. In light of this information, state actions to reduce GHG emissions can certainly create measurable impacts.
Equally important, state per capita emissions are strikingly high compared with the rest of the developed world. In terms of GHG emissions per unit of GDP, the United States uses fossil fuels far less efficiently than its trading competitors, such as Japan, Germany, the United Kingdom, South Korea, Mexico, and Brazil. Even the most efficient state in the nation, Vermont (10.7 tons of CO2 per person), would still be ranked in the top twenty-five nations of the world in per capita CO2 emissions--roughly the same as Taiwan and the Russian Federation. The twenty-five countries in the European Union average 8.7 tons per person, far less than the average of the fifty U.S. states (20.1 tons per person). In terms of per capita emissions, the four most inefficient states [Wyoming (132.3), North Dakota (76.0), Alaska (68.5), and West Virginia (59.6)] are even less efficient than the world's least efficient nations [Qatar (46.3), United Arab Emirates (23.9), Kuwait (23.2), and Bahrain (20.9)]. Fourteen states would fit between Qatar and United Arab Emirates, with another two states just below United Arab Emirates, and five between Bahrain and Kuwait. Wyoming's per capita emissions are roughly 2.85 times greater than that of Qatar--the least efficient nation in the world.
These numbers suggest that states face significant opportunities to become more efficient. Remarkably, if U.S. average emissions per capita were the same as that of California, total annual U.S. CO2 emissions would be reduced forty percent--a 2.6 billion ton annual reduction. On average, a resident of Wyoming, North Dakota, Alaska, or West Virginia emits more than four times the CO2 of the average person in California, a large state with a profound love affair with driving. At the same time, California's economy has grown nicely over the last three decades, from 229 billion dollars in 1977 to about 1.73 trillion dollars in 2006.
California achieves its commendable reductions by steadily taking small measures, both voluntary and forced, to improve energy efficiency and promote renewable energy. Each step is the result of innovative laws and regulations designed to implement energy efficiency policy. As a result, energy efficiency savings are enormous, achieved at a cost fifty to seventy-five percent lower than the cost of building new generation supplies. Most importantly, energy efficiency remains a huge energy resource. Studies indicate that adoption of certain energy efficiency measures could yield a twenty-four percent reduction in total electricity demand nationwide by 2025.
Preliminary results of recent analysis of the role of law and policy in advancing energy efficiency indicate that essentially all the energy efficiency savings are attributable to well-designed and implemented state laws and policies. In particular, building codes and appliance standards are the most cost-effective and durable means of achieving significant and durable energy efficiency. The range of effective legal tools also includes energy efficiency portfolio standards, energy efficiency utilities, and economic policies that link utility profit with energy efficiency, such as removing disincentives, decoupling rates from profits, bonus rates of return, and efficiency performance incentives.
As a result of implementing many of the above policies in its laws, California enjoyed a net savings in electricity and natural gas of over thirty-six billion dollars by 2003. Continuing along this track will yield even greater reductions: it is projected that the state's efforts will yield seventy-nine billion dollars in net savings by 2013. As of 2000, the cumulative savings from California's energy efficiency programs and energy efficiency standards were over 10,000 megawatts and 35,000 gigawatt hours of electricity--the equivalent of the output of 2500 megawatt power plants. Similar success stories could be told about GHG emissions reductions in New York and several New England states whose per capita CO2 emissions are similar to California's.
The path towards economically sensible GHG reductions is visible. While not every state must achieve the lower average, the United States as a whole must reduce its emissions to twelve tons per person. By setting a national per capita goal, market mechanisms can be adopted to meet the average, further reducing costs. At twelve tons per person, the U.S. average will still be more than twenty percent higher than the E.U. average of 8.7 tons per person. Moreover, the twelve ton per person average does not take into account the potential impact of higher gasoline costs and more stringent motor vehicle efficiency standards needed to reduce demand and encourage adoption of efficiency technologies. The lesson here is that small, steady steps can produce significant results--and those results produce significant net economic benefits.
Moreover, the potential for future efficiency savings once the market signals a demand for efficiency innovation remains enormous. Given the correct policies and market signals to overcome market failures, potential new energy efficiency technologies may enable the United States to cut energy use drastically without diminishing the energy services most Americans want. The same phenomenon will occur in the renewable energy sector. This Essay will survey these efficiency possibilities, identify the legal and policy barriers that systematically block the savings, and suggest some policy prescriptions.
Economic worry and fear of change are two fundamental motivations behind opposition to U.S. participation in the Kyoto Protocol and to the adoption of mandatory limitations on greenhouse gas (GHG) emissions. The prospect of the United States reducing its GHG emissions to seven percent below its 1990 emission levels is viewed by some as too expensive,1 with some economists predicting that costs of Kyoto compliance will top three hundred billion dollars. Many Americans do not believe that GHG reductions can be achieved without significant hardship and reduced economic competitiveness with developing nations. Moreover, it is difficult for individuals to perceive how their actions will have anything but a miniscule impact on the climate change problem, even though the cumulative effect of individual efforts to reduce GHG emissions would be significant and long-lasting. Each unit of carbon dioxide (CO2) not emitted is one unit that will not persist in the atmosphere for 100 years, and each reduction, no matter how small, reduces overall GHG concentrations in the atmosphere. As individuals and as a nation, we enjoy the economic and social benefits of burning fossil fuels; however, we also share the cost of these activities with the entire world. In terms of social and political norms, the Bush administration believes that these factors explain why using energy more efficiently is not in our genes and remains resistant to addressing global warming in any venue. But efficient use of energy reduces pollution, makes the world more politically secure, and is a low-cost solution. Intensifying this worry is the prospect that even if achieved, GHG emission reductions under the Kyoto Protocol would only have a small impact on the world's global warming trajectory, and that much more will be required. The recently-released Stern Review on the Economics of Climate Change, a comprehensive review of the economics of climate change, suggests that stabilizing the atmosphere at 550 parts per million CO2 equivalents would require reducing global emissions to roughly twenty-five percent below current levels, and, to allow economic growth, reducing emissions per unit of GDP to seventy-five percent below current intensity. These challenges make Kyoto look like an easy warm-up. Both the U.S. House of Representatives and the U.S. Senate are considering proposals that will move the nation in this direction.
The perception that reducing GHG emissions is impossible without seriously damaging the national economy is premised on a fundamentally incorrect underlying assumption about the cost of reducing GHG emissions. Most economic models predicting future environmental compliance costs seriously overestimate such costs. These models reflect a mistrust of the market's ability to innovate and invent solutions not imagined before the relevant environmental controls are in place. This is a serious flaw because until the market is required to innovate to meet a mandate, there is little economic incentive for businesses to invest in technology to meet that mandate. On the other hand, once a mandate is in place, competition to meet that new demand becomes fierce, innovation is rapid, and costs often plummet. Removing lead from gasoline, controlling benzene in the workplace, eliminating CFCs use to protect stratospheric ozone, and reducing sulfur emissions to mitigate acid precipitation are a few examples of seemingly unimaginable reductions achieved at remarkably low costs.
Predictions should be based on how markets actually respond, rather than on models that ignore these realities. If California's method of GHG reductions is used as an example, then not only is a thirty percent reduction possible, but forty percent would be relatively easy. If the nation's average annual per capita GHG emissions of twenty tons CO2 per person, using 2001 data, were at the level of California's level of 11.4 tons per person, we would emit roughly forty-three percent fewer GHGs than we do now. California trusts this experience and is attempting to reduce emissions an additional twenty-five percent below its current levels. California emitted over 211 million tons of CO2 from transportation alone in 2001--more than the total CO2 emissions of all but six states. If the average annual U.S. per capita emissions were twelve tons, however, the United States would emit forty-percent less than it currently does; this would still leave it with the fourteenth highest per-capita emissions in the world.
Looking at the national and state CO2 emission data maintained by World Resources Institute, some individual states would rank high on the world list of GHG emissions by country. For example, Texas would rank seventh in the world, between Germany and the United Kingdom; California would be twelfth, slightly below Mexico and above France. In fact, the top thirty-five states would rank within the top fifty CO2 emitters in the world. Even Vermont, the lowest CO2 emitting state in the United States, would rank 105th in the world. In light of this information, state actions to reduce GHG emissions can certainly create measurable impacts.
Equally important, state per capita emissions are strikingly high compared with the rest of the developed world. In terms of GHG emissions per unit of GDP, the United States uses fossil fuels far less efficiently than its trading competitors, such as Japan, Germany, the United Kingdom, South Korea, Mexico, and Brazil. Even the most efficient state in the nation, Vermont (10.7 tons of CO2 per person), would still be ranked in the top twenty-five nations of the world in per capita CO2 emissions--roughly the same as Taiwan and the Russian Federation. The twenty-five countries in the European Union average 8.7 tons per person, far less than the average of the fifty U.S. states (20.1 tons per person). In terms of per capita emissions, the four most inefficient states [Wyoming (132.3), North Dakota (76.0), Alaska (68.5), and West Virginia (59.6)] are even less efficient than the world's least efficient nations [Qatar (46.3), United Arab Emirates (23.9), Kuwait (23.2), and Bahrain (20.9)]. Fourteen states would fit between Qatar and United Arab Emirates, with another two states just below United Arab Emirates, and five between Bahrain and Kuwait. Wyoming's per capita emissions are roughly 2.85 times greater than that of Qatar--the least efficient nation in the world.
These numbers suggest that states face significant opportunities to become more efficient. Remarkably, if U.S. average emissions per capita were the same as that of California, total annual U.S. CO2 emissions would be reduced forty percent--a 2.6 billion ton annual reduction. On average, a resident of Wyoming, North Dakota, Alaska, or West Virginia emits more than four times the CO2 of the average person in California, a large state with a profound love affair with driving. At the same time, California's economy has grown nicely over the last three decades, from 229 billion dollars in 1977 to about 1.73 trillion dollars in 2006.
California achieves its commendable reductions by steadily taking small measures, both voluntary and forced, to improve energy efficiency and promote renewable energy. Each step is the result of innovative laws and regulations designed to implement energy efficiency policy. As a result, energy efficiency savings are enormous, achieved at a cost fifty to seventy-five percent lower than the cost of building new generation supplies. Most importantly, energy efficiency remains a huge energy resource. Studies indicate that adoption of certain energy efficiency measures could yield a twenty-four percent reduction in total electricity demand nationwide by 2025.
Preliminary results of recent analysis of the role of law and policy in advancing energy efficiency indicate that essentially all the energy efficiency savings are attributable to well-designed and implemented state laws and policies. In particular, building codes and appliance standards are the most cost-effective and durable means of achieving significant and durable energy efficiency. The range of effective legal tools also includes energy efficiency portfolio standards, energy efficiency utilities, and economic policies that link utility profit with energy efficiency, such as removing disincentives, decoupling rates from profits, bonus rates of return, and efficiency performance incentives.
As a result of implementing many of the above policies in its laws, California enjoyed a net savings in electricity and natural gas of over thirty-six billion dollars by 2003. Continuing along this track will yield even greater reductions: it is projected that the state's efforts will yield seventy-nine billion dollars in net savings by 2013. As of 2000, the cumulative savings from California's energy efficiency programs and energy efficiency standards were over 10,000 megawatts and 35,000 gigawatt hours of electricity--the equivalent of the output of 2500 megawatt power plants. Similar success stories could be told about GHG emissions reductions in New York and several New England states whose per capita CO2 emissions are similar to California's.
The path towards economically sensible GHG reductions is visible. While not every state must achieve the lower average, the United States as a whole must reduce its emissions to twelve tons per person. By setting a national per capita goal, market mechanisms can be adopted to meet the average, further reducing costs. At twelve tons per person, the U.S. average will still be more than twenty percent higher than the E.U. average of 8.7 tons per person. Moreover, the twelve ton per person average does not take into account the potential impact of higher gasoline costs and more stringent motor vehicle efficiency standards needed to reduce demand and encourage adoption of efficiency technologies. The lesson here is that small, steady steps can produce significant results--and those results produce significant net economic benefits.
Moreover, the potential for future efficiency savings once the market signals a demand for efficiency innovation remains enormous. Given the correct policies and market signals to overcome market failures, potential new energy efficiency technologies may enable the United States to cut energy use drastically without diminishing the energy services most Americans want. The same phenomenon will occur in the renewable energy sector. This Essay will survey these efficiency possibilities, identify the legal and policy barriers that systematically block the savings, and suggest some policy prescriptions.
