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Energy Use and Human Activity: What's Wrong and What can be Done?
Lee Schipper, Ph.D.
Co-Leader
International Energy Studies
Lawrence Berkeley Laboratory and Stockholm Environment Institute
This winter marks the twentieth anniversary of the First Oil Crisis. The embargo and sharp hikes in oil prices sent most of the world's economies reeling, and left political after-shocks that were ignited again in 1979 with the Second Oil Crisis. But oil supplies from countries not members of the Organization of Petroleum Exporting Countries, substitution of other fuels for oil, and above all increased energy efficiency beat back the price of oil eight years ago this week. Does energy still matter?
To be sure, the efficiency of energy use increased significantly. Spurred by two oil price shocks and energy efficiency programs energy users in OECD countries have done a remarkable job since 1973 improving energy efficiency. Energy intensities, or energy use per unit of activity, averaged over the main energy uses, fell by 15 to 20% by 1988. But that improvement slowed down markedly since the crash in oil prices just eight years ago this week, in 1986. While the momentum of technology continues to impress improvements in efficiency at the rate of 1 to 1.5% per year in the Developed countries, in the formerly planned economies and developing countries improvements have been mixed .
Even though high oil prices may be gone for many years to come, energy production and use are still major concerns in some circles because of the significant, negative environmental impacts of energy use. Lingering fears after the Chernobyl accident, and worries about the impact on the greenhouse effect of burning fossil fuels should remind us all that oil security is not the only problem related to energy. As far as supplies are concerned, while growth in energy use may be sustainable for many decades, environmental consequences of that growth are not. One no longer worries about too little energy, too late, but rather too much energy,
What's Wrong?
What's wrong? Energy use is not sustainable whenever the environmental costs threaten to grow faster than the economic benefits. It's doubtful whether this is true yet globally, but it is clear in large pans of E. Europe and the former Soviet Union, many areas in the developing world, and, in some energy-producing regions in developed countries. Attaining "sustainable" energy use means paying the full cost of energy, including the cost of assuring that future generations will have their pick of clean energy resources. Exactly which energy sources, at what level of consumption is a matter of debate, but few societies are consciously on this path today.
What can be done? On the surface (underground. so to speak), energy supplies are plentiful. This is not to ignore the enormous economic, financial and management problems facing the energy industries in the Formerly Planned Economies (FPEs) of E. Europe, as well as in most of the developing countries, both those with large domestic energy supplies and those without. Even in the developed countries, there are significant forces towards restructuring energy industries, including privatization of national companies, but these do no directly affect supplies of oil or gas. still the two most important fuels.
Obtaining plentiful clean energy supplies, particularly forms with low or no C02 emissions, is problematic, however. Using gas in place of coal is opposed by many institutions, and cleaning the emissions from coal costs producers and consumers more. Only a minority of countries, notably the Nordic countries, have begun a systematic, albeit weak environmental taxation strategy to favour clean energy sources. The others, led by the US., much of Western Europe, the former Soviet Union, China, India, and most other nations, reject environmental taxation in favour of neutral pricing or even subsidies, often to the dirtiest energy forms. As a result, cleaning up energy use worldwide has been slow. Worse, enterprises and individuals waste energy when it is under priced this way, and companies who make energy-using technologies see their markets shrinking, discouraging development of tomorrow's efficient technologies. Of course it is no simple matter to decide what the real costs of the environmental mess are, nor to figure out who should do what, when, and at what cost. But present policies imply these real costs are zero, which is simply not true.
It is clear that slowing the growth in energy use and production would leave more time to clean up energy at reasonable costs. What can improved energy efficiency do to restrain growth in demand? Present trends will lead to only a 20% reduction in energy intensities by 2010 in the developed countries, which, combined with modest economic growth, will still see at least a 75% in world demand by 2010. The potential for saving energy is much larger, but closely dependent on energy prices and other factors. By 2010 Western nations could be using as little as half today's energy use per unit of activity in a healthy economic climate with nearly double the 1985 net economic output. Developing countries and those in E. Europe could experience even greater improvements in efficiency, since so much of the equipment that will be in place in 2010 has not yet been installed. But energy prices would have to rise, and many manufacturers of energy using equipment including those making vehicles and household appliances, would have to focus on efficiency, into effluent consumption, in their products. This effort would have to be supported by national and local government programs. Unfortunately, I do not see at present the groundswell from the bottom or the national leadership at the top to support both pricing and program strategies.
In the longer run, these kinds of strategies should be focused not on energy per se but on the "sectors" where energy is used, transportation, housing, industry, agriculture, etc. Building efficiency into the ordinary workings of homes, buildings, transportation, and industry is far less costly than adding on technologies later. Beyond good energy pricing, policies that disseminate energy efficiency as a key element of sectoral development are the second most important part of a strategy to restrain energy use growth.
Unfortunately, energy efficiency through improved technology alone may not be enough to restrain energy use. I referred in my title to "Human Activity" because lifestyles, and not just technology, matter to energy use. People want more low-cost mobility, comfort and convenience. In fact, relative to incomes, growth in human mobility and household incomes alone since 1973 raised energy use in developed countries almost as much as improved efficiency reduced energy use. While there are some signs that the impacts of these continuing lifestyle changes on energy use are slowing somewhat, the changes continue, even as industries reduce their energy use. So while energy use in industry and for moving goods has grown hardly at all in the past tow decades, energy use for homes, services, and travel has increased significantly. In fact, this shift from "production to pleasure", is probably the single most important element of future energy use that affects "what can be done".
Two reasons lie behind this shift. One reason is that while competitive firms respond rapidly to market force, through the price of energy, consumers are much slower to respond, for a variety of reasons debated by economists and not always well understood. As a result, energy efficiency of industry has improved for decades, while that of consumers improves irregularly, usually when energy prices are high. One reason is that small consumers under-invest in energy efficiency technology, in part because they face formidable information barriers, in part because they cannot observe many of the costs of energy they use. In today's world of low energy prices, those who can easily afford to make cost-effective investments can also easily afford to ignore them: energy is still a small share of the overall costs of living, and only heating and automobile fuel use is readily observable in the pocketbook.
The second reason is that both efficiency and the level of activity share in determining energy use. While industrial activities in developed countries have shifted away from the most energy intensive products, consumer activities in developed countries have shifted away form the most energy intensive products, consumer activities have shifted towards more energy intensive activities. The level of travel has risen steadily since 1973, faster than incomes in much of the industrialized world (and far faster elsewhere). Comfort in buildings is also increasing. These "goods" have increased faster than the output of out basic industries that used to require most of the commercially produced fuels and electricity. The problem is not that these human goals are bad, but that we often do not pay the full cost of the goods and services that provide them, particularly for transportation services. As a result, consumers demand more travel and comfort than they can really afford, and choose more energy-intensive ways of satisfying these demands that they otherwise would.
These trends have important consequences for the East and the South. On the one hand, programs underway to develop more efficient technologies, particularly those aimed at electricity, will move rapidly into every country because equipment manufacturers are global. This is true even if efficiency improvements have slowed down, because there is still such a large gap between the efficiency of average existing technology and that of new.
The same diffusion is occurring with vehicle emissions technologies: When the state of California holds a hearing on automobile exhaust, most of the world's auto companies attend to get the flavor for what they can expect - and sometimes dread - in their own countries and markets soon.? On the other hand, the East and South are rushing to suburbanize and motorize. No one opposes mechanizing the home for comfort and convenience, or for providing choices for motorized transportation. But when these energy services are subsidized directly or indirectly, they grow much faster. Private transportation soon crowds out public transportation, and settlement patterns, which may be frozen for decades, become more automobile dependent than otherwise. All these developments boost energy use and the resulting pollution?
What Needs to Be Done?
Since much can be done, what needs to be done? If, as I have indicated, today's energy problem is principally one of environment (including C02), then what needs to be done is "improve energy efficiency and make energy-using activities and energy users pay full costs". In the mature developed countries, this is technically easy. If present taxation patterns are shifted away somewhat from labour or capital and towards environment, the economics are favourable and possibly politically acceptable. What is needed above all is honest pricing of energy including ending the various indirect subsidies for energy intensive activities, such as travel, large homes, or maintaining energy-intensive industries. Energy companies should play a role in encouraging energy-use efficiency where it lies in their interest, but housing, equipment, and transportation companies and authorities should be leaders of this effort. This is not to say that pricing alone will solve energy or sustainability problems, only that the problems will never be solved without using pricing carefully.
Unfortunately, the notion of internalizing environmental costs of using energy, as well as those arising in using the transportation infrastructure, is still not popular except among a few die-hard economists and environmentalists. While a few governments in Europe, notably those in the Nordic countries and Holland, have tried to use taxes to reinforce energy and environmental goals, the UK exempted consumers' energy uses from value-added tax until recently. And the biggest energy user of them all, the US., has refused to use energy pricing to either deal with its alleged energy imports problem or its energy efficiency problems, much less turn to carbon taxes to moderate C02 emissions. (The attempt of the Clinton Administration, like that of the Ford and Carter administrations in the 1970s to introduce a modest energy tax was laudable. The negative lobbying by a weird coalition of energy industries and other industries over such a small tax was shameful.) Energy industries in many countries, including OPEC itself, have lobbied hard against these taxes, as have many of the same so-called green business leaders who participated in the Business Council for Sustainable Development. Even green activists pay market forces lip service, insisting other schemes can achieve the same result. And most politicians are respondent to these misguided protests.
Why the resistance? No one wants to pay for what used to be "free", particularly if it is our unborn, non-voting descendants who will pay. Yet in our exhaustive survey of world-wide changes in energy use over the last twenty years we found no significant changes in fuel choices or energy efficiency that were not somehow underscored by energy prices favouring the change. And we see very few significant differences in the way energy is used between countries that are not tied somehow to differences in energy prices. Indeed, in our studies of changes in energy efficiency since 1970 in Sweden, Denmark, and Norway, commissioned by each country's energy authorities, we found that Denmark achieved the greatest level of energy saving among the industrialized countries, Sweden and Norway considerably less. Not coincidentally, Denmark taxed its private energy consumers the hardest, while those in Sweden and Norway had low-cost electricity and wood to protect them from high oil prices and taxes. Even the important standards on the fuel economy of new cars in the US, which I hold to be successful, were accompanied by the highest real fuel prices since the 1930s. While there are many energy efficiency policies that can and must complement pricing strategies, it is hard to foresee success unless energy prices point towards restraint in use and greater energy efficiency.
In the East, the need to tear down and redevelop practically everything presents an enormous opportunity for improving not only the energy system, but the workings of the economy as a whole. And in the majority of developing countries, the sheer magnitude of economic growth presents opportunities to simply grow out of the present inefficiencies and smokestack development inherited from a past era in the North. But only a handful of public and private authorities in these important regions show genuine interest in long-term environmental sustainability.
What is needed here is not simply the same stimuli I have described for developed countries, however. Raising energy prices suddenly to world market levels is brutal in many cases and difficult politically, particularly where users cannot yet control their own energy costs. At the same time, selling energy efficiency when energy markets are protected, energy is subsidized, and many major industrial energy users are protected by tariffs from real competition, leads to drifting against the current. Putting exhaust controls in cars is important, but the impact of such a move is nearly swamped by the rapid growth in the use of motor vehicles. Instead, the notion of development or redevelopment must be rethought. If neither private nor public leaders perceive environment as a leading problem, they will only pay lip service to the goal of sustainable development. Since few leaders in the Western nations pay much more than lip service to sustainability problems, how can any one expect major shifts in policies elsewhere?
Finally, the problem of population growth is still vexing. Put simply, every important environmental problem becomes more difficult and more costly to solve, or worse, or both, with increasing numbers. This is as true in low income developing countries as it is in the US. or Europe. Clean-up technologies continue to improve, but more people equals more emissions, including those of C02. Alternatively, the impact of more people can almost always be offset by more technology, but incremental clean up of chimneys and exhaust pipes, as well as the move to cleaner fuels, including those free of C02, will always be harder or more costly as the total level of population and activity increases. (The real pessimists would argue that overall per capita activity must also be limited, but I will leave that issue for another debate.)
In the end, then, the energy problem is important because most energy use is associated with pollution. and most energy conversion releases C02. Even without a decisive valuation of the C02 problem, fossil fuels should be a concern. But addressing these problems is a human challenge more than a technical one. There is or little indication that the majority of citizens or their leaders in the Developed world really believe that our well-being is threatened by environmental problems. Their numbers are larger than the numbers of those of us who disagree. Consequently, few are really prepared to pay now for a sustainable and better world tomorrow. This problem is particularly acute in the US, as the recent fuss over a practically invisible gasoline tax (and the energy tax before it, and the carbon tax before it) demonstrated. Few leaders of business believe this either, as is clear from their statements and writings in the work done for the Business Council for Sustainable Development.
A pessimist would say that a few environmental smoking guns could awaken the majority to the potential and real environmental damage that arises with energy use and much other activity. But waiting for the smoking gun invites overreaction, too. The irony is that if we wait until we're sure we face irreversible problems from pollution and C02, then the problems will certainly be irreversible, and our hasty actions costly as well. I am optimistic about energy and technology, but I believe action must start now. If we act slowly but decidedly, we can increase the sustainability of energy use and, more important, open more options for future supplies and patterns of use. But acting slowly carries with it two more difficult requirements that not all societies are prepared to meet: patience and faith.