By Donella Meadows

–April 4, 1991–

There are two reasons, says our President, why the U.S. need not make an effort to reduce emissions of the greenhouse gas carbon dioxide:

1. The models that predict greenhouse warming are imperfect.
2. Cutting back would cost too much. A 20 percent reduction in carbon dioxide output would cost the nation $200 billion a year — about the amount we spend annually for Social Security, or for the interest on the national debt — about $800 per year per American.

There’s one big problem with that argument, say those who think the U.S. should join the 18 industrial nations that already have policies to cut carbon dioxide. The economic models that calculate the $200 billion cost are far more questionable than the climate models. The real cost is likely to be MINUS $200 billion a year. The nation could SAVE money by cutting carbon dioxide pollution. Greenhouse-prevention measures are worth doing, whether there’s actually a greenhouse effect or not. Plus or minus $200 billion! How could the estimates be so far apart?

They could be because they were made on the one hand by economists and on the other hand by physicists and engineers. The two groups know different things, make different assumptions, see the world in different ways. If your only tool is a hammer, said a wise man, you treat everything as if it were a nail. Economists and engineers have different tools to solve the greenhouse problem, and therefore they calculate different costs.

Here’s how the economists come up with their $200 billion tab. They start from the fact that carbon dioxide emissions come primarily from burning oil, gas, and coal — so reducing emissions means burning less of those fossil fuels. How to get people to burn less? The economists call upon THEIR tool: the market. We have to raise the price of fuels, they say.

How big a price hike would it take to reduce fuel use by 20 percent? The economic answer to that question comes from looking at our own past behavior. During the rises and falls of fuel prices over the past two decades, how much did consumption change? From that information economists draw a price elasticity curve, from which they deduce how demand would respond to any change in price — assuming we go on behaving as we have before. The $200 billion is the additional amount we would have to pay for fossil fuel and for all products made with fossil fuel, if prices were raised high enough to cut back demand by 20 percent.

The engineers who think there’s a $200 billion SAVINGS to be had do not calculate price elasticity curves. They start with THEIR tool: technology. They look at all the uses to which we put fossil fuels — heating homes, firing industrial boilers, powering vehicles. Then they ask, what if we continue all these uses — heat as much, manufacture as much, drive as much — but use the most fuel-efficient technologies available? How much better could we insulate our buildings? How many efficient light bulbs could we screw in? How much better mileage could our cars get? And how much would that cost?

Depending on which engineer you ask the numbers vary, but all agree that significant efficiency improvements are possible, at a large net saving, without any change in production or comfort or lifestyle. The most optimistic (and best informed) purveyor of energy efficiency is Amory Lovins of Rocky Mountain Institute, who has produced the minus-$200-billion estimate for a 20 percent carbon dioxide reduction. He also says we could cut our fossil energy use by 50 percent at zero net cost and by 80 percent — even assuming no further improvement in efficiency technologies — at a cost of less than three dollars per barrel of oil saved or three cents per kilowatt-hour of electricity saved. The two biggest differences between his assumptions and the economic ones are:

1. The economists are using behavioral data from the past few decades. Lovins is using technical data that’s up to date — and the cost of energy efficient technology has been dropping rapidly.
2. The economists assume that if there were cost-effective ways to save energy, the market would have already grabbed them. Lovins says that’s like seeing a $20 bill lying on the sidewalk and assuming it must not be real, because if it were somebody would have picked it up. Engineers look at physical installations all around them and see possible efficiency improvements that have not been made because people don’t know about them or don’t have the up-front financing to install them. What the government ought to be doing, they say, is providing the information and helping with the financing.

So who is right, the economists or the engineers? In a sense they both are. The economists have calculated the cost of reducing greenhouse emissions their way, and the engineers have calculated the cost of doing it their way. In another sense they’re both wrong. They have calculated the costs of their policies but not the payoffs — the immediate reductions in urban air pollution, acid rain, and hazardous waste production; the reduced danger of oil spills and Persian Gulf wars; and the long term prevention or reduction of global climate change.

The bill that’s lying on the sidewalk is worth a lot more than $200 billion a year. It would be crazy not to pick it up.

Copyright Sustainability Institute 1991