Leave CO2 to the Entrepreneurs
By Charles E. Bayless and
Thomas R. Casten
The Washington Post
Our companies burn fossil and other fuels to create electricity, heat,
and chilled water. There is no question in our minds that global warming
is a potentially devastating problem and that humankind must reduce emissions
of carbon dioxide. As power producers, we understand how much unnecessary
CO2 this nation emits, and we know how to cut fuel waste in heat and power
generation.
Eliminate monopoly rules,
and entrepreneurs will revolutionize the power industry.
Negotiators from the United States and other developed countries went
to Kyoto seeking caps on carbon dioxide emissions from each country. Our
negotiators reached a deal with developed countries and committed the United
States to significant cuts. Countries with less developed economies, including
China and India, rejected this approach, fearing that carbon caps would
become de facto caps on their future economic growth. Because the Kyoto
accord does not provide for participation by developing countries, many
here in the United States fear that implementing caps here, but not in developing
countries, will cause the United States to lose its competitive position.
The administration is going to have to explain to America how it intends
to decide who will be allowed to emit CO2. Moreover, the administration
will have to show that we can lower CO2 emissions in a way that actually
strengthens our economy. We believe that these twin goals can be met by
unleashing market forces and rewarding efficiency.
The best approach will be: set a standard of fossil-fuel use for every unit
of heat and electricity produced. Then, tighten the standard over time.
This standard will lead the power industry to deploy more energy-efficient
heat and power plants and to develop renewable energy from solar, hydro,
wind, and bio-mass.
It is easy to measure and enforce a standard of fossil fuel-use per unit
of heat or electricity. This standard solves the difficult question of who
will have rights to emit. Each unit of heat and/or power produced would
automatically receive credit equal to the standard. Those not meeting the
standard in a given year would have to: (a) increase efficiency; (b) lower
their average fossil fuel use per unit of energy by investing in renewable
energy; (c) purchase credits from more efficient power producers; (d) incur
penalties. There is, however, one problem.
Seventy years of monopoly "protection" have severely impeded innovations
in the U.S. electric utility industry. The average American power plant
burns three units of fuel to produce only one unit of electricity, venting
the other two-thirds as heat. In effect, two-thirds of every coal mine is
a wasted hole in the ground. It's as much wasted energy as Japan uses each
year to fuel its entire economy. And it's a huge amount of money wasted
on fuel. Consumers pay for the wasted fuel, and the atmosphere suffers from
the pollution.
Anticipating free competition for electricity sales, an increasing number
of utilities are adopting new strategies. For example, our joint venture
in Golden, Colo., serving Coors brewery, achieves more than double the average
U.S. efficiency. We convert 70 percent of the fuel to useful energy-electricity,
steam, and chilled water. We cut CO2 in half, save enough fuel to cut Coors'
costs and make money. The entire electric industry would do better but for
outmoded regulations.
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An unenviable position: America's in first
place.
It is essential to steer the energy industry toward efficiency now; otherwise
many companies will continue to build inefficient plants, which could remain
in service for half a century. In this regard, the administration and Congress
need to address the fact that electric utilities relied on monopoly rules
to invest many billions of dollars in power plants that need to be shut
down or modified for the good of the country and planet. The right incentives
to handle these so-called "stranded investments" will speed the
transition to a modern, low-emitting energy system.
Eliminate monopoly rules, and entrepreneurs will revolutionize the power
industry. Guide the emerging competition with an efficiency standard that
tightens according to a predetermined schedule. Entrepreneurs then will
replace or retrofit our obsolete electric-only generation to capture waste
heat and produce additional products such as steam, and hot and chilled
water. Entrepreneurs will be rewarded for developing and deploying renewable
energy. These market forces will lower the cost of heat and power to all
consumers. Developing nations that don't adopt similar efficiency standards
will fall further behind the increasingly efficient United States.
The Kyoto protocol commits the United States to reduce greenhouse-gas emissions
by 7 percent below 1990 levels in 10 years. This is achievable simply by
increasing U.S. electric generation efficiency to just over 50 percent-by
wasting only half the fuel. There is proof that this is possible. Great
Britain opened its electric markets in 1989, and market competition has
reduced CO2 from electric generation by 39 percent. This translates to a
13 percent drop in total U.K. CO2 emissions in just six years. (U.K. electric
prices have dropped by 15 percent to 20 percent in the same period.)
To mitigate climate change and save money, we must pick the low-hanging
fruit of improved efficiency. We must deregulate electricity so market forces
can achieve greenhouse-gas-reduction targets and lower electric prices.
This will help the U.S. economy and help those developing nations that adopt
similar efficiency standards. The United States must demonstrate to the
rest of the world that it is in their economic and environmental interests
to reduce CO2.
 Charles E. Bayless is Chairman, President and CEO of Tucson
Electric Power Co. Thomas R. Casten is President and CEO of Trigen Energy
Corp.
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Earth in the Balance Sheet
Economists Go for the Green
By Paul Krugman, Slate Online Magazine
(This article is excerpted from one that originally ran
in April, 1997.)
Like most people who think at all about how much burden their way of
life places on Spaceship Earth, I feel a bit guilty. But my conscience is
clearer than usual this year-and so are those of 2,500 other economists.
Let me explain. A few months ago an organization called Redefining Progress
enlisted five economists-the Nobel laureates Robert Solow and Kenneth Arrow,
together with Harvard's Dale Jorgenson, Yale's William Nordhaus, and myself-to
circulate an "Economists' Statement on Climate Change" calling
for serious measures to limit the emission of greenhouse gases. To be honest,
I agreed to be one of the original signatories mainly as a gesture of goodwill
and never expected to hear any more about it; but the statement ended up
being signed by, yes, more than 2,500 economists. Whatever else may come
of the enterprise, it was an impressive demonstration of a little-known
fact: many economists are also enthusiastic environmentalists. Partly this
is just because of who economists are:
Being by definition well-educated and, for the most part, pretty well-off,
they have the usual prejudices of their class-and most upper-middle-class
Americans are sentimental about the environment, as long as protecting it
does not impinge on their lifestyle. (I'm happy to reuse my grocery bags-but
don't expect me to walk to the supermarket.) But my unscientific impression
is that economists are on average more pro-environment than other people
of similar incomes and backgrounds. Why_ Because standard economic theory
automatically predisposes those who believe in it to favor strong environmental
protection.
True, economists generally believe that a system of free markets is
a pretty efficient way to run an economy, as long as the prices are right-as
long, in particular, as people pay the true social cost of their actions.
Environmental issues, however, more or less by definition involve situations
in which the price is wrong-in which the private costs of an activity fail
to reflect its true social costs. Let me quote from the textbook (by William
Baumol and Alan Blinder) that I assigned when I taught Economics 1 last
year: "When a firm pollutes a river, it uses some of society's resources
just as surely as when it burns
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coal. However, if the firm pays for coal but not for the use of clean
water, it is to be expected that management will be economical in its use
of coal and wasteful in its use of water." In other words, when it
comes to the environment, we do not expect the free market to get it right.
So economists who actually believe the things they teach generally support
a much more aggressive program of environmental protection than the one
we actually have. True, they tend to oppose detailed regulations that tell
people exactly how they must reduce pollution, preferring schemes that provide
a financial incentive to pollute less but leave the details up to the private
sector. But I would be hard-pressed to think of a single economist not actually
employed by an anti-environmental lobbying operation who believes that the
United States should protect the environment less, not more, than it currently
does. (The signers of the climate-change statement, incidentally, included
13 economists from the University of Chicago.)
When it comes to the environment,
we do not expect the free market to get it right.
Isn't this amazing_ Not only do thousands of economists agree on something,
but what they agree on is the warm and cuddly idea that we should do more
to protect the environment. Can 2,500 economists be wrong_ Well, yes-but
this time they aren't. The Great Green Tax Shift-a shift away from taxes
on employment and income toward taxes on pollution and other negative externalities-has
everything going for it. It is supported by good science and good economics,
as well as by good intentions.
I do not, realistically, expect the Economists' Statement to change
the world. But then I didn't expect it to go as far as it has. Certainly
those of us who signed it did the right thing; and maybe, just maybe, we
did our bit toward saving the planet.
Paul Krugman is a professor of economics at MIT whose books
include The Age of Diminished Expectations and Peddling Prosperity.
First published in Slate, www.slate.com. Reprinted with
permission. Slate has now gone to subscriptions.
Please find out how to subscribe at . |
"Can the American
political system respond to the threats created by accelerated climate change_
Yes! The political process is merely the manifestation of millions of small
votes. Citizens can vote with our dollars for "green power" or
for more energy efficient automobiles. Citizens can vote at the ballot box
for legislators who support restructured energy systems. In this respect,
dealing with accelerated climate change is not a single event such as passing
legislation; it is a process. Politicians, many business people, and the
green community took the first steps towards a political solution to climate
change in Kyoto. To believe that we can't respond to the climate threat
is to deny two hundred years of the American experience."