Wednesday, December 05, 2007

An Inconvenient Truth: US doing better on climate change than Europe?

Yesterday's Wall Street Journal reports some suprising figures on US greenhouse emissions:

The Bush Administration announced last week that U.S. emissions of carbon dioxide fell by 1.8% from 2005 to 2006. Output of all greenhouse gases was down 1.5% last year. All this while the American economy grew by 2.9%. It's the first time since 1990, when the U.N. began counting these things, that the U.S. has reduced emissions without also suffering a recession...

The EU hasn't yet released figures for 2006. But from 2000 to 2005, the U.S. outperformed Western Europe. Carbon emissions were up 3.8% in the so-called EU-15 during those years, versus 2.5% in the U.S. Over the same period, there has been virtually no difference between the increase in all greenhouse emissions in the U.S. and EU-15.

The WSJ goes on to make some odd inferences from this:

the reductions were in part due to higher energy prices and favorable weather. But greater use of lower-carbon energy sources, including natural gas, also played a big role. The U.S. reduction also suggests that letting markets work through higher prices will reduce carbon emissions more than the cap and trade mandates favored by environmental lobbies and most Democrats. [emphasis added]

I'm not sure what the WSJ is suggesting here. Markets won't just "work" and magically ascribe higher energy prices due to help save us from climate change. Governments actually need to somehow interfere in those markets to increase the prices of carbon-intensive energy sources. And there are two basic ways: impose a tax on emissions or require permits for emissions, issue a limited amount of permits and allow them to be traded (cap and trade). Either way, you're putting a price on emissions: only after you've place some constraint on the market can you stand back and let the market "work" to find efficient ways to reduce emissions.

But I think these US figures are worth examining for a few reasons:

  1. They suggest that emissions can be reduced without much of an impact on economic growth. Economic / Business consultants McKinsey have released a study this week that indicates that the US could reduce emissions substantially with little economic cost.

  2. They suggest higher energy prices (and by inference a carbon tax) can be quite effective.

  3. They might give us clues as to what sort of action could be effective. What was different about 2006 to previous years? Why did the use of natural gas for electricity generation increase?

If you're interested, the full report is available (in pdf) from the US Energy Information Administration website.


David said...

There doesn't appear to be any mention of substantial movement of manufacturing from the US to China and elsewhere. Unless this is considered and quantified, these numbers really have little meaning.

David Jeffery said...

David, the figures in the report are broken down by sector. Industrial emissions have declined but only in line with emission declines elsewhere and they only represent a small portion (about 20%) of the decline. So even if ALL the decline in indsutrial emissions is due to manufacturing moving offshore (which is unlikely), that still doesn't explain the other 80% of the drop in emissions.

Reports like these are useful precisely because they can shed light on otherwise easy-to-make but hard to verify assertions such as "it's just manufacturing moving to China" or the WSJ's "it's just markets working". Neither of those explanations can explain, for example, why emissions went up in 2005. Were markets working in 2006 but not in 2005?

David S. said...

The reduction in industrial emissions doesn't seem to include secondary emissions of power and transportation needed for manufacturing and shipping. Also, the transportation numbers don't seem to include international shipping. So, if goods are shipped from China or elsewhere to a US port city instead of across the country in tractor-trailers, the transportation emissions may show up as a decrease rather than an actual global increase.

I think the timing and intent of this report is to justify the position of the administration at Bali. It is often possible to pick numbers to include in an analysis to get a desired result, and this administration has a history of doing this. For example, a couple of years ago, the administration reclassified burger flips from services jobs to manufacturing jobs. There also doesn't seem to be any mention of the considerable carbon hit from Katrina.

Regarding 2005, it looks like electricity utilization was up. Perhaps this was from more air conditioning that year.

On another issue, my feeling is that cap-and-trade is a mistake. There are already too many greenhouse gases in the atmosphere. Industry wants cap-and-trade because it is easy to play games, arbitraging across industries and countries. Cap-and-trade could also have negative effects by increasing international shipping, which I think is roughly 5% of global emissions. We really don't have time for this. If emissions should go to zero tomorrow, global warming would continue. I think we need a global carbon tax, fixed across all countries, at some percentage of what it actually costs to remove carbon from the atmosphere. Proceeds from this could go to R&D for carbon reduction, protecting carbon sinks in the environment like tropical forests, and grants to developing countries to reduce emissions.

chervil said...

I think we should not forget that while the US federal government has dragged its feet on climate change, some of the States have been incredibly active. I wonder how much of the reduction in US emissions is thanks to the work done in places like California?

David Jeffery said...

Yep, that's an important point chervil.