In the twenty years since the last United Nations conference on the environment, countries have had to reappraise old premises about energy economics and technologies and to face new realities about the social costs of energy production and consumption. But in many instances, the importance of letting free markets mediate energy transactions and the awareness of the external costs that energy generation and use impose have not been translated into practice or policy. Along with wider acceptance of energy prices that reflect the environmental impacts of energy production, economically efficient patterns of energy use and the exploitation of renewable and less polluting energy forms deserve heightened attention.
How has the global perspective on energy matters changed since the first United Nations conference on the environment in 1972? In broad terms, very little: there is today, as there was then, an appreciation that access to energy, in the form needed and on the terms deemed tolerable to society, is vital to economic progress and human welfare. A comparison of 1972 with today also points up the inertia characterizing major energy forces: liquid and gaseous hydrocarbons constituted 66 percent of world energy consumption then, 60 percent in 1990. And, as always, there is tension between the inevitable uncertainties of science and the political encumbrances that surround the energy policy process.
But in a number of specific ways, the last two decades have forced nations to confront a new set of realities and to look at old issues in a new light. One major new reality—reflecting a great sense of urgency—is the extent to which environmental considerations intrude into the range of decisions we make on energy production and use; witness emission limits in the operation of U.S. and West European power plants to mitigate acid precipitation.
Wavering on both technological and economic premises that once seemed well founded has also occurred. The extraction of oil from shale, sustained by an enormous resource base, and nuclear breeders that would render uranium supply limitations inconsequential aroused fairly lavish expectations not too many years ago. The technologies involved in each now appear less promising. Even conventional nuclear reactors, whose integrity seemed assured, have lost a significant measure of the public's confidence. The future of all these energy systems has had to be more soberly assessed. Use of coal has also posed a dilemma. Can the world's vast amount of this resource—which outstrips the combined quantity of oil and natural gas by a large multiple and which is far less concentrated in its geographic occurrence than petroleum—be exploited without inviting an intolerable degree of greenhouse warming, due to rising concentrations of carbon dioxide? Major constraints on coal use could raise the price of other energy sources. Even without such constraints, the U.S. Department of Energy assumes that real world oil prices will rise somewhat more than 2 percent annually over the next several decades.
Coincident with such reappraisals, and on a more positive note, has been a reassessment of the performance of energy markets. These markets have exhibited a degree of flexibility that undermines the notion that there is something distinctly different about transactions involving fuels and power compared with transactions involving other economic goods and services. The emergence of competitive conditions in world oil markets and the ability of economies—through conservation, fuel-switching, development of new supplies, and institutional changes (such as the creation of oil spot and futures markets)—to achieve a surprising degree of resilience to energy price shocks indicate that energy need not be endowed with attributes uniquely different from other economic necessities. As a result, the primacy formerly accorded to energy insecurity in policy concerns may no longer be quite so self-evident a need.
And yet, some of these changes have thus far done more to invigorate conceptualization about energy issues than to fundamentally alter energy activities. Awareness of the environmental damage and other "external" costs inflicted on society as a result of energy production and use, and willingness to embrace free markets as the best mediator of energy supply and demand, have yet to make their mark in a pronounced fashion. Not surprisingly, this lag is especially conspicuous in developing economies, whose need to accommodate the rising aspirations of growing populations has largely dwarfed environmental concerns, and in countries emerging from the hopelessly warped incentive structure and physical production biases of central planning. China—now, and prospectively over the coming decades, the world's largest coal user—suffers from the localized, health-threatening pollutants emitted in coal combustion for two reasons: because poverty compels the nation to exploit a resource abundantly available and because distorted pricing decisions remove incentives to conserve coal. Only in the last few years have the Chinese authorities recognized the misguided nature of energy price controls and, with fits and starts, tried their hand at beginning to remedy the situation.
Energy and the environment
It should be noted that the unflagging demand for energy is not invariably tempered by tradeoffs with environmental goals just because economic well-being has reached a relatively reasonable level. The impressive economic growth rates recorded by rapidly industrializing countries in Asia—Taiwan, South Korea, and Thailand—have so far given policy-makers little inclination to rein in the rapidly rising demand for electricity, automotive fuels, and other types of energy whose utilization is undoubtedly a measure of these nations' economic success but which, unfortunately, has taken a severe environmental toll as well.
Even in the advanced countries of the world, a mixed picture emerges. On the one hand, there has been unquestioned progress in, for example, controlling automotive and power-plant emissions (in the latter case, to an extent some experts consider unwarranted by scientific evidence on acid rain). On the other hand, and more generally, intellectual recognition of the "environmental externality" problem is far from having been widely translated into regulatory policy and energy-market transactions. The official U.S. acknowledgment of this inadequacy was voiced in the Department of Energy's 1991 National Energy Strategy: "Motivating our technology and resource choices must be an improved understanding of total fuel-cycle costs of all energy sources. Total fuel cycle costs are the entire costs of producing, transporting, dispensing, and using a given energy resource, including the costs of health and environmental impacts. Existing analytical tools are not capable of doing this with any reasonable precision; however, developing and sharing the capability to make such total fuel-cycle assessments is a . . . priority."
Even in the advanced countries, recognition of the environmental costs of energy production and consumption is not widely translated into regulatory policy and energy-market transactions.
Whether by the time of a third United Nations environment-development conference, twenty years hence, energy decision making will have matured to the point at which definable social costs are widely accepted as a legitimate monetary charge against energy production and use is obviously a matter of great uncertainty. Countries such as Venezuela—which has only recently begun to phase out the subsidization of domestic gasoline sales at a level far below the world price—may simply not be inclined to rapidly inject aggressive environmental protection measures into their economies. At the very least a more determined commitment might be expected for dealing with immediate and well-founded public-health threats—say, emissions from Czechoslovakia's lignite-burning generating stations—than for addressing less certain and longer-range issues, such as greenhouse warming.
With the environmental impacts of energy assuming ever greater significance, two factors deserve heightened attention because of their capacity for mitigating these impacts: economically efficient patterns of energy use and the long-run prospect for renewable and less polluting energy forms as part of the global energy mix. A great deal has been written, frequently with some passion, on how one or both of these factors might contribute to smoothing the energy transition that must be faced in the coming decades. It would be surprising if these dual themes failed to resonate prominently at the United Nations Conference on Environment and Development.
How much conservation?
It must be recognized that, apart from the inadequate reflection of environmental externalities in what consumers pay for energy, there are enough distortions in energy markets and pricing to weaken incentives to conserve energy. The blame here cuts across countries at different levels of economic development: the former Soviet Union's one-time East European trading partners, supplied for many years with oil at below world-market prices; poor countries that feel compelled to subsidize household fuel prices, rather than to provide income support in general; and the United States, in which state regulatory policies fail to produce price signals that reflect the cost of newly added utility generating capacity.
There are undoubtedly numerous other ways to promote both economic welfare and energy conservation, although the barriers to be overcome and the efforts needed would necessarily vary from place to place. For example, technology transfer initiatives could alert energy planners in less developed countries to opportunities for enhanced efficiency in electric conversion; design improvements could be made in cooking stoves and other energy-using devices; and education and information programs could be aimed at spurring cost-effective energy-saving behavior.
At the same time, it is necessary to be skeptical of rhetorically simplistic exhortations for countries to "shape up"—energetically speaking—and of the criteria by which good energy behavior is to be measured. The notion that an overall ratio of energy consumption to gross domestic product (GDP) can be relied upon to characterize a country as an energy wastrel or saint is quite flawed. While energy/GDP ratios—that is, energy intensities—can be symptomatic of inefficiency in energy utilization, they can also point up features of industrial structure and geography having limited relevance to matters of energy profligacy. Consider an idea proposed in the 1988 report Energy Efficiency: A New Agenda, issued by the American Council for an Energy-Efficient Economy. There it was suggested that an international protocol is needed to establish energy-intensity goals for individual nations such that worldwide energy intensity would decline at least 2 percent per year. Under such a scheme, however, a developed nation that moved its aluminum smelting capacity to a developing nation would earn brownie points, while the latter would invite stigma. Moreover, a nation could fail to meet its intensity reduction target even while shifting incremental energy use to environmentally benign resources.
In short, the proposal illustrates the weakness of setting prescriptive goals as against the virtues of process-oriented goals: creating a climate of economic incentives, expanding research and development in support of innovative energy systems, internalizing social costs in energy pricing, and providing information that encourages the diffusion of economically optimum energy usage. Collectively, such initiatives could in time lead to major improvements in energy use by such entities as, say, Poland's steel industry—a key factor in that nation's environmental problems—which uses well over four times as much energy per ton of steel as the world steel industry as a whole.
To what extent can a more vigorous pursuit of cost-effective energy-efficiency options throughout the world materially lighten energy supply requirements and ease environmental burdens? Directionally, there's little doubt about the efficacy of such efforts. But estimates of achievable magnitudes are a matter of deep conjecture. It seems certain that the overwhelming portion of new energy demands in the years ahead will originate in developing countries. But there is an immense absolute, and still growing, energy gap to be closed between those who are well off and the many who are not. More than two-thirds of the world's people use less than 20 million Btu per person, averaging about one-tenth the energy use in Western Europe, Japan, and North America. A fivefold increase in the amount of energy supplied to developing countries in Asia, Africa, and the Americas would still leave their populations with per capita energy consumption half that in developed parts of the world.
Some analysts argue that the level of worldwide energy consumption over the next three decades could be held virtually unchanged; yet the policy intervention and acceptance of life style required are nontrivial matters.
Wrestling with that dilemma, the authors of a 1987 World Resources Institute study, Energy for a Sustainable World, argued that the level of worldwide energy consumption over the forty-year period 1980–2020 could—and, by implication, should—be held virtually unchanged, and should be guided by prevailing economic signals and imminent energy-saving technological opportunities. In this "normative" scenario, per capita energy consumption in the industrialized countries would decline by half, and that in developing countries would rise 0.5 percent yearly, supporting (it is argued) a standard of living equivalent to that of Western Europe today by 2020. That such a scenario could scarcely materialize in the absence of various kinds of policy interventions and acceptance of life-style change was acknowledged, but not elaborated on. From the vantage point of the United States—for which a recent National Academy of Sciences study mapped out the feasibility of achieving large, economically justified energy savings, but which suffers political apoplexy over the prospects of an increase of just a few cents in the gasoline tax—those are obviously nontrivial matters. In short, the task of deflecting global energy use from the business-as-usual path remains a major challenge (see figure, p. 32).
The role of renewable energy
But suppose growth in global energy consumption over the coming decades could be held reasonably in check (say, at 1 percent or so in yearly growth), even if not at a totally unchanged level. There is still ample reason to ponder how resource costs and environmental factors would combine to shape the mix of energy sources relied on by society. Even slowly growing energy use, if dominated by use of coal, could easily undermine the carbon dioxide stabilization target frequently voiced as a desirable environmental goal. It is therefore important to consider the prospective role of renewable energy sources as we enter and proceed through the twenty-first century. (Of course, renewability is no guarantee of environmental integrity: large-scale hydro facilities can be ecologically disastrous; disposal of solar cells and recycling may be problematic; grain-based fuel production may give rise to soil degradation; and ethanol production and use give rise to more greenhouse gas emissions than gasoline.)
Today, except for hydropower (some 7 percent of world energy output), renewables such as solar energy or biomass are not a significant factor in the global energy mix. To be sure, populations in numerous poor countries do rely on biomass and animal wastes to sustain an abject level of living standards. Such use is notoriously inefficient. Furthermore, exploitation of forests for fuelwood or of dung for cooking fuel probably generates more ecological harm than fossil fuel combustion. Thus the extreme circumstances governing such energy uses have little bearing on the priority attention that ought to be directed to expanded research and well-focused pilot programs to exploit renewable energy.
The conviction seems to be growing that a significantly expanded use of renewable energy resources might well be in prospect under terms that are economically attractive, even apart from the environmental premium such sources might command in particular cases. Dennis Anderson, a senior economist with the World Bank, has conducted research on renewable energy in the context of the greenhouse dilemma, emphasizing strategies in which mitigation of carbon dioxide would be the fortuitous beneficiary of steps independently justified on economic grounds. In a monograph to be published by Great Britain's Overseas Development Institute, he expresses considerable confidence that solar-thermal energy and photovoltaics are approaching a cost range competitive with conventional energy sources, particularly where—as in many developing countries—the amount of solar radiation per unit of land surface is high. He urges aggressive efforts to introduce these technologies, along with biomass options, and to broaden local experience and training in their application. In linking these views to the global warming problem, he proposes introduction of a carbon tax to help lower the remaining economic barriers to the use of renewables and low-carbon energy sources.
Anderson's cautiously optimistic position notwithstanding, there continues to be disagreement in policy debates on the prospective importance of renewable energy and the nature of impediments to its use. For example, what is the desirable level of research and development funding for this kind of energy? Should research and development policy be emphasized over other policies, such as tax measures, to hasten an increase in the use of renewable energy? Even if fossil-fuel energy prices were increased to reflect full social costs—a big if, considering the challenge of securing an international taxing commitment—there is uncertainty about how much use of renewable energy would rise. A determined effort to press ahead in seeking answers to these questions could be one positive legacy of UNCED.
Joel Darmstadter is a senior fellow in the Energy and Natural Resources Division at RFF.
A version of this article appeared in print in the January 1992 issue of Resources magazine.
A version of this article appeared in print in the January 1992 issue of Resources magazine.
