menu ☰
menu ˟

How the Profit Motive Can Help Fight Climate Change

03 Aug 2018

Marian L. Tupy

Decarbonization of the global economy has been one of the main
objectives of the green movement for many years. Carbon dioxide
emissions from the burning of fossil fuels, many scientists worry,
could result in catastrophic global warming.

Unfortunately, renewable energy is nowhere close to producing
enough power to replace fossil fuels. Should we, therefore, limit
our overall energy consumption instead—harming productivity
and restraining the growth in peoples’ standard of living in the
process? Not necessarily. As the data show, market forces are
actually pretty good at reducing the amount of energy used in
production.

Green Energy Technology Just Isn’t There
Yet

Over the last two centuries, the world’s economy has grown
almost 100-fold. That expansion was powered by fossil fuels, the
burning of which helped to raise the level of carbon dioxide (CO2)
in the atmosphere from 0.0284 percent in 1820 to 0.0407 percent in
2017.

When nature does not
cooperate, green energy becomes unpredictable and
inconsistent.

The switch to green energy is proving so difficult in part
because renewable energy is difficult to scale up. Just think of
the hectares of land and miles of coastline that would have to be
covered by wind turbines if wind energy were to produce as much
energy as fossil fuels can.

Another disadvantage of green energy is the unreliability of
supply. Wind turbines need wind to turn the blades, water turbines
need rain to fill the dams with flowing water and solar panels need
sunshine. When nature does not cooperate, green energy becomes
unpredictable and inconsistent.

To further complicate matters, green energy is still
substantially more expensive than more conventional sources of
energy. As such, economic growth and, consequently, people’s
standard of living, will continue to depend on the use of fossil
fuels. The good news is that production processes are becoming more
environmentally friendly throughout much of the world.

Energy Efficiency Is Good for Business

Consider the five largest economies in the world. The World Bank
estimates that the United States produces roughly 24 percent of the
world’s wealth. The European Union (EU) produces 22 percent, China
15 percent, Japan 6 percent, and Germany, if considered
independently of the EU, 5 percent.

Now consider CO2 emissions per dollar of gross domestic product
(GDP). In 1960, the United States emitted 0.94 kilograms of CO2 per
dollar of output. By 2014 that number fell to 0.34, a reduction of
64 percent. The EU reduced its CO2 emissions per dollar of GDP by
54 percent between 1991 and 2014. After China abandoned its
inefficient communist system of production, its CO2 emissions per
dollar of GDP fell from 5 kilograms in 1978 to 1.24 kilograms in
2014, a reduction of 75 percent. The figure for Japan fell from 0.3
kilograms in 1960 to 0.2 kilograms in 2014 or 33 percent. Finally,
German’s emissions per dollar of GDP fell from 0.34 kilograms in
1991 to 0.2 kilograms in 2017 or 41 percent.

Most people assume that businesses, left to their own devices,
cannot be trusted to be environmentally conscious. And, strictly
speaking, it is true that businesses are primarily concerned with
their bottom line. Energy consumption, however, usually accounts
for a large share of corporate expenses. And so there is a strong
incentive for businesses to cut their energy consumption.

Take, for example, the car manufacturing industry. According to
one study, “The amount of energy used in different stages of
car production (press, body, paint, and assembly) is almost 700 kWh
per vehicle and the energy cost is almost 9-12 percent of the total
cost [of production].” What’s true for large
manufacturers is also true for small businesses. One survey found
that one in ten small business owners claim that “energy is
their single greatest cost, greater than wages and salaries,
materials and supplies, etc. Another 25 percent claim energy is one
of the two or three largest business costs they have.”

It is in the interest of producers, in other words, to keep
their energy costs down. That’s one of the reasons why global
CO2 emissions per dollar of output declined from 2.14 kilograms in
1960 to 0.74 kilograms in 2014 or 65 percent.

The profit motive, in other words, can be added to technological
improvements in production processes as a proven way of reducing
fuel consumption per dollar of output and, consequently, lowering
of CO2 emissions. And that process will become even more dramatic
when the cost of renewable energy falls in relation to less
environmentally friendly alternatives.

Marian L. Tupy
is the editor of HumanProgress.org and a senior policy analyst at
the Center for Global Liberty and Prosperity.

Click here to view the full article which appeared in CATO Journal

IPH Logo