PHOTO COURTESY OF SIEMENS SOLAR INDUSTRIES
Mark Bernstein, an energy and environmental analyst at RAND, was senior energy analyst in the White House Office of Science and Technology Policy from 1996-1998. Scott Hassell is an associate engineer focusing on energy and environmental issues at RAND. Robert Lempert is a RAND senior scientist, climate-change expert, and professor at the RAND Graduate School.
For years, the prospect of global warming has fired a debate dominated by two opposing camps: those who favor reducing worldwide emissions of greenhouse gases to 1990 levels, and those who favor minimal or zero restrictions in the near term. In the absence of incontrovertible scientific evidence to forecast the consequences of global warming--or the costs of preventing it--the debate over emissions targets has often been driven by personal and political interests.
Regardless of the merits of emissions targets, the heated debate surrounding them has threatened to derail progress on a much more effective and less contentious first step: developing cleaner technologies to harness the alternative energy sources that could serve us well whatever the future might bring. Efforts to develop new technologies will likely have little effect on the very-near-term emission of greenhouse gases allegedly responsible for global warming. But what really matters is how fast we can improve the alternatives to current fossil fuel systems and how readily those alternatives can be adopted throughout the world.
The argument for alternative energy technologies is not new, but today we know more than ever about the promise they hold. Our research has shown that developing countries no longer need to choose between reducing pollution and expanding their economies, because new technologies can allow developing nations to "grow clean." New technologies can relieve industrialized nations of many of the projected costs of reducing their own emissions. And new technologies would be vital if severe consequences from global warming--or from climate change, to be precise--force the world to vastly reduce its fossil fuel emissions over the course of the next century.
Everyone stands to gain from the promise of new technologies:
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PHOTO COURTESY OF SIEMENS SOLAR INDUSTRIES | When roads in Ethiopia were destroyed during the civil strife of the past decade, camels transported refrigerated vaccines across the desert by carrying coolers powered by photovoltaic panels, which produce electricity directly from the sun. |
The question remains, however, whether the United States will implement the accord. When delegates from 168 nations gathered in Bonn in November 1999 to conclude the Kyoto agreement, many saw Washington as the chief obstacle. The U.S. delegation would not approve a deal unless developing nations also committed themselves to specific emissions targets.
But developing nations face the greatest increase in energy demand in the century ahead, and the possibility of near-term caps on emissions threatens their chance to share in the riches of economic growth. For that reason, the Kyoto Protocol also proposes a "Clean Development Mechanism," a market-based approach to promote alternative technologies, sustainable development, and cost-effective emissions reductions in developing nations. Under this approach, a company from an industrialized country might help build a highly efficient power plant in a developing country rather than a less efficient plant previously planned. The company would receive credits at home for reducing emissions abroad while also reducing pollution and boosting economic growth in the developing country. However, the details of the Clean Development Mechanism are yet to be determined.
Without these kinds of alternatives, economic growth in developing countries could lead to further environmental damage. Any type of growth will bring new power generation facilities, rising industrial activity, and increased automobile usage. And if conventional technologies continue to be used, the increased air pollution will degrade air quality, increase mortality, diminish worker productivity, reduce visibility, decrease agricultural production, damage the built environment, and significantly increase greenhouse gas emissions.
Carbon-based energy sources lie at the heart of global climate change and at the root of the dilemma facing developing countries. Large amounts of carbon dioxide and other air pollutants are emitted from conventional electric power plants. Whereas less than a third of global carbon dioxide emissions from electric plants came from developing countries in 1995, fully half of all new electric power generation capacity between 1995 and 2020 will be in developing countries. In the next 20 years, economic growth is expected to more than double in these countries, but their carbon dioxide emissions may nearly triple (see Figure 1). These trends will also lead to sharp increases in local air emissions of sulfur oxides, nitrogen oxides, and particulate matter. But all trends depend on the technologies used. The technologies selected to generate electric power in developing countries today and in the near future will determine, in part, the fortunes of these nascent economies, the annual amount of global carbon emissions, and even the strength of the global economy well into the 21st century.
HAVING THEIR CAKE AND EATING IT, TOO . . .
 |  | Developing countries can reduce their new greenhouse gas emissions in the next 20 years without compromising economic growth. The countries can cut emissions by accounting for the infrastructure costs of new electric power plants and by shifting energy investments toward alternative technologies. Meanwhile, economic growth, measured in terms of gross domestic product (GDP), can remain exactly the same. |
First, infrastructure costs should be included in new energy investment decisions. Many traditional planning methods steer investments toward technologies that generate electricity for the least cost rather than technologies that deliver electricity to customers for the least cost. The traditional methods ignore the considerable infrastructure costs of electric power plants, such as:
A 1990 World Bank study found that infrastructure costs represent, on average, 40 percent of total capital expenditures on new electric power plants in developing countries. Traditional planning methods that overlook these expenditures seriously overestimate the benefits of new electric power plants--and underestimate the competitiveness of other technologies. Once the infrastructure costs are factored into the equation, either less power can be delivered for a given level of investment or more spending must be allocated to achieve the same level of capacity. Either way, the result is lower-than-expected economic benefits.
According to a model developed at RAND, including the infrastructure costs may drop the expected increase in annual economic benefits from new electric power plants by as much as 10 percent after 20 years (see Figure 1). There would be an even larger drop in carbon dioxide emissions, because investors who consider the infrastructure costs would have incentives to shift investments away from dirty coal-burning electric power plants and toward cleaner technologies. This shift would reduce annual increases in carbon dioxide emissions by roughly 30 percent after 20 years (see Figure 2). By including infrastructure costs, alternative technologies could compete more fairly.
Second, the RAND model also portrayed the effect of shifting half of the subsequent energy investments in developing countries toward cleaner technologies. Replacing half the investments slated for coal-fired electric plants in the next decade with investments in cleaner fossil fuel technologies, such as fluidized-bed coal plants rather than conventional pulverized coal plants, could reduce new carbon dioxide emissions an additional 15 percent or more and still allow as much economic growth. Better yet, shifting the same level of investment toward natural gas and renewable fuel technologies--such as solar photovoltaics, wind turbines, biomass gasification, and small hydroelectric plants--could reduce new emissions by more than 20 percent and again allow identical economic growth (see Figure 3). Intensive use of natural gas and renewable technologies might even provide developing countries more economic benefits than conventional fuel alternatives could.
Consider the combined effect of accounting for infrastructure costs and shifting to alternative technologies. Business as usual would compel developing countries to nearly triple their carbon dioxide emissions from electric power plants over the next 20 years; in contrast, these countries could less than double their emissions by making wiser investment choices. At the same time, developing countries could still match the real growth projections of business as usual. In our analysis, we did not include all the potential new technological options, and it is likely that countries could achieve even greater reductions in emissions.
Yet there are many barriers, particularly financial ones, that can obstruct the path toward cleaner technologies; and many developing countries will need up-front financial help to make these investments. The Clean Development Mechanism is one obvious vehicle for such financing. Developing countries could also participate in an international emissions trading program, should one be established. By selling the rights to future emissions, developing countries would be able to finance new investments in cleaner, more efficient technologies.
 AP/WIDE WORLD PHOTS/RICH PEDRONCELLI | Ferdinand Panik, senior vice president of DaimlerChrysler, left, shows California Gov. Gray Davis the engine compartment of a fuel-cell-powered vehicle in Sacramento on April 20, 1999. Davis used the occasion to announce a state-industry partnership to road test up to 50 cars and 20 buses powered by fuel cells, which create no pollution. |
Why did the initial estimates end up being so inaccurate? In the case of sulfur dioxide, competition for permits drove emitters to invest in technological improvements. Improvements in scrubber technology made the job of controlling emissions more reliable and efficient. Furthermore, deregulation of the U.S. railroads, which began in the early 1980s, eventually made the shift toward low-sulfur coal more economical by eliminating old cost structures that had effectively restricted shipments of low-sulfur western coal to eastern power plants. Combining the new scrubber technology with the new low-sulfur fuel allowed plants to reduce emissions at lower costs than expected and therefore reduced the market price for permits. In the case of CFCs, the cost analysts had assumed it would take many years of research to find substitutes for products that spewed CFCs into the atmosphere. But new and existing chemical substitutes were found quickly, some even cheaper than their predecessors, others leading to new production processes that even increased profits.
There is a deeper analytic explanation as well. Many cost estimates become artificially inflated because they rely on deterministic mathematical models that ignore three dynamic variables:
Government policies can accelerate the process. The very threat of regulation spurs some early adopters to take action. The government also dangles "carrots," such as tax credits or subsidies for research and development, and wields "sticks," such as carbon taxes or emissions permits. A combined strategy of "carrots" and "sticks" often works best to induce technological change.
Technological improvements increase labor productivity, which drives economic growth. More than half the growth in the U.S. economy since the 1980s has been attributed to technological innovation. Theoretically, at least, investments in new fuel technologies may also increase productivity and economic benefits.
All three factors--early adopters, government policies, and productivity gains--lower the costs of technological change. Technological advances do require investments in new equipment and procedures, and most benefits accrue only over the long term of 20 years or more. But if recent history is any guide, the short-term investments pale in comparison to the long-term returns.
The two sides of the climate change debate embrace opposite visions of the future. Those who wish to stabilize emissions predict severe environmental damage from climate change--and small costs for abating the damage. Those who argue for minimal or zero reductions in emissions predict minor environmental damage--and exorbitant abatement costs.
The problem is that both sides point to a perilous policy if their assumptions prove incorrect. Stabilizing emissions will provide some insurance against severe damage--but may prove too costly if the damage turns out to be small. Holding near-term reductions to a minimum will certainly limit near-term costs--but will risk huge damages if climate change becomes severe. Given the uncertainty we face, neither side of the debate offers the world an adequate solution.
Rather than choosing between these two worldviews, we propose that the United States and other nations pursue an adaptive strategy that would be robust, meaning that it would perform well against a wide range of plausible scenarios. Either we will have to make very large reductions in greenhouse gas emissions over the course of the new century, or we will not. Because we do not know which future will transpire, we need to prepare for both.
We can prepare for the widest possible range of climate-change futures by following a strategy that evolves over time in response to observations of the climate and economic systems. Such a strategy would emphasize three near-term steps: (1) supporting the research, development, demonstration, and deployment of new technologies that could make any drastic action, if necessary, more feasible and less costly, (2) building the institutions that might become necessary to tax or regulate the emission of greenhouse gases, and (3) reaching consensus on the key scientific and economic indicators that, if observed, should trigger drastic action to curtail greenhouse gas emissions. Such an adaptive strategy would promise reasonable outcomes no matter whose view of the future proves correct.
At RAND, we have developed a set of computational methods to help devise adaptive strategies for highly unpredictable situations such as global climate change. Collectively, these methods are called exploratory modeling. In the conventional approach to computer modeling, analysts look for an optimum strategy to solve a specific problem deemed likely to happen in the future. In exploratory modeling, we begin with a problem that can still unfold in many different ways. First we conduct a large number of computer simulations that represent the widest possible range of future scenarios. Then we look for strategies that are robust across the entire range--rather than a strategy that might work best for just one isolated part of the range.
According to our models, an adaptive strategy for climate change performs better on average than either of the standard approaches, because the adaptive strategy can make midcourse corrections and avoid substantial errors. An adaptive strategy consists of three parts: shaping actions, hedging actions, and signposts. For climate change, the pursuit of new technologies is a powerful shaping strategy, because it can greatly expand our ability to respond to whatever changes in global climate might ensue. Near-term efforts to stabilize emissions could qualify as hedging strategies as long as they do not constrict economic growth. And the signposts are the scientific observations that can tell us if we are on the right track or have veered off course.
Even without accurate or widely accepted predictions of the future, national and international policymakers can make reasonable and defensible choices about climate change policy today. Policymakers can craft an adaptive strategy in which developing and industrialized nations explicitly plan to make midcourse corrections based on forthcoming observations of the climate and economic systems. But for such a strategy to work, it presupposes the early investment in innovations that will make massive reductions in future emissions possible. In that regard, alternative fuel technologies offer real promise. Moreover, they represent a strategy that can be embraced by both sides of the current debate on climate change and by developing and industrialized countries alike. All could agree that to prevent climate change tomorrow, we must induce technological change today.
Developing Countries & Global Climate Change: Electric Power Options for Growth, Mark Bernstein, Pam Bromley, Jeff Hagen, Scott Hassell, Robert Lempert, Jorge Muñoz, David Robalino, Arlington, Va.: Pew Center on Global Climate Change, 1999. Also available at http://www.pewclimate.org/projects/pol_countries.html
"When We Don't Know the Costs or the Benefits: Adaptive Strategies for Abating Climate Change," Climatic Change, No. 33, 1996, pp. 235-274, Robert J. Lempert, Michael E. Schlesinger, Steve C. Bankes. Also available as RAND/RP-557, no charge.