Wednesday, March 20, 2013

Porter on US Carbon Emissions

In today's New York Times, economic columnist Eduardo Porter has a column about reducing carbon emissions in the US to stabilize the global climate. Like just about everyone else, he recommends pricing carbon to account for its negative externalities and to create incentives to innovate new, cost-effective substitute fuels. Unfortunately, the column paints an overly optimistic picture of the future of carbon emissions in the US (under a business-as-usual approach).

Porter makes several good points about the relation between relative prices of energy resources and energy-efficiency improvements. And he's quite right about the importance of market-driven technological change, although he doesn't actually offer any examples to show that technological changes contributed to the fairly dramatic decline in carbon emissions observed since 2007. Indeed, his selection of 2007 as a base year for comparing carbon emissions indicates a bias in the analysis, which Porter does not explain.

US carbon emissions did begin a dramatic decline after 2007, as Porter observes, but virtually all of that decline had nothing to do with market-driven technological changes and very little to do with conversion from coal to natural gas. The lion's share of emissions reductions occurred simply because of the global economic depression (not recession) that resulted from the 2008 financial crisis. The chart below from the US Energy Information Administration shows just how closely all reductions in carbon dioxide emissions from the US energy industry over the past 40 years have tracked downturns in the overall economy. And since the US economy came out of depression in 2010, carbon emissions have bumped back up (albeit not yet to previous levels).

Porter sort of acknowledges that "the great recession and the world's sluggish recovery have depressed energy use." And he expects that carbon emissions will "tick up ... as the economy recovers." But he gives far less credit than deserved to the overall effect of the depression, and is too quick to credit the US with "serendipitous success" in reducing emissions.

Porter also recognizes that "regulations have contributed to the process" of reducing GHG emissions," although I'm not sure how true that is. At least he admits some role for regulations in the process, and is not arguing that we can just leave carbon emissions reductions to energy-efficiency improvements resulting from purely market-driven technological improvements.

I wouldn't for a moment deny that market-driven technological improvements are an important component of a long-term strategy to reduce GHG emissions. And I certainly agree with Porter that pricing energy at social-cost levels is important, and that the large-scale switch to natural gas has positive implications for US carbon emissions (if not methane emissions), at least so long as natural gas remains substantially less expensive than coal. But he should have been more forthright about what really was driving the reduction in carbon emissions after 2007. It was the economy, and nothing but the economy.

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