Commentary

Warming to Efficiency

Readers of recent news reports may think it’s news that U.S. emissions of carbon dioxide, the main global-warming gas, are at an all-time high. The real news would be if they dropped steeply, which could only occur with a very warm winter (less space heating), a very cold summer (less air conditioning) or a huge recession, because it takes energy to make things.

Carbon dioxide has been called breath of our civilization, and as we are technologically constituted, it most certainly is. We burn fossil fuels (which combust mainly to carbon dioxide and water) for manufacturing, to go places, and to produce electrical power. While we could certainly substitute in more nuclear fuels for power production, the same forces that are so exercised about global warming being caused by carbon dioxide, in general, won’t permit the nuclear option. (That being the definition of environmental insincerity.)

So it is not news at all that our emissions are at a record high along with GDP. What is more newsworthy is how the emissions per unit of GDP — the economic bang for the energy buck — continue their steady decline. We now produce a constant dollar’s worth of goods and services with only 78% of the energy we used in 1990. In 1990, we used about two-thirds of the energy we used in 1970 for the same dollar’s worth. These are remarkable increases in efficiency in the last 35 years.

The New York Times recently reported that the 2004 change in overall emissions was nearly double the annual average, neglecting to report that single-year statistics are virtually meaningless. If one had taken the average of the last five years and compared that to figures generated back to the mid-’90s, percent changes in emissions of carbon dioxide turn out to be remarkably constant.

For 1999-2004 the increase averaged 0.8% per year. From 1996 through 2001 the change averaged 1.0%. Given year-to-year fluctuations, these numbers are indistinguishable from each other.

The same applies on a global scale. Our computer models for global warming have assumed, for decades, that carbon dioxide would increase at 1% per year in the atmosphere. For those decades the real rate of increase has been quite constant, and less than half of 1%. In the ten years ending in 2004, the average rate of increase was 0.49%. Ten years before it was 0.41%, and ten years before that, 0.42%. This is why climate models have generally predicted too much warming, too fast — about twice as much, in fact.

Taken together, all of these facts mean that most of the assumptions about the growth of global warming gases in the atmosphere have to be thrown out. There’s little, if any, exponential increase, and the vibrant economies continue to produce more and more things with fewer increments of carbon dioxide.

But, if carbon dioxide is the cost of economic growth, it would seem obvious that it will continue its upwards ascent for the foreseeable future.

Will it? The answer lies in the well-established trends towards increasing efficiency in economies such as the United States’ (despite the large number of SUV’s panting in increasingly long traffic jams). This did not happen here because of concerns about global warming — because no one really gave much of a care about it until New Orleans got smacked by a Category 3 (yes, it’s been downgraded) hurricane.

Instead, the increases in efficiency resulted because businesses compete with each other to produce things that cost less to run and build. And, if they are built, people will come. And so do investors.

As an example of this process, get on your Yahoo financial tracker and plot the stock performance of Honda, Toyota, GM and Ford for the last two years. You’ll find the share price of the producers of the Accord and the Camry up an average of 40% while the American companies have dropped 50% in value.

This creates a snowball effect in a warming world. People in vibrant economies have capital to invest in increasingly efficient companies, which rewards them with more capital, which is re-invested etc.

The prospering companies are efficient in many ways. They use less energy to produce cars in their newer plants. Their cars use less energy on the road. Their labor forces tend to be relatively young and they haven’t been promised the moon in benefits and retirement with 40% of their time on earth left to run.

As these companies accumulate capital, they have been reinvesting it in development of even more efficient vehicles, some of which may emit no carbon dioxide at all, which means that some day the pressures for efficiency may indeed drive carbon dioxide emissions down. But, without investment in those technologies — made by private individuals in publicly traded corporations — be assured that development of the clean machines of the future will be delayed until the planet gets warmer than some might want it.

(Disclosure: The author owns shares in Honda and Toyota, sold all of his shares of Ford in 2002, and a GMAC bond in 2005.)