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The Surprising Story Behind America’s Falling Carbon Emissions

The podcast of Regulation magazine. Hosts: Paul Matzko and Peter Van Doren.

Paul Matzko: Welcome to Unintended Consequences, a podcast about what can go wrong with government regulation. I’m your host, Paul Matzko, and with me as always is Peter Van Doren, the editor of Regulation magazine.

Twenty years ago, former Vice President Al Gore released a documentary titled An Inconvenient Truth. It warned that strict government regulations and global treaties were necessary to prevent unchecked carbon emissions from causing runaway catastrophic climate change. And yet, since then, per capita carbon emissions in the US and much of the rest of the world have fallen without those interventions. As Jody Lipford and Bruce Yandle write in their Regulation article, “Can Golden Straitjackets Deliver Good Environmental News?”, it turns out that an increase in production of liquid natural gas, as well as capital investment in solar and wind production, are what deserve the lion’s share of the credit. This is an inconvenient truth from the Al Gore perspective, because it’s a success story about the power of markets to mitigate climate change without any throttling of economic growth or strict government mandate required.

Okay, Peter, I am thrilled to be the bearer of good news, based on an article by Jody Lipford and Bruce Yandle titled “Carbon Emissions and Climate Change: Can Golden Straitjackets Deliver Good Environmental News?” And what they report is that we’re actually winning the war on carbon emissions in the US. Our emissions peaked in the late 2010s in absolute terms, and if you look at per capita carbon emissions, they’ve been falling quite significantly in the United States. And we did that without the Green New Deal. I think this fact is discombobulating to everyone, both left and right. It’s discombobulating to the left because, well, you were supposed to have to use government to get here rather than market forces. It’s discombobulating to the right because the right has become so culturally wedded to, like, fossil fuel obsession and being anti-renewable reflexively. So growth in amounts, if we don’t grow in the amount used, then we won’t grow economically. So we have for-profit market forces driving renewable energy transformation. So, yeah, there’s a lot to talk about. Inconvenient truths all around.

Now, this article is a bit of an “I told you so” kind of article, based on what they, I think, wrote in Regulation a few years ago. So what’s their argument? How are they updating what they said previously?

Peter Van Doren: Well, the first thing, I mean, a skeptic would say, oh, sure, it’s true for the US and for Europe, maybe because we’re exporting the energy-intensive stuff to the third world, and so if you look at those countries, that has to be horrible data. But the answers there are pretty good. The one outlier actually is Russia. Russia doesn’t have prices. I mean, that’s the key: it’s not that prices are high and that’s why everyone’s cut back on fossil fuel intensity, it’s just that there are prices. As long as the price isn’t zero, you want to reduce the amount used of labor, capital, you know, anything, right? And energy is included in that. And so engineers are always trying to optimize and saying, let’s tweak back on the BTUs here and see what happens, because we’ll make more money if we don’t have to use as many energy inputs into whatever widgets we make. And that’s pretty interesting news.

Paul Matzko: So is it the idea that—and this is what I got from reading this, but I want to double-check my take—that in a kind of pre-energy-globalization era, there was lots of regional variety in energy prices, that were like separate energy markets? So in the US, oil was very cheap because we produced a lot of oil out in the Permian Basin out in Texas and so on, and so our oil was kind of artificially cheap relative to places that don’t drill for lots of oil, where energy prices were higher. So you got these big differences, and those markets were not very well integrated. It was much more true for natural gas than it was oil, but even—

Peter Van Doren: Yeah, even oil prices varied in ways. Now, oddly, the US had price controls. One reason our prices way back when—I mean, the starting date for their energy intensity data is 1980, but if you go back to the sixties, the US had price controls. Texas did, right? You had the Texas Railroad Commission that in effect had price controls within the US. That’s one of the reasons, actually, we ran out in the seventies, because there were no incentives to drill in the US because we had Soviet-style price controls, which everyone, you know, forgets that that’s true.

Paul Matzko: So even though there’s a massive shortage, they’re capped on how much they can charge, so it’s not worth it to expand supply.

Peter Van Doren: Exactly. So we were energy intensive in our manufacturing because we had price controls that made energy too cheap, in a sense, relative to market forces. And that came back to bite us in the, you know, what, and then, but for less, you know, 30 years. So for 25, and for 50, we’re almost 70 years of no price controls. And the result is it’s a priced input, so engineers try to reduce the use of it.

Paul Matzko: But this is a problem with other inputs, too: industrial inputs, agricultural inputs. I’m thinking here of water and the way we don’t have functional pricing markets for water out West. If the aquifer is free, people will overuse it. They grow cash crops that are highly water intensive, and then they get charged a tenth or a hundredth of the per-cubic-foot rate that residents pay. This leads to a horrible misallocation, because the water is not transparently priced, and then it’s also misallocated as a result. And so the same thing is happening with, so is the issue with natural gas—and again, I’m no petrochemical engineer—is it that oil was easier to ship? You can ship crude pretty straightforwardly, whereas liquid natural gas has to be compressed.

Peter Van Doren: It was balkanized regionally. So in the Far East, the price in Japan for natural gas was $13, and in the US it was two. Yeah. And so that—but now LNG is integrating natural gas prices around the world in a way that US prices are going to rise, and prices in the Far East and Europe will go down. But this creates an incentive for efficiency in the US and for more exploration at the same time,

Paul Matzko: which is the fracking boom related to this? Right? Like, now it’s worthwhile, because back in the old days it wasn’t worth—

Peter Van Doren: Well, when we had price controls, right? Natural gas was not controlled within states, but it was between states. So you had, you know, bumper stickers in Texas saying, you know, “Freeze the Yankees,” right? Or, yeah, “Don’t ship natural gas out of state.” So there was a Texas manufacturing and electricity boom fueled by its own natural gas. All that’s because we had price controls to not ship it out of state, which reduced the incentive to drill wells, et cetera, et cetera, et cetera. And all that’s gone. No, it’s now a free market.

Paul Matzko: So this gets us to, I think, the concept in the title, the “golden straitjacket,” which is a great phrase. What are the authors referring to? What exactly is this golden straitjacket?

Peter Van Doren: I mean, my interpretation is that it’s prices, right? The prices, people hate them, but they constrain your behavior, and yet that’s a good thing, right? It’s golden and they restrain. We get prosperity because of prices, not in spite of them.

Paul Matzko: There’s something else that the authors mentioned, and I’m just not enough of an economist to quite follow along. They talk about Kuznets curves.

Peter Van Doren: This is the—if the X axis is GDP per capita and the Y axis is energy use, it’s that very poor countries in Africa don’t use energy, they don’t have any, so they’re very poor. And then middle-income countries use the most, and then the highest-income countries use the least energy. That’s the Kuznets curve.

Paul Matzko: And so does the curve get flattened? Like Mexico, you know, would be the—they’re developing, but in a dirty sort of energy-intensive kind of way. Sort of the image of China before it was the way it is now.

Peter Van Doren: So that’s where the notion on the left comes from, that the reason energy intensity gets better is because we export the bad stuff to low-income countries that, you know, pollute and do the stuff we don’t want to do anymore. But that was true, and it’s less true now, with the middle-income countries. China, for example—remember, what, four or five years ago, they no longer accept our recycling. You remember how that’s been a big deal for our cardboard and our plastic recycling, you know, in our municipal waste stream. It’s made it very hard for us to recycle, because we used to, in effect, ship it to China and hope that it was recycled, which it probably wasn’t.

Paul Matzko: Oh, the dirty little secret. Anytime you hear reporting on the Great Garbage Patch in the Pacific Ocean, what happened is recycling caused that problem, or at least highly worsened it, because we would ship all these plastics that were potentially recyclable to China, and the Chinese would sort out a few of the types, but most of it they would just dump straight into the ocean, because it wasn’t worth recycling even for them. And it came back. So, ironically, the problem with waste in the ocean, of plastic, is because we recycled. There’s an irony there. But China isn’t accepting that system. You know, we send it elsewhere, Vietnam and other countries now.

Peter Van Doren: So the Kuznets curve, in theory, it was true, but it’s become less true. In other words, the exporting of bad stuff to middle-income or low-income countries, yes, it still continues, but the energy intensity of those things is going down, even in those countries.

Paul Matzko: But we are now functionally having countries like the US having to compete with countries that were formerly insulated from the energy markets, and as a result their prices are going down, which is helping them accelerate through the kind of development curve, I suppose. And our prices are going up, which is encouraging us, through market forces, to be more efficient, to use less per capita energy and thus emit fewer carbon emissions. So by softening out that curve, we’re actually helping solve the environmental problem, the carbon emissions, which—that’s really fascinating. I don’t think that’s a take that you hear outside the pages of Regulation.

Peter Van Doren: So, yeah, it’s pretty nerdy.

Paul Matzko: I was struck, too, that they report a lot of progress in this article, and I completely buy it. My suspicion is we’re still just getting started. I mean, the energy intensity trend is going to keep sharpening, I suspect, as the still-falling market cost of solar replaces more and more fossil fuel. Even the US, which is really behind the curve on solar, it’s already past coal at this point. In fact, I was thinking of this: there was this episode of the Ezra Klein podcast where he’s interviewing a guy named Bill McKibben, who is the old-school environmentalist, not someone who would be a fan of Cato. No, but correct. Even though McKibben had the knowledge that, like, the good news when it comes to renewable energy was so good that he kept having to say, like, “Yes, it’s great, but we still need,” still need Bill McKibben and lots of subsidies sloshing around. The reality is, no, it’s so good that we actually don’t need those.

Peter Van Doren: Do you know what I heard the other day? So part of the rap against solar, and it’s a good rap, is it’s land intensive, right? You take acres and acres and square miles and square miles of desert to produce enough power for LA, et cetera. Then I read about solar cells that are made to fit within railroad tracks. Okay. We’ve got so many railroad tracks in the country. So think of the land—you always think of desert and whatnot. And this was a company that was building solar cells whose size allowed them to be placed within railroad tracks. And I said, no one cares about that. You can site it, and the tracks are already there. And you’ve got mile after mile after mile of the solar cells. And then the railroads may sell the rights, right, to use their track, and they make money and the solar makes money. And I said, that’s kind of interesting.

Paul Matzko: There’s an application I saw where they integrate it, rather than it just being exclusively a solar field. They put the panels in—I forget the exact crops, but in particular farmland—and it shields, it reduces the amount of sun. It also attracts more moisture. As a result, you can actually increase yields for the crops, and the presence of the crops actually helps the solar too, in some way by, I forget the mechanism, but there’s a gazillion.

Peter Van Doren: All of this is just a matter of—there’s a cost-benefit calculus. And as the cost of solar falls, more and more of these applications become worthwhile, profitable, and they get deployed.

Paul Matzko: So, yeah, I think we’re just scratching the surface here. In New Jersey, I think the big trend—we don’t have an article about this—but they just passed a law in New Jersey, like a lot of states, for plug-in solar. Because usually, with solar in the past, you had to go—things you could put on your apartment balcony, in dense settings, as opposed to a whole roof installation. You have to get a permit, and you have to hire some shady contractor who sells you a sketchy loan for the installation. You can bypass that and just pay a thousand dollars for something that takes $50 off your home bill a month, that you can DIY. So it would not have been financially feasible two years ago, but the cost of panels just goes down. It’s going to be, yeah, train lines, balconies. The sky is the limit on deployment possibilities as the price just keeps trending down.

Peter Van Doren: We have another article, by Brian Prest. This was a working paper. It’s a good paper. The Resources for the Future people are the main source of information about methane leaks and their environmental consequences, and the underlying elasticity of natural gas production, and whether that is or isn’t a good thing, right? Because of the methane. So I learned a lot by reading this paper.

Paul Matzko: And my understanding of Prest’s argument is that, you know, renewables are going to have their day in the sun, as we just described. Like, there are a lot of reasons to be excited by market deployment of solar and other renewables, but most of the efficiency gains up until now, on both cost and carbon emissions fronts, are a product of fracking natural gas. Um, and again, it can be, and reduction in coal use. I mean, because coal is so incredibly converting to natural gas.

Peter Van Doren: Yeah, that’s the big deal. And liberals don’t like—I mean, I’ve been saying that for my adult lifetime and I still believe it, but now it’s seen as a kind of, I don’t know, old software, something, something’s bad about this argument, that natural gas, we have to move quicker, it can’t be a transition fuel forever. While they go, man, you know, compared to coal, natural gas is like, you know, much better now.

Paul Matzko: It doesn’t have no accident. You’ve got nitrogen oxide and all the, and methane. That’s why the methane leak thing is interesting in this paper. So many environmentalists are opposed to natural gas because of the methane, which is significantly more greenhouse versus carbon. Of course, CO2 itself. And what I learned in this paper is that exporting LNG coming from Pennsylvania, like coming from the old natural gas fields there, is actually less leak-prone than producing oil from the Permian Basin. That’s the interesting thing: the methane emissions are not coming from natural gas per se. They’re coming from methane released through oil production in Texas. So if you frack—and this is something about the process of oil drilling versus—it’s just the geology of the location.

Peter Van Doren: Yes. Yeah. There’s lots of methane underground in Texas, not in the geological formations in Pennsylvania. Well, they don’t leak as much. That’s the, see, it’s the leakage in the geology. And the irony is that environmentalists have opposed a pipeline going from Pennsylvania to, in effect, the Atlantic Ocean to ship LNG and export. And they argue, you know, that’s bad, we can’t rely on fossil fuels. And ironically, what this paper convinced me of is that it’s the Permian Basin oil production that’s the source of the methane leaks, not Appalachia. And so stop opposing this LNG export. You don’t produce oil in Pennsylvania. I mean, that was a hundred years ago, but they are capable of doing natural gas, and we ought to allow that to occur. According to this paper.

Paul Matzko: And I said, hmm, that’s interesting. It seems like it’s making the same kind of mistake as the Green Party and the environmental movement in Germany, which was letting perfection be the enemy of the better, in the sense that, well, in this case, there’s a strong anti-nuclear sentiment in Europe, but they’re shutting down the nukes, and as a direct result, they’ve re-fired up coal plants. And not only coal, lignite, which is dirt. I mean, lignite is dirt that has some coal within it that you can burn, but you’re basically burning dirt and digging dirt. And so, yeah, and you’re dependent on Russia for natural gas through the pipelines, which we saw how that worked out.

Peter Van Doren: Yeah. I mean, this is another one of those things where I wonder, when we look back 20, 30 years from now, assuming we continue development of our liquid natural gas infrastructure for export, that it’ll be a key source of American geopolitical power. Because you have to remember, right, it was just starting to ramp up. We used to import more than we exported, not that long ago, LNG. Now we export far, far more. We’re the number one LNG exporter in the world.

Paul Matzko: And isn’t that amazing? That was just starting in—yeah, it was just, you know, hitting Europe when Russia tried to turn off the taps for their oil supply to Europe during the early stages of the Ukraine war, for the Gazprom, and Russia, you know, pulled its card and said, ah, we’ve got you. And Europe has continued to not have a manufacturing sector, because the LNG market has supplanted what came through pipeline from Russia.

Peter Van Doren: Yeah. Putin overplayed the natural gas pipeline hand. And I mean, I would have done what he did back then, but he didn’t have—the integration of the natural gas market around the world has undermined his energy position to make money selling gas that way. But to be fair, it might have worked out 10, definitely 20 years earlier. That has the infrastructure, because it’s really a 2000s story: during the Bush administration, the fracking boom was, you know, the kind of the EPA got out of the way, and—

Paul Matzko: Um, historians always love counterfactuals, but there is a counterfactual. It’s like, Al Gore wins that very close election in 2000. Do we get a fracking boom in the 2000s, or is it delayed eight more years? In which case, fast-forward this. And there are people who love to engage in counterfactual history: does Putin’s trump card in the early stages actually work, because the LNG infrastructure is behind by eight years because of Al Gore? I don’t, you know, who knows, but these decisions matter. That’s the point of the story.

Peter Van Doren: I don’t think anyone would have anticipated in 2000 that fracking would cause US dominance in the LNG global market. My entire lifetime, we’ve worried the US is going to run out. Right. And now we’re the world’s largest natural gas producer. That’s just, I mean, it’s stunning. And because of that contingency, we dramatically reduced per capita carbon emissions, with the switch from coal to natural gas. And we had the geopolitical implications with Putin and Russia.

Paul Matzko: Now coal miners need to be bailed out by a Republican president.

Peter Van Doren: Yeah. Yeah. That’s right. Even though they’ve always been Democratic prior.

Paul Matzko: I mean, that’s our show, but I have a special request for you. If you’re still listening, we would like to run a mailbag episode to tackle the questions about regulations that you might have. Have you ever wondered why your state or local or the federal government has some arcane rule, and what its effects on your community might be? Well, then send us an email at ucpodcast@​cato.​org. Again, that’s ucpodcast@​cato.​org. Thank you for listening. Please leave a review on your podcast platform of choice. It helps more people find us. Thank you to Sudhendra Lamar for producing, and until next time, be well.