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Combating global warming makes economic sense

By Hal Harvey (San Francisco Chronicle) - February 21, 2006

When it comes to tackling global warming, the Bush administration is right about one thing: There are economic consequences. The problem is they’ve been too quick to assume that such consequences will be bad for the economy. It turns out that reducing greenhouse gases doesn’t have to be expensive. In fact, it can be a serious moneymaker.

Consider California, home to the world’s sixth largest economy. For 25 years, the Golden State has led the nation in programs to save energy; these, in turn, reduce the greenhouse-gas emissions that contribute to global warming. According to the California Energy Commission, the state’s energy-efficient appliance standards, among the toughest in the country, have led to a 75 percent reduction in the energy required to power refrigerators, much to the delight of consumers. Similarly, new homes built in California use only a quarter of the energy of older homes, thanks to smarter building codes. Renewable energy technologies such as solar and wind have prospered in California, where state tax credits helped drive the price of wind energy down almost 90 percent, which now makes it cheaper, in windy areas, than any alternative. As a consequence, in Colorado, for example, customers who agreed to pay a bit extra for wind-only electricity are instead are now getting rebates.

The Hewlett Foundation recently sponsored a study of the economic consequences of these policies over the past three decades. It tells an amazing story. California now uses half as much energy per capita as the nation as a whole, saving the average household $1,000 each year, with total savings now more than $56 billion. New York households have similarly benefited. Whereas per-capita electricity use across the nation has increased 50 percent in the last 30 years, in New York it has risen only 15 percent, due to the state’s focus on energy conservation, saving billions of dollars. The bottom line here is that saving energy is not only good for the environment, it also saves people money.

If energy conservation is so profitable, why then do we need policies to make it happen, as opposed to simply relying on voluntary measures? The answer is that the existing energy market is structured in ways that actually hamper the efficient use of energy sources, rather than encourage it.

Consider housing. Most houses in the United States are built by developers concerned primarily with making them affordable to buy, rather than affordable to cool or heat. When they add options, they select those that are visible and marketable, such as marble countertops, rather than those that are less visible and alluring, such as duct insulation or weather stripping. As a consequence, in states with no energy codes for their buildings, houses bleed out their warmth in the winter and their cool air in the summer.

The same is true for refrigerators, electric motors, lighting and even cars. Purchasing costs dominate buyers’ decisions, often to their detriment when they end up paying higher energy bills down the road. But good policies can change that, and where they have been intelligently applied, have saved consumers money in every sector of the economy.

The United States as a whole uses roughly twice as much energy to produce a dollar of goods as our European and Japanese trading partners. That puts us at a serious competitive disadvantage. It also leaves us vulnerable to oil markets controlled by unstable or unsavory governments, and produces serious, perhaps irreversible, environmental damage in the form of global warming.

Nowhere are wasteful energy policies and practices more painfully apparent today than in the U.S. auto industry. Ford has just announced plans to lay off 30,000 workers, and Daimler Chrysler an additional 6,000. With high gas prices, customers are simply not interested in Detroit’s inefficient offerings. A recent University of Michigan analysis found that the carmakers’ decades-long fight against higher fuel economy standards is killing their market share, with workers and shareholders now paying the price. Conversely, the analysis showed that higher mileage standards could create 15,000 new jobs by 2020, while cutting what we pay at the pump by 10 percent, which would save consumers an estimated $35 billion annually.

For years, the federal government has argued that taking serious action on climate change will hurt the economy. It is increasingly clear that the opposite is true. Not taking action to reduce energy expenditures, develop new energy efficient technologies and provide incentives for industry and consumers to cut energy costs (and thereby the corresponding greenhouse gas emissions), is proving extremely costly and making our future less secure. Gov. Arnold Schwarzenegger, continuing a bipartisan tradition of state leadership on climate issues, offered proposals last week to develop alternative fuels for automobiles. His efforts — and complementary work by key legislators — can help the state shake off its dangerous oil addiction.

The states that have led with good policies are profiting. It is time for the country as a whole to do the same. We don’t always have such a clear and compelling opportunity to do something meaningful for the environment while strengthening our national economy. This is one instance where we do and we should get on with it. We simply can’t afford not to.

Hal Harvey is the director of the Environment Program at the Hewlett Foundation (www.hewlett.org).