GUEST THINKER

Hard Choices on Energy

WHY THERE’S NO SUCH THING AS A FREE LUNCH

BY UJJAYANT CHAKRAVORTY

In May, our planet passed a major milestone: the average concentration of CO2; is now four hundred parts per million and rising. Most climate scientists believe that beyond four hundred fifty ppm, we may see catastrophic effects from rising sea levels and melting Arctic glaciers. In response to such predictions, calls are being heard for an immediate and complete shift to clean energy. But as I tell my Tufts students who routinely picket the White House and campaign for fossil fuel divestment, there is no free lunch. Every energy source comes with economic and environmental tradeoffs. That means society has to make smart choices about which energy sources to tap.

Energy demand is rising rapidly, driven by population growth and the aspirations of billions of developing-world residents for a modern standard of living. Where will all this new energy come from? Nuclear power? While nuclear emits no carbon, it is hardly a panacea—as Japan has learned. After the Fukushima disaster, Japan shut down all but two of its fifty nuclear power plants. Now Japan has to import more oil and gas to make up for the lost energy, worsening its recession.

The health liabilities of fossil fuels are at least as high as those of nuclear. The American Lung Association estimates that air pollution from power plants in the United States kills about thirteen thousand people a year. Nuclear accidents have not killed anywhere near this number. Natural gas is cleaner than coal, and new discoveries of shale gas are revolutionizing the U.S. energy industry. That’s a good thing. Unfortunately, the large-scale fracking that releases such gas threatens to pollute groundwater sources. Solar and wind—beautiful clean energy sources—are expensive and not quite suitable for producing base load power, the amount of power that must be produced to meet demand at all hours (as distinct from peak load). Large-scale hydropower is no longer a viable option, in view of the deforestation, inundation of large areas, and population displacement that have accompanied projects like China’s Three Gorges Dam.

Clearly, the answer must be a mix of energy sources. As portfolio managers admonish: diversify, diversify. Existing hydropower and nuclear may provide base load generation, while smaller-scale gas, wind, and solar can be harnessed for peak loads where available. Coal, which, thanks to its carbon and particulate emissions, is the most lethal energy source, may be slowly phased out as emission standards become more stringent worldwide, a process already under way in the United States.

For the developed world, these shifts to clean energy sources may be relatively painless. In such countries, the demand for a cleaner environment is strong, and the economic impacts of clean energy—which is inevitably costlier—have less serious consequences.

Not so in the developing world, where hundreds of millions of people live below the poverty line, making less than two dollars a day. For these countries, energy transitions have a bigger impact. In India, home to four hundred million poor people, farmers pay a low flat rate for electricity and enjoy highly subsidized rates for diesel. Both are used to run irrigation pumps. As a consequence, there has been an explosion in pump irrigation driven by cheap energy, with adverse effects on the groundwater table. Of course, this has resulted in higher food production and food security, and millions of small farmers have resisted the urge to abandon farming and move to slums in cities like Delhi and Mumbai. The downside of these power subsidies, though, is that private and public energy firms lose money, and new firms do not enter the energy sector. Not surprisingly, the demand for power outstrips capacity, leading to outages and lost productivity.

China, meanwhile, faces its own energy tradeoffs. One reason the country’s products are so competitive in the world economy is that they are produced with cheap energy. Tighter regulation of pollution will increase the cost of power generation, which in turn will boost the prices of Chinese products and reduce exports. This is a major concern to the Chinese leadership.

Countering these entrenched interests are the developing world’s rising urban and rural middle classes, which have lately become vocal about the high cost of pollution. Environmental movements in these countries have begun attracting the notice of political leaders in the developing world. China, for example, is starting a carbon cap-and-trade program in several cities. India’s courts are forcing public buses and taxis to switch from diesel to cleaner compressed natural gas, with measurable improvements in air quality.

These are promising trends that need to be nurtured and supported. But their effects will not be felt overnight. At best, we can expect a gradual transition toward a cleaner energy mix.

Ujjayant Chakravorty, professor of economics at Tufts, is a fellow at the Toulouse School of Economics and at the European economic research group CESifo.