TABLE OF CONTENTS

• Despite recent decline in CO2 emissions, Europe announces it is unlikely to meet Kyoto targets
• U.S. energy-related CO2 emissions are declining
• National Academy of Science report shows technology is key to reducing CO2
• The role of technology in reducing CO2

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The Role of Economic Growth in Reducing CO₂ Greenhouse Emissions
What Three New Reports Say About Global Warming

by Todd Myers, Director, Center for Environmental Policy
2007-08

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Read any assessment of the economics of global warming and potential strategies to reduce CO2 emissions and the discussion will quickly turn to the impact on the economy. While the level of impact is in question, all sides agree that a reduction in economic growth will occur in any of the currently discussed approaches to addressing climate change.

Implicit, and sometimes explicit, in these discussions is that limits on economic growth are a necessary (some say desirable) part of reducing greenhouse gas emissions. Three new reports on the trends of CO2 emissions, however, indicate that economic growth can play an important role in reducing those emissions. Recent data from Europe and the United States shows that the improved technology that comes with economic growth is as powerful a tool in reducing CO2 as costly government restrictions.

Despite recent decline in CO₂ emissions, Europe announces it is unlikely to meet Kyoto targets

The headline of the announcement reads “EU greenhouse gas emissions drop in 2005.” What is notable is that despite a commitment to meet the Kyoto targets in 2012, Europe’s greenhouse gas emissions have been increasing for the past several years.  The executive director of the European Environment Agency emphasized that trend in the announcement, stating “The drop in emissions, while positive, must be viewed in context. It represents a decrease over only one year and may not be representative of the trend over a longer period.”[1]

The announcement (the data won’t be released until later this month) also notes that the emissions of the EU-15 (the core of the EU, which does not include the newest members) are 1.5 percent lower than 1990. That statistic, however, can be misleading. In 1997, emissions were 3 percent lower than 1990, indicating that despite the recent decline, Europe has still seen an increase in CO2 emissions since it signed the Kyoto Treaty.

To meet its obligations under the Kyoto Treaty, Europe will need to be eight percent below 1990 emissions levels by 2012. To achieve that, Europe will have to continue the trend of reducing CO2 by 0.8 percent each year.  The European leaders admit it is unlikely they will meet the target.

This is at the heart of the international disagreement over Kyoto. When European countries negotiated the treaty in 1997, they were already 3 percent below the 1990 levels primarily due to economic decline, Britain’s switch from coal to natural gas and the inclusion of economically devastated East Germany with Germany. At that time, European governments expected to achieve the goal with only modest reductions.

In contrast, the United States was emitting nearly 11 percent more CO2 in 1997 than in 1990. This is due in large part to strong economic growth during the 1990s. The newest data for the United States, however, show a revealing trend in CO2 emissions for 2006.

U.S. energy-related CO₂ emissions are declining

The U.S. has frequently been criticized for its failure to take regulatory steps to reduce greenhouse emissions, in particular for not ratifying the Kyoto Treaty. However, the U.S. Bureau of Energy Information reports that energy-related CO₂ emissions in the United States actually declined in 2006. The “2006 Flash Estimate” of U.S. CO2 emissions shows that energy-related CO2 emissions fell 1.3 percent last year.[2] Most dramatic is the fact that the decline occurred at a time when the economy grew by more than 3 percent. Since 1990, the only other two times U.S. CO2 emissions declined were during economic recessions.

Mild weather last year is in part responsible for the decline. According to the report, heating degree-days were down 7.4 percent last year and cooling degree-days were down one percent.

Most dramatic, however, is the fact that CO2 emissions per unit of Gross Domestic Product (GDP) fell 4.5 percent last year. Since 1990, U.S. CO2 emissions per unit of GDP have fallen 26.5 percent. 

This indicates a significant improvement in energy efficiency and a switch away from carbon-emitting energy sources like coal and toward more efficient energy sources like natural gas. “Renewable” energy, which ironically does not include hydroelectric power in Washington state, accounts for less than one percent of the energy sources measured. Consequently, these sources are contributing little to the CO2 reduction.

Other actions, such as the purchase of increasingly efficient cars, may be having an impact as well, although this is unclear. If so, that further argues for the expansion of voluntary, consumer-based actions, as opposed to top-down, restrictive government policies.

Like the European numbers, this may be a temporary change of direction. Given the absence of European-style strict caps on CO2, the emissions decline is dramatic and is emblematic of the power of technological innovation operating in a free market to improve efficiency. The decline comes in large part from increasing improvements in technology and efficiency.

The centrality of technology, and the economic growth that creates technological improvements, is also driven home by a new study of CO2 emissions published by the National Academy of Sciences.

National Academy of Science report shows technology is key to reducing CO₂

In the recent issue of the Proceedings of the National Academy of Sciences, a new report expressed alarm that the rate of CO2 emissions during the past several years has increased worldwide from just over one  percent increase per year to three percent per year.[3]

The most notable elements of the report are contained in the specific data about historic emissions across the world.

The report shows that about three quarters of the increase in CO2 emissions came from developing countries. The report notes that “the developing and least-developed economies (forming 80% of the world’s population) accounted for 73% of global emissions growth in 2004...”[4] China is especially notable for the dramatic increase in CO2 emissions since 2000, largely due to a significant increase in economic production.

It is useful, however, to compare the historical numbers of China to the countries of the former Soviet Unionhe states of the former Soviet Union, the collapse of their economies in the early 1990s led to a dramatic decline in per capita Gross Domestic Product (GDP), represented by the graph’s orange line. As a result, CO2 emissions of the former Soviet states, represented by the graph’s black line, declined as well.

Most interesting are the graph’s dark blue line and green line. The dark blue line represents CO2 emissions per unit of GDP. The green line represents energy per unit of GDP. Both of these are measurements of energy efficiency and paint an interesting picture when compared to the orange line representing per capita GDP. As per capita GDP rises from the late 1990s through 2004, the amount of energy needed to increase GDP goes down. This means that the improving economy brings with it new technology that significantly improves efficiency.

Despite a significant expansion of the economies of the countries of the former Soviet Union, CO2 emissions rose only slightly during that period because the efficiency of these economies increased along with growth.

Just as interesting is the period from 1991 through 1996 when the economies collapsed. As the economy declined, so did the efficiency of the economy. The clear implication is that economic decline or stagnation is not an effective solution to the problem of CO2 emissions.

            As per capita GDP declines, efficiency declines along with it. As the economy grows, so too does efficiency. This efficiency increase is so significant, the per capita GDP of the former Soviet Union by 2004 was nearly what it was in 1990, but CO₂ emissions were dramatically lower.

We see a similar effect in China, where economic growth is dramatic and CO2 emissions are increasing significantly.

Since 1990, the per capita GDP of China (represented by the graph’s orange line) has skyrocketed, doubling in less than a decade. Efficiency, however, represented by the dark blue line, also doubled, with China using only half the amount of energy per unit of GDP by 2000. This is why China’s CO2 emissions increased modestly at a time when its economy was steadily growing.

Ultimately, efficiency improvements were not able to keep up with the dramatic increase in economic growth, and China’s CO2 emissions took a sharp upward turn during the period 2002 though 2004.

Neither the countries of the Former Soviet Union nor China are required to make changes to meet the CO2 targets in the Kyoto Treaty (Russia is actually a signatory, but will easily meet the targets given that it is a major exporter of carbon credits to Europe). The countries have not taken steps to reduce CO2 as part of an obligation to the treaty. Reductions of CO2, or limits in the growth of CO2, have come as a result of increases in efficiency and technology.

The role of technology in reducing CO₂

Taken together, these three reports provide strong evidence of the important role economic growth, and the technology that accompanies it, plays in reducing CO2emissions. It is clear, especially in the case of China, that accelerated economic growth can lead to increases in emissions of greenhouse gasses. As economies grow, especially industrialized economies, they may use more carbon-emitting energy sources.

In the cases of the former Soviet Union and China before 2002, however, economic growth was accompanied by dramatic increases in efficiency that kept CO2 emissions in check. The 2006 energy-related carbon emissions data for the U.S. show the same trend – reductions in CO2 emissions despite robust economic growth.

In the case of the United States, the improvement in efficiency caused a greater decline in CO2 emissions in 2006 than Europe saw in 2005 (the latest data available), in spite of Europe’s strict mandatory carbon caps.

For policymakers, this leads to an important conclusion: strategies in the U.S. and other countries that focus on reductions in CO2 emissions at the expense of economic growth will produce only limited improvement in CO2 reductions. As economic growth declines, so too does energy efficiency.

On the other hand, strategies that leverage the advances in technology that come with economic growth will see efficiency increase, CO2 emissions per unit of GDP fall and, as the recent U.S. numbers reveal, actual reductions in CO2 emissions.  Such strategies also have the added benefit of raising livings standards, improving health outcomes and reducing poverty.  

This is not to say that we should rely on technology alone to reduce greenhouse gas emissions. The United States is the largest per capita emitter of CO2, in large part due to the size and strength of our economy.

It is too often assumed, however, that limits on economic growth will automatically translate into reductions in CO2. As these new reports indicate, that is not only incorrect, but has the negative effect of reducing wealth production and keeping the people of developing countries in poverty.

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