Energy drives the world we live in, and also its prosperity. We use its different forms to power our vehicles, homes, computers and other such stuff. Without it, modern life would be incomprehensible. Its deficiency could be disastrous, and a real hindrance to economic growth. Just take our country’s case and what the lack of electricity has done to the prospects of economic growth.
Economic growth and energy use are closely linked. Not surprisingly, countries with the highest per capita income have also the highest per capita use of energy.
The close nexus between the use of energy and economic prospects of a nation were first recognized by economist William Stanley Jevons, who wrote a book titled The Coal Question in 1865. He viewed coal (a source of energy) as central to transforming the English economy from human to mechanical power, and helped usher in and drive the industrial revolution. Jevons asserted that “day by day, it becomes more evident that the coal we happily possess in excellent quality and abundance is the mainspring of modern material civilization... Accordingly, it is the chief agent in almost every improvement.... Coal alone commands this age - the age of coal.”
What Jevons asserted in his book is backed amply by statistics related to the use and consumption of energy over time. According to estimates by Vaclav Smil, the total world energy consumption was hardly 20 exajoules in 1820. By the year 2000, it had reached a mammoth 550 exajoules (to understand the significance and scale of this number, consider that one exajoule equals one quintillion or 1,018 joules, where joule is the basic unit of energy and work). Energy Information Administration (EIA) estimated that by 2040, the world energy consumption will rise by another 46 percent. By per capita consumption, the USA (a high income country) consumes more than 7,000 units. Contrast this to Pakistan (a low income country) where the consumption is 500 units per capita. These statistics only serve to confirm the close relationship between growth in income and energy use.
In the last few decades, though, it has gradually become apparent that the eulogization of energy as the driver of prosperity has led mankind to be oblivious of its pitfalls. As the evidence mounted that the use of fossil fuels is contributing significantly to environmental and health disasters, it became apparent that this danger has been ignored for too long. At present, this aspect has assumed serious proportions as record warm temperatures and a warmer earth are instilling new uncertainties in our daily lives. Moreover, the disastrous health consequences of polluted air have reached alarming proportions. But despite recognition of the problem, it is astonishing to realise that energy policies around the world contain little direction for containing this danger. I am not talking about mere lip service contained in the documents, but the fact that humanity is not paying the right price for polluting their environment. This is where most energy policies fail. Putting it in econ lingo, we are failing to rightly price the negative externalities of energy use.
These negative externalities have both social and economic costs. Oil spills, radioactive disasters like Chernobyl and dangerous emissions from transportation are few examples. Perhaps the most damaging effect over time has occurred in the form of greenhouse gas emissions that have not only damaged the ozone layer but also caused the temperatures to rise to record highs. Realizing that there exists a significant gap in estimating the true cost of polluting the environment, there have been attempts at ameliorating this shortcoming. One such effort by national research council in the US resulted in a comprehensive study titled Hidden Costs of Energy. In short, what it found was that the major social and economic costs come from air pollution, of which sulphur dioxide was the main culprit. Another very interesting calculation in the same report is the estimated ratio of pollution to market price of a specific source of energy. Coal comes out at the top in this category, with an estimated ratio of 70. What this means is that if coal worth Rs100 is used for producing energy, it will produce at least Rs70 worth of harmful pollution. The dilemma, as pointed above, is that this polluting effect is never priced accordingly. At most, the charge would be around Rs10 or Rs15, but not more than that.
This calculation related to coal is an apt reminder to our policymakers whose future plans of energy production are heavily centred on coal. It is the most polluting and most costly source of energy. Per unit of production, coal emits 78 percent more CO2 than natural gas and 27 percent more than oil. Studies in the US also indicate that sulphur dioxide emitted by coal is responsible for 21 thousand premature deaths. Yet, our policy makers remain oblivious to this fact.
A confession of this failure to appropriately price energy’s damaging effects came from Michael Graetz, former assistant secretary at US treasury. In his book, The End of Energy, he analysed the energy policies from Nixon to Obama. His conclusion was that despite millions of pages of legislation, no policy properly accounted for the true cost of using energy. Another important point that he makes is that the costs are not uniform and vary across regions and by the source of energy. Thus, a uniform pollution tax may not be feasible.
There are many advantages to be realised from imposition of taxes on energy pollution. For governments, the biggest advantage will accrue in the form of additional revenues to the tune of billions. For the public, the advantages would accrue in the form of a clean air and less pollution related illnesses. Another, less discussed advantage will come in the form of search for cleaner alternatives. The price system, if applied prudently, can be a great incentive towards directing resources to their efficient use. It was the sky rocketing price of oil in 1973 that led western governments to seriously introspect their addiction to fossil fuels, and began search for alternative, cleaner sources. Today, that effort has bore fruit in the form of energy being produced through waste and algae.
Where does all this leave Pakistan? In terms of energy use and policy making, we come nowhere close to having alternatives. Compounding this shortcoming is the lack of any concise policy that aims to price out pollution. The response to the environmental problems has been a typical Pakistani one: establish a ministry, add to the already burdensome expenditures and realize little or no results. This is quite disheartening and astonishing because the import of fossil fuels has been the biggest drain on our forex reserves. The disheartening aspect is that we’ve known this since at least the early 1970s, but there has been little effort to address this problem. Our efforts at finding and applying alternatives are some of the most inefficient in the world. Take the example of the much touted 100MW solar power project, which has ended up producing only 18MW.
What this shows is that environmental and health concerns do not garner much interest for our policymakers. We have a growing population which will consume more energy in the future. If our policymakers are eschewing Thar’s coal to be our saviour, then let us prepare for an even more polluted Pakistan in the future.
Economic growth and energy use are closely linked. Not surprisingly, countries with the highest per capita income have also the highest per capita use of energy.
The close nexus between the use of energy and economic prospects of a nation were first recognized by economist William Stanley Jevons, who wrote a book titled The Coal Question in 1865. He viewed coal (a source of energy) as central to transforming the English economy from human to mechanical power, and helped usher in and drive the industrial revolution. Jevons asserted that “day by day, it becomes more evident that the coal we happily possess in excellent quality and abundance is the mainspring of modern material civilization... Accordingly, it is the chief agent in almost every improvement.... Coal alone commands this age - the age of coal.”
What Jevons asserted in his book is backed amply by statistics related to the use and consumption of energy over time. According to estimates by Vaclav Smil, the total world energy consumption was hardly 20 exajoules in 1820. By the year 2000, it had reached a mammoth 550 exajoules (to understand the significance and scale of this number, consider that one exajoule equals one quintillion or 1,018 joules, where joule is the basic unit of energy and work). Energy Information Administration (EIA) estimated that by 2040, the world energy consumption will rise by another 46 percent. By per capita consumption, the USA (a high income country) consumes more than 7,000 units. Contrast this to Pakistan (a low income country) where the consumption is 500 units per capita. These statistics only serve to confirm the close relationship between growth in income and energy use.
There are many advantages to be realised from imposition of taxes on energy pollution. For governments, the biggest advantage will accrue in the form of additional revenues to the tune of billions
In the last few decades, though, it has gradually become apparent that the eulogization of energy as the driver of prosperity has led mankind to be oblivious of its pitfalls. As the evidence mounted that the use of fossil fuels is contributing significantly to environmental and health disasters, it became apparent that this danger has been ignored for too long. At present, this aspect has assumed serious proportions as record warm temperatures and a warmer earth are instilling new uncertainties in our daily lives. Moreover, the disastrous health consequences of polluted air have reached alarming proportions. But despite recognition of the problem, it is astonishing to realise that energy policies around the world contain little direction for containing this danger. I am not talking about mere lip service contained in the documents, but the fact that humanity is not paying the right price for polluting their environment. This is where most energy policies fail. Putting it in econ lingo, we are failing to rightly price the negative externalities of energy use.
These negative externalities have both social and economic costs. Oil spills, radioactive disasters like Chernobyl and dangerous emissions from transportation are few examples. Perhaps the most damaging effect over time has occurred in the form of greenhouse gas emissions that have not only damaged the ozone layer but also caused the temperatures to rise to record highs. Realizing that there exists a significant gap in estimating the true cost of polluting the environment, there have been attempts at ameliorating this shortcoming. One such effort by national research council in the US resulted in a comprehensive study titled Hidden Costs of Energy. In short, what it found was that the major social and economic costs come from air pollution, of which sulphur dioxide was the main culprit. Another very interesting calculation in the same report is the estimated ratio of pollution to market price of a specific source of energy. Coal comes out at the top in this category, with an estimated ratio of 70. What this means is that if coal worth Rs100 is used for producing energy, it will produce at least Rs70 worth of harmful pollution. The dilemma, as pointed above, is that this polluting effect is never priced accordingly. At most, the charge would be around Rs10 or Rs15, but not more than that.
This calculation related to coal is an apt reminder to our policymakers whose future plans of energy production are heavily centred on coal. It is the most polluting and most costly source of energy. Per unit of production, coal emits 78 percent more CO2 than natural gas and 27 percent more than oil. Studies in the US also indicate that sulphur dioxide emitted by coal is responsible for 21 thousand premature deaths. Yet, our policy makers remain oblivious to this fact.
A confession of this failure to appropriately price energy’s damaging effects came from Michael Graetz, former assistant secretary at US treasury. In his book, The End of Energy, he analysed the energy policies from Nixon to Obama. His conclusion was that despite millions of pages of legislation, no policy properly accounted for the true cost of using energy. Another important point that he makes is that the costs are not uniform and vary across regions and by the source of energy. Thus, a uniform pollution tax may not be feasible.
There are many advantages to be realised from imposition of taxes on energy pollution. For governments, the biggest advantage will accrue in the form of additional revenues to the tune of billions. For the public, the advantages would accrue in the form of a clean air and less pollution related illnesses. Another, less discussed advantage will come in the form of search for cleaner alternatives. The price system, if applied prudently, can be a great incentive towards directing resources to their efficient use. It was the sky rocketing price of oil in 1973 that led western governments to seriously introspect their addiction to fossil fuels, and began search for alternative, cleaner sources. Today, that effort has bore fruit in the form of energy being produced through waste and algae.
Where does all this leave Pakistan? In terms of energy use and policy making, we come nowhere close to having alternatives. Compounding this shortcoming is the lack of any concise policy that aims to price out pollution. The response to the environmental problems has been a typical Pakistani one: establish a ministry, add to the already burdensome expenditures and realize little or no results. This is quite disheartening and astonishing because the import of fossil fuels has been the biggest drain on our forex reserves. The disheartening aspect is that we’ve known this since at least the early 1970s, but there has been little effort to address this problem. Our efforts at finding and applying alternatives are some of the most inefficient in the world. Take the example of the much touted 100MW solar power project, which has ended up producing only 18MW.
What this shows is that environmental and health concerns do not garner much interest for our policymakers. We have a growing population which will consume more energy in the future. If our policymakers are eschewing Thar’s coal to be our saviour, then let us prepare for an even more polluted Pakistan in the future.