Fossil Fuel Energy and Economic Wellbeing

The George C. Marshall Institute is pleased to announce the publication of a new study by Dr. Michael Canes, Fossil Fuel Energy and Economic Wellbeing.

Executive Summary.

Today, fossil fuels supply better than 86 percent of the marketed energy used worldwide. The proportions of oil, gas and coal vary by region but basically these three fuels supply the great majority of energy used to produce economic output everywhere in the world.

Energy is an essential input into economic activity of every kind. More energy enables an economy to produce more output and also to grow. For example, energy is used to distribute goods throughout regions, countries and the world. If less energy were available for the purpose, trade and markets would shrink, with adverse effects on income and consumption. Further, energy is an input into the research and development
of new products or new ways of making older ones, and so is a key component of technological advance. Abundant, inexpensive energy therefore provides great advantages and is highly desirable. Because fossil fuels are such a large part of the world’s energy supply, they play a very prominent role in enabling people everywhere to enjoy what they have and to look forward to better times ahead.

There are several reasons why fossil fuels constitute such a large portion of the world’s energy supply. They are abundant and their quantities generally have been growing, not diminishing. They exhibit high energy density, meaning they contain considerable energy in limited space or volume. And they have high value, enabling people to enjoy such things as mobility, heating and cooling, and the cooking of foods. Also, oil and gas in particular are used to fashion a variety of useful products, including chemicals, plastic goods, synthetic cloths and road asphalt.

At the same time, the production and use of fossil fuels have a number of environmental impacts, including impacts on land, air and water. The environment is not free; there are real costs associated with such impacts, and governments in most countries regulate the production and consumption of fossil fuels to reduce these costs. Usually this regulation takes the form of standards if not specific technological requirements. In advanced countries such regulation generates controversy over whether a particular measure is insufficient or excessive, with organized environmental groups arguing for stricter versions and businesses and others who bear the direct costs arguing for less strict. Generally speaking, however, there is social consensus in advanced countries that with government oversight most of the environmental impacts of fossil fuels are manageable.

There appears to be an exception, however; climate change. Despite the obvious reliance of the entire world on fossil fuels and the prospect that such reliance is likely to continue for decades, particularly in the developing world, it has become fashionable to argue that such fuels must be phased down and perhaps discarded entirely. The targets tend to be longer range, but they involve drastic proportions. For example, the European Council calls for an 80-95% reduction in CO2 emissions in advanced countries by 2050 which, because fossil fuels account for the great majority of these emissions, almost certainly would require an enormous reduction in their use.  In 2009 the Obama Administration pledged the United States to reduce its greenhouse gas emissions 17 percent below 2005 levels by 2020, but made clear this is just a first step towards much more stringent goals in future years. The EPA’s “Clean Power Plan,” for example, is intended to reduce power plant emissions by 32 percent relative to 2005 levels by 2030.

Of course, if governments in advanced countries legally require such reductions, they will be made, with whatever sacrifice is entailed. Governments can require, for example, that renewables be substituted for fossil fuels in ever increasing amounts. But this makes little sense. If there are climate-related costs associated with fossil fuels, these can be directly reflected in their costs to consumers. If that is done, the proportion of these fuels in a nation’s energy mix may change, but they are unlikely to be dramatically phased down or out. It is simply a mistake, conceptually and practically, to propose a drastic phasing
out of fossil fuels. Even a relatively high cost assigned to anthropomorphic climate change does not imply such a phase-out, and given the tremendous value of these fuels to country economies everywhere, no such phase-out is likely.

What does make sense is the ongoing development of energy alternatives which add to world supplies in cost effective manner. This includes cost effective renewable energy and energy efficiency technologies, the latter of which would reduce the energy needed in some applications and free it to serve in others. Technology development that increases the abundance of energy and keeps its cost low will yield increased economic output and growth everywhere.

Exactly what the optimum quantities of various forms of energy will be as time passes cannot be forecast at this point. Technical advance may help renewables play a larger role, or it may sustain or even increase the use of fossil fuels through reduced environmental impact, including fewer CO2 emissions. Pricing to reflect the cost of emissions properly is the key, not setting goals for phase-outs. Once that is done, people will make changes in energy consumption, investment and production and we can see what results follow. The sooner we rethink our objectives with respect to fossil fuels,  the better off we will be.

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