In This Issue
Engineering, Energy, and the Future
June 1, 2003 Volume 33 Issue 2
The next industrial revolution will transform energy production and consumption

How Environmental Forces Shape Energy Futures

Sunday, June 1, 2003

Author: Robert W. Fri

Environmental policy has been a principal determinant of technological innovation.

Environmental policy is in large measure energy policy. In the past 30 years, chiefly in the developed world, the demand for environmental quality has had a strong influence on how energy is produced and used. In fact, environmental policy has been a principal determinant of technological innovation in energy. Environmental forces will continue to shape the direction of energy technology but in new ways that place unfamiliar demands on the process of innovation.

The profound influence of environmental requirements on energy technology is apparent everywhere. Automobiles are equipped with catalytic converters and computer-controlled combustion to reduce smog-producing emissions. Electric power plants have become complex factories with electrostatic precipitators, flue-gas desulfurizers, and selective catalytic-reduction units (to control nitrogen oxides). New technologies, like combustion-turbine combined-cycle plants to produce electricity and automobiles with hybrid power plants, are entering the energy system, at least partly because of their attractive environmental characteristics. Finding gas and oil has become less expensive than ever thanks to three-dimensional seismic technology. And a variety of technologies that make energy use more efficient have gradually reduced the amount of energy, and so the amount of pollution, required to produce a unit of GDP.

Up to now, however, most of these innovations have occurred in developed countries, where the demand for environmental quality has been matched by the ability to pay for it. In this setting, the environmental drivers behind innovation have had two common characteristics. First, they have targeted problems, such as visible smog, increased asthma in children, and turbid rivers, that can be understood easily and do not require much explanation to stimulate people to take action. And second, the costs and benefits of solving these problems have fallen mainly on the same groups of people. As a result, existing political institutions have been able to make the trade-offs necessary to impose the public good of environmental quality on private energy markets. I do not mean to suggest that the intersection of environmental and energy policy has been without controversy. But experience has shown that well developed political systems can solve well understood environmental problems within their jurisdictional boundaries, even when there is considerable controversy.

Looking ahead, however, it appears that the most challenging environmental problems will not exhibit these happy properties. The environmental drivers of the energy system will be unfamiliar and will impose new demands on the process of technological innovation. In this article, I will describe three drivers and assess their significance for innovation in energy technology.

Global Environmental Problems
Climate change and the loss of biodiversity are the most important problems in the new class of global environmental problems that will take center stage in the next several decades. Unlike the problems of the past, these challenges are neither easy to understand nor easy to manage within traditional institutions. The new problems have two main attributes that differentiate them from past problems.

First, the natural systems involved are large and complex--in fact, global in their reach. As a result, their behavior is very difficult to describe and almost impossible to predict in any detail. Nevertheless, even though the details of how global systems work are not fully understood, enough is known about them to raise serious concerns about anthropogenic threats to them. This creates a dilemma--the need to act, the need to do something, is often clear long before science can say specifically what needs to be done.

Climate change is both a good example of this tension and the problem most likely to bedevil the energy system. The basic physics of the greenhouse phenomenon dictates that increased concentrations of gases like carbon dioxide will result in more solar energy being retained in the atmosphere rather than radiated back into space. Reliable measurements show that concentrations of atmospheric carbon dioxide have been increasing steadily, mostly as a result of human activity. Despite some lingering debate, most scientists now agree that average surface temperatures of the planet have also risen over the past several decades. So, on the fundamentals, the conclusion that humanity is emitting greenhouse gases that are warming the planet seems fairly compelling.

But much is not known. The mitigating effects of clouds and terrestrial carbon sinks, for example, are two important phenomena that are not completely understood. As a result of these uncertainties, models of climate behavior are still approximations subject to change. Moreover, the spatial resolution of the models is sufficiently coarse to make difficult all but the most general conclusions about the location and severity of changes in temperature and precipitation that may accompany climate change. These and a variety of other concerns have created large residual uncertainties about the behavior of the climate system that are properly the subject of extensive research programs.

The policy dilemma is clear. On the one hand, a good scientific case can be made for doing something about climate change, and a rich menu of technologies that would moderate the changes and mitigate their effects is not hard to imagine. Indeed, a number of thoughtful reports have already laid out research programs for the development of technologies to contain greenhouse gas emissions and mitigate their effects. On the other hand, because of the unknowns about the behavior of the climate system, scientists cannot yet identify a level of concentration of atmospheric greenhouse gases that would not be dangerous in some sense (beyond the rather vague goal enunciated in the Framework Convention on Climate Change). Not enough is known to set a precise goal to inform policies for reducing these emissions. Given these circumstances, it is not surprising that public opinion about climate change ranges from strong support for immediate, forceful action to a reluctance to do anything until the science is more conclusive.

The other departure from the past is that the benefits and costs of managing global environmental systems will fall on populations widely separated in both time and space. This makes it very hard to make trade-offs among the parties that cause and the parties that are affected by the deterioration of these systems.

The separation in space is clear. The cost of reducing greenhouse gas emissions will fall mostly on the nations that burn fossil fuels. In the near term, they will be in the developed world; in the longer term, developing countries will dominate the demand for fossil fuels. But there is no reason to suppose that the distribution of positive and negative impacts of climate change will parallel the intensity of fossil-fuel use. In fact, not releasing carbon into the air is likely to be of most benefit to nations that don't burn much fossil fuel at all, such as low-lying and island countries, sparsely populated areas in higher latitudes, and African nations on the ragged edge of desertification.

The temporal separation of the incidence of benefits and costs is less apparent, but equally important. Because climate change is a function of the stock of long-lived gases in the atmosphere, simple logic dictates that to stabilize (much less reduce) concentrations of these gases, emissions must be reduced to near zero. In other words, putting enough stuff into the air to do damage takes decades, and getting it out will take just as long.

This means that our generation cannot eliminate the possible dangers to the climate system no matter what we do. We will necessarily pass along some of the problem to future generations--indeed, probably quite a lot of it. We are unaccustomed to such a situation. Heretofore, developed countries have approached virtually all environmental problems with the conviction that we should not leave anything undone for our successors. We do not have much experience in resolving only part of a problem in a way that shares the burden equitably with future generations.

The challenge of global environmental problems as drivers of the energy system is thus as much a challenge of governance as of technology. These problems have imprecise goals and spatial and temporal dimensions that extend beyond the reach of existing political institutions; in addition, their characteristics are far removed from the experience of most people. Nevertheless, the protection of global environmental systems will persist as one of the most important determinants of innovation in energy technologies for decades to come.

Energy Needs of Developing Countries
It is both necessary and desirable that for the next century the increase in the demand for energy will be overwhelmingly in the developing world. It is necessary because some forms of energy, especially electricity, are prerequisite to economic development; development simply does not occur without them. It is desirable because other energy demands result from development; increasing wealth leads to the consumption of services like personal mobility, which in turn requires energy. For the poor of the world to be more comfortable and secure, as they ought to be, they will need more of the services that energy provides.

But simply meeting the demand for a major increase in energy consumption is not the central challenge. After all, the developed world met the challenge, and emerging economies in Asia are meeting it today. Indeed, some have argued that increased energy use could be quite modest over the long haul if efficiency gains accompany the rising demand for energy services.

The needs of the developing world will drive the development of the energy system in two more indirect ways. For one thing, coal will be the fuel of choice for the large increase in electricity production that must accompany economic development, because coal is the cheapest and most secure resource for this purpose. Of course, the unconstrained burning of coal results in substantial emissions of both conventional air pollutants and carbon dioxide. Controlling conventional pollutants is not a major technical challenge, but the cost of meeting it could divert scarce resources from investments in economic growth. Controlling carbon dioxide emissions in the growing economies of the developing world will be more difficult, mainly because the costs of control could be very high and the benefits remote from the immediate needs of the poor.

A second issue related to the environmental importance of energy growth in the developing world is that the demand for energy services will arise mainly in cities, where much of the growth in world population will take place. Between 1975 and 2015, for example, the number of cities with more than 10 million persons is projected to rise from four to 22. During the same period, the developed world will add one city in this class--three, up from two. Considerable population growth will also take place in smaller cities. Moreover, energy use is disproportionately concentrated in cities. Cities require energy per person three or four times the world average simply to provide mobility, comfort, and municipal services.

Rapid urbanization will thus result in the concentration of conventional pollution in cities in the developing world. Because of this concentration, technologies that have worked reasonably well in the developed world may not work as well for the environmental problems of megacities. For example, using personal automobiles to provide mobility in future cities may be to invite gridlock, no matter how cleanly or efficiently they run.

The challenge will be to provide energy services in the great population concentrations of the developing world in new, environmentally friendly ways. The challenge involves the design of urban infrastructure as much as innovation in technologies for producing and using energy. A good example of how infrastructure decisions affect the way cities run is the use of cell phones in China. By relying on wireless technology, development there has simply leapfrogged the hardwire infrastructure of the developed world's communications systems.

Reengineering of the Developed World
Since the early 1970s, environmental constraints on the energy system in the developed world have become steadily more stringent. During this period, new technologies have met these progressively tighter environmental requirements in two ways. In the case of existing capital stock, the policy generally has been to continue to run existing technologies and to add equipment to clean up pollution after it is produced. New plants and equipment, on the other hand, are often designed to produce less pollution in the first place. So far, however, environmental requirements have done little to encourage the replacement of existing capital stock with new technology.

Future environmental requirements are likely to become even more restrictive. With the emergence of global environmental problems, new strictures will come into play, of course, but controls of conventional pollutants will also be tightened. Active litigation in the developed world over nitrogen oxide emissions from electric power plants and new standards for photochemical oxidants, toxic materials, and small particulate emissions are examples of how the screw is turning on pollutants that have been regulated for more than three decades.

The issue thus raised is whether cleanup technologies can remain solutions to environmental problems for existing capital stock. As additional cleanup devices for power plants and automobiles become increasingly costly, the economic case for continuing to run existing plants is deteriorating. In addition, legal and regulatory pressure to accelerate the turnover of capital stock are increasing. For example, current litigation is focused on whether old power plants should have to meet new source performance standards. If these trends persist, as seems likely, future environmental requirements could result in the acceleration of the development and deployment of new energy technologies in the developed world.

Implications for Technological Innovation
The direction in which environmental drivers will push the energy system seems reasonably clear, even though it is risky to predict the specific technologies that will ultimately prevail. In general, the energy system can be expected to move in the direction of decarbonization, either through a shift to less carbonaceous fuels or through the sequestration of carbon dioxide produced by conventional fossil sources. Economic success in the developing world will stimulate large demands for electricity production and pollution control equipment, mostly with conventional technologies. At the same time, rapid urbanization will redefine the way energy services are provided to megacities, in the design of both urban infrastructure and of energy technologies themselves. Pollution control in the developed world is likely to shift from cleanup technologies to inherently less polluting technologies.

In many ways, a more interesting question is how these same environmental drivers will influence the innovation process itself. Arguably, it will become more difficult.

One difficulty is rooted in the nature of global environmental issues, which tend to require that mitigating actions be taken well before the physical systems at risk are fully understood. In addition, as I noted earlier, these problems cannot be resolved in one generation; thus, in some form, the problems will be passed along to succeeding generations. Moreover, because of the complexities of the natural systems involved, public support is harder to muster than for local pollution problems. All of these circumstances have made it difficult to set goals for innovative technologies. In fact, because of the uncertainties of global environmental problems, goals will have to be set and reset over time.

A second difficulty is the mismatch between the need for technological innovation and the "lumpy" permanence of infrastructure investments that will be made in the developing world. Developing economies need a rapid buildup of electric power systems and the metropolitan infrastructures that accompany rapid urbanization. Thus, large investments in long-lived energy production and consumption technologies are bound to be made; indeed, many investments are already being made. As a result, incorporating technological improvements in the capital stock of the developing world presents serious difficulties. The embedded investment in coal-fired power plants in the United States is the result of a similar difficulty and may be an instructive parallel of what could easily happen in the developing world.

Finally, there is likely to be a great deal of political conflict about how to reshape the energy system in response to these drivers. New technologies are likely to benefit people who pay few of the costs, and those who pay the costs may receive few of the benefits. Conflicts of fundamental values are increasing. The poor may be willing to endure considerable short-term environmental costs to achieve economic well-being and may think it entirely fair that the rich bear some of the costs. Moreover, the people who are well-off do not agree about what constitutes quality of life among the rich. One need only observe the controversy surrounding the Kyoto Protocol to see all of these problems at work.

Environmental policy, then, will remain a dominating force in energy policy, and the need for environmental protection will continue to shape the energy system in the coming decades. But there are also substantial institutional obstacles to the creation of conditions conducive to technological innovations to meet these needs. On the one hand, it is probably unrealistic to expect that science will be able to support a case for the urgent diversion of substantial resources to mitigate the risks of energy production and use to global environmental systems or to local pollution in the developing world. On the other hand, failing to set goals that create meaningful incentives for innovation might be even more risky, and incomplete science should not be used as an excuse for inaction. The development of policies and institutions that reconcile these extremes may be the most important challenge to innovation in the energy system.

I have borrowed liberally from the work of two colleagues. The material on rapid urbanization is based on a presentation at the symposium by George Bugliarello, chancellor, Polytechnic University. Milton Russell, senior fellow at the Joint Institute for Energy and Environment, University of Tennessee, has written thoughtfully on intergenerational stewardship. While I am deeply indebted to both of these scholars, and to others who have shaped my thinking, I am of course responsible for errors and omissions in interpreting their work.

About the Author:Robert W. Fri is visiting scholar at Resources for the Future.