O E C D N B E R September 2 0 1 4 P A R I S The Coming Energy Boom, Environmental Quality, and Productivity Growth Ensuring Productivity Growth and Innovation in the Long Run September 26, 2014 Michael Greenstone, The Milton Friedman Professor in Economics, University of Chicago; Director of the Energy Policy Institute at Chicago (EPIC)
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The Coming Energy Boom, Environmental Quality, and Productivity Growth, Michael Greenstone
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O E C D N B E R September
2 0 1 4 P A R I S
The Coming Energy Boom, Environmental Quality, and Productivity Growth
Ensuring Productivity Growth and Innovation in the Long Run
September 26, 2014
Michael Greenstone, The Milton Friedman Professor in Economics, University of Chicago; Director of the Energy Policy Institute at Chicago (EPIC)
O E C D N B E R September
2 0 1 4 P A R I S
Overview
1. Energy Consumption is Critical to Well-Being and is Projected to Grow Sharply
China
France
Mexico
USA Canada
India
Energy Growth is Critical for Living Standards
ln(G
DP
Per
Cap
ita)
Energy Access is a Major Problem in Many Countries
KWh/capita
75th Percentile
25th Percentile
Country Population(millions)
KWh/Capita
USA 312 13246UK 63 5472
Germany 81 7081Russia 143 6486
China 1357 3298Pakistan 182 449
Bangladesh 157 259India 1252 684
Bihar(State) 104 122
Ghana 26 344
It takes 131 KWh to use a 60 watt bulb for 6 hours per day for a full
year
285 quadrillion Btu
535 quadrillion Btu
Projected Energy Consumption Growth is Concentrated in Non-OECD Countries
O E C D N B E R September
2 0 1 4 P A R I S
Overview
1. Energy Consumption is Critical to Well-Being and is Projected to Grow Sharply
2. Fossil Fuels are the Cheapest Energy
Sources but They Cause Air Pollution and Climate Change
Electricity Generation from Fossil Fuels is Relatively Inexpensive (USA)
3.2
4.9 5.5
6.2
8.9 9.4
12.2
0
2
4
6
8
10
12
14
ExistingCoal
ExistingNatural
Gas
NewNatural
Gas
New Coal Wind(Onshore)backed up
NewNuclear
Solar (PV)backed up
Private Costs…
¢/K
Wh
O E C D N B E R September
2 0 1 4 P A R I S
10
New Drilling Techniques are Game Changers for Natural Gas and Petroleum
Tremendous Innovation in Fossil Fuels in the Last 5-10 Years
Rank CountryShaleoil
(billionbarrels)Rank Country
Shalegas(trillioncubicfeet)
1 Russia 75 1 China 1,1152 U.S. 58 2 Argentina 8023 China 32 3 Algeria 7074 Argentina 27 4 U.S. 6655 Libya 26 5 Canada 5736 Australia 18 6 Mexico 5457 Venezuela 13 7 Australia 4378 Mexico 13 8 SouthAfrica 3909 Pakistan 9 9 Russia 28510 Canada 9 10 Brazil 245
Preventing Disruptive Climate Change Requires Leaving Valuable Resources in the Ground
18
Restraining Climate Change is a Global Project
0
100
200
300
400
500
600
700
800
1990 2005 2020 2035 2050 2065 2080 2095
Source: EPA (emissions) and MIT
Global Atmospheric CO2 ConcentrationsParts per million
Reference caseEffect of U.S. cap-and-trade bills in 110th Congress
Effect of U.S. legislation reducing emissions by
80% between 2005 and 2050
Any Mitigation Strategy Requires Large, Expensive Emissions Reductions from Developing Countries
0
5
10
15
20
25
20
10
20
15
20
20
20
25
20
30
20
35
20
40
20
45
20
50
20
55
20
60
20
65
20
70
20
75
20
80
20
85
20
90
20
95
21
00
Bill
ion
s o
f To
ns
of
CO
2-e
Figure 1: Chinese Emissions under Baseline vs. Mitigation Scenarios
Baseline Emissions Emissions under 550 ppm target
Source: Deshpande and Greenstone (2010). Calculations based on Energy Modeling Forum estimates.
O E C D N B E R September
2 0 1 4 P A R I S
Overview
1. Energy Consumption is Critical to Well-Being and is Projected to Grow Sharply
2. Fossil Fuels are the Cheapest Energy Sources but They Cause Air Pollution and Climate Change
3. The Productivity Consequences of Air Pollution: Evidence from China
O E C D N B E R September
2 0 1 4 P A R I S
22 Chen, Ebenstein, Greenstone, and Li (2013) “Evidence on the Impact of Sustained Exposure to Air Pollution on Life Expectancy from China’s Huai River Policy”
China’s Winter Heating System
• Heating system was established in the
1950-1980 period
–Heating powered by combustion of coal
in boilers
–Policy Operates During Winter: Nov 15-
March 15
Coal for boilers is heavily subsidized,
most frequently provided for free
Residential Chimneys
The Huai River Policy
0
200
400
600
800
TSP(µg³)
-20 -10 0 10 20
Degrees North of the Huai River Boundary
TSP in South TSP in North Fitted Values from Cubic in Latitude
The estimated change in TSP (and
height of the brace) just north of
the Huai River is 247.5 µg3
and is statistically significant
(95% CI: 114.5, 380.6).
Air Pollution is Higher North of the Huai River
6570
7580
8590
95
Lif
e E
xpec
tanc
y(Y
ears
)
-20 -10 0 10 20
Degrees North of the Huai River Boundary
L.E. in South L.E. in North Fitted Values from Cubic in Latitude
The estimated change in life expectancy (and
height of the brace) just north of the Huai River
is -5.04 years and is statistically significant
(95% CI: -8.81, -1.27).
Life Expectancy is Lower North of the Huai River
500 Million People in Northern China are losing more than 2.5 billion years of life expectancy
Loss of 2.1 Billion Life Years in India
WHO Indian NAAQS Air Pollution Standards
Loss of 2.5
Billion Life
Years in
Northern
China
PM2.5 Levels Imply Large Life Expectancy Losses in Other Countries Too
O E C D N B E R September
2 0 1 4 P A R I S
Overview
1. Energy Consumption is Critical to Well-Being and is Projected to Grow Sharply
2. Fossil Fuels are the Cheapest Energy Sources but They Cause Air Pollution and Climate Change
3. The Productivity Consequences of Air Pollution: Evidence from China
4. The Productivity Consequences of Climate Change: Evidence from India
“The Unequal Effects of Weather and Climate Change: Evidence from Mortality in India”
1. Virtuous Circle Between Repayment Rates, Energy Supply, and Growth
2. Energy Subsidies Are Expensive, Exacerbate Inequality, and Usually Favor Fossil Fuels
3. Pricing Energy Based on Full Social Costs Would Reduce Health and Climate Damages
Papers Cited
• BP Energy Outlook 2035
• Burgess, Deschenes, Donaldson, Greenstone (2013) “The Unequal Effects of Weather and Climate Change: Evidence from Mortality in India”
• Chen, Ebenstein, Greenstone, Li (2013) “Evidence on the Impact of Sustained Exposure to Air Pollution on Life Expectancy from China’s Huai River Policy”, Proceedings of the National Academy of Sciences, 2013, 110 (32).
• Deshpande and Greenstone (2010). Comment on “On the Economics of Climate Policy”: Is Climate Change Mitigation the Ultimate Arbitrage Opportunity?”.E. Journal of Economic Analysis &Policy :Vol. 10: Iss. 2 (Symposium), Article 20.
Papers Cited Continued…
• EIA Energy Outlook 2014. http://www.eia.gov/forecasts/aeo/pdf/0383(2014).pdf
• E. Somanathan, Rohini Somanathan, Anant Sudarshan, Meenu Tewari (2014). The Impact of Temperature on Productivity and Labor Supply: Evidence from Indian Manufacturing
• Greenstone, et al. (2014) “Lower Pollution, Longer Lives: Life Expectancy Gains if India Reduced Particulate Matter to Air-Quality Standards”
• Greenstone, Looney (2012) “Paying Too Much for Energy? The True Costs of Our Energy Choices”