Pergamon Energy Convers. Mgmt Vol. 37, Nos 6-8, pp. 741-746, 1996

Copyright © 1996 Elsevier Science Ltd 0196-8904(95)00249-9 Printed in Great Britain. All rights reserved

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G R E E N H O U S E G A S M I T I G A T I O N : P O L I C Y O P T I O N S

IAN LOWE

School of Science, Griffith University Nathan 4111, Australia

Abstract - Reducing greenhouse gas emissions will require changes to the pattern of energy supply and use. Energy use is largely shaped by social factors, as is clear from comparative studies which show that there is no simple link between energy use and either wealth or climate. The same conclusion emerges from studies of the changing pattern of energy use over time in a given society. Consumer demand is not for energy as an abstract quantity but for energy services such as motive power, transport, heating and lighting. The level of demand for each of these services is largely determined by social factors. There is little evidence for the common belief that the pattern of energy use results from consumers making rational choices in a free market to maximise marginal utility. In many cases, the consumer sees no price signal at the point of use. Where there are partial price signals, as in the case of transport fuels, energy demand is highly inelastic.

These considerations are crucial if there is an aim of changing the pattern of energy use. Demand for energy can be influenced by price signals, by legislation or by changing social attitudes. There is a common belief that changing demand could result in unacceptable disruption, based on the scale of price changes needed to influence demand. This body of evidence really shows that increasing prices is not a promising way to influence demand patterns. Changing social attitudes are the key to behavioural change and central to the acceptability of regulatory change. Thus significant alteration in the pattern of energy use is unlikely to occur without an improved understanding of the social dimensions of energy use .

1. INTRODUCTION Global climate change is now seen as a serious issue. It is over ten years since the Villach conference, at which the atmospheric science community warned that human actions are altering the composition of the atmosphere in ways which will inevitably lead to climate change [1 ]. The Framework Convention on Climate Change has the objective of stabilising atmospheric concentrations of greenhouse gases" at a level that would prevent dangerous anthropogenic interference with the climate system" [2]. While the Framework Convention contains no binding commitments to reduce or even stabilise emissions, it does commit developed countries to an implied target of trying to return emissions to 1990 levels by the year 2000. While the 1995 Conference of the Parties to the Convention finally saw a greater sense of urgency, we do not yet have a concerted attack on the problem. The prevailing political attitude still seems to be that keeping the planet habitable is an acceptable goal only if it does not interfere with economic growth; indeed, even the Framework Convention refers to "sustainable economic growth" as an objective. There is

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little evidence of a systemic overview, aimed at moving to a pattern of development which would be genuinely sustainable. Reducing greenhouse gas emissions will require changes to the pattern of energy supply and use. Energy use is largely shaped by social factors; there is no simple link between energy use and either wealth or climate [3]. Consumer demand is not for energy as an abstract quantity but for energy services such as motive power, transport, heating and lighting. The level of demand for each of these services in any specific community is largely determined by social factors [4]. There is little evidence for the common belief that the pattern of energy use results from consumers making rational choices in a free market to maximise marginal utility. In many cases, such as elec~city use, the typical consumer sees no price signal at the point of use, so is not even in principle able to make decisions in response to price. Where there are partial price signals, as in the case of transport fuels, energy demand is highly inelastic [5]. These considerations are crucial to the aim of changing the pattern of energy use.

Demand for energy can be influenced by price signals, by legislation or by changing social attitudes. There is a common belief that changing demand could result in unacceptable disruption, based on the scale of price changes needed to influence demand. Some of this evidence is based on modelling studies which lack a rigorous intellectual foundation [5], but it is clear that energy use patterns are unlikely to be changed by marginal price increases. The evidence shows that increasing prices is not a promising way to influence demand patterns. Changing social attitudes are the key to behavioural change. The massive increase in the level of material offered for recycling by Australian householders has not been spurred by regulatory measures or financial inducements; it is a result of changing social attitudes. The failure of governments to dissuade individuals from smoking tobacco by financial penalties, or from smoking marijuana by regulatory measures, illustrates that these mechanisms will not work in the absence of changes to social attitudes. Community attitudes are also crucial to the acceptability of change by law or regulatory measures in a democratic polity. Thus significant alteration in the pattern of energy use is unlikely to occur without an improved understanding of the social dimensions of energy use.

2. BROAD POLICY ISSUES AFFECTING ENERGY USE Because most aspects of modern life depend directly or indirectly on energy, government policies in a wide range of areas affect the pattern of energy use. For example, transport policies are often based either on economic factors or on the principle that governments should provide the infra-structure seen as being needed for development. These transport policies in turn influence the use of energy for transport. Withdrawal of train services forces a greater dependence on road transport. Improved rail services attract patrons and reduce road use, whereas construction of urban arterial roads increases the tendency of commuters to drive to work. As this paper was being prepared, the State government of Queensland announced in its election campaign a twenty-five year plan to enhance public transport, with the goal of doubling its share of trips in the urban area in the hope of restricting emissions of greenhouse gases. The plan involves investment in transport infrastructure as part of an integrated long-term strategy [6].

In Australia, the current pricing structure for road use does not recover the full cost of road damage by heavy freight vehicles, and so constitutes a subsidy of road freight and an incentive to deliver goods by road rather than by rail or by sea [7]. Similar arguments could be advanced to show that energy use is significantly influenced by government policies in such areas as building codes, appliance standards, communications, tourism and so on. At a broader level, government policies in such areas as taxation structures and the provision of finance clearly influence investment decisions. Few nations apply general taxes to energy, so the tax regime often effectively constitutes a direct encouragement to replace human labour with energy-using equipment in industry. Publicly owned supply utilities can borrow at relatively attractive rates, whereas householders wishing to invest in fuel-saving equipment pay much higher rates. It is notable that Japan, the only OECD country using more solar hot water systems than Australia, has a system of five-year low-interest loans to promote this technology. A recent decision by the Australian government to provide low-interest funding for solar water heating was aimed at lowering this barrier, but

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householders still bear a greater cost burden if they act responsibly than if they use old, inefficient heating technologies such as dissipative electric heating.

At a still wider level, broad economic strategy clearly affects energy use, since the overall pattern of economic development determines the energy used in productive enterprises. An economy oriented toward the extraction and processing of minerals will be energy-intensive, whereas an economic strategy of emphasising the provision of services would require much less energy per unit of economic output. The wealth of a society directly affects the level of spending on goods and services, the provision of which in turn requires fuel energy. Thus energy is used both to create wealth and in the supply of the goods and services purchased with that wealth. There is a broad association between the level of economic growth and the demand for fuel energy [8]. The relationship is a complex one because different patterns of wealth production require different levels of fuel use, while different ways of spending the wealth produced will also have different energy needs. In general, wealthier societies use more energy, so the rate of economic growth influences energy demand. Thus an aim of achieving a high rate of economic growth is likely to mean a greater level of energy use than would be associated with a lower rate of growth, for a society with a given overall pattern of economic activity.

Energy use is also related to population. For any society, the overall level of energy use and the pattern of use of particular fuels is determined by the lifestyle. The total energy use per head in Britain is about the same as in Australia, but the pattern is quite different; Australians use more transport energy and less heating energy than Britons [9]. For a society with an established lifestyle, a key factor affecting the overall energy use is the number of people who live in that way, or the population; this has been true of Australia for decades [10]. Many industrialised countries have population levels which are stable or increasing only slowly. The position in the United States of America, Canada and Australia is more serious, as these nations all still have significant growth in their populations, so annual reductions in fuel use per head are needed just to stabilise emissions.

In summary, patterns of fuel use are influenced by government policies in a wide range of areas. Seeking to achieve such a goal as a reduction in the emission of energy-related greenhouse gases will require attention to the broad spread of government policies affecting energy use.

3. SOCIAL C HOIC E AND MARKET MECHANISMS Diffusion of new technology or new patterns of use is a complex social process [11]. This is true whe~er the potential users are corporations or individuals. In the case of corlx~ate entities, such factors as the size and structure of the organisation and its industry are crucial [12]. Personal choices are even more likely to be shaped by social factors rather than economics; personal values and the momenaan of past decisions strongly influence the way each consumer evaluates options [13]. The complexity of these social issues sometimes induces a despairing retreat to a simple model of economically rational consumers, but that model offers no prospect even in principle of incorporating the complex nature of social behaviour. More importantly, it also overlooks the limitations of pricing as a means of influencing energy use. Markets are an economically efficient means of allocating scarce resources, Representing the sum total of consumer choices, they respond to changing demand patterns more rapidly and flexibly than systems of central control. However, it is naive to see the market as the answer to all problems of resource allocation and consumer behaviour. Many aspects of consumer behaviour are driven by factors other than economics. Secondly, a typical consumer is not in possession of the information which would be needed to make economically rational decisions; indeed, it is arguably the express purpose of the advertising industry to encourage consumers not to make economically rational choices.

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There are also some basic limitations on the price mechanism. The prices of fuels at the moment do not include such factors as:

* allowance for resource depletion; * the costs of long-term environmental damage; * the costs of broad social effects; or * macro-economic consequences of choices.

Further, in most cases there is no prospect of an algorithm which would allow us to build these factors into the price structure. So the market prices of fuels do not reflect wider considerations. There are possible mechanisms, such as carbon taxes, which would give different price signals and push consumers in the direction needed. In the absence of some intellectually acceptable means for deciding the size of such taxes, however, we cannot be sure whether they are even about the right scale. There are some other problems with the market approach. Since only the current generation can participate in the market, the wishes of future generations of consumers cannot be reflected in the market choices. Even if prices do not explicitly discount the future, the needs of the future will always he discounted by their inability to be influencing allocation of resources. The inequalities in market power between different individuals, different groups, different regions and different nations are also well known problems. Finally, since other species clearly cannot participate in the market, allowing the market to make decisions about the level of change to natural systems is abrogating to ourselves the right to over-rule the interests of all other species.

None of this discussion is meant to deny the general principle that appropriate pricing is one tool that influences consumer behaviour. Nor is it meant to deny that we can load on to the current fuel prices, broadly reflecting supply costs, additional components to reflect resource depletion, environmental damage or even impacts on natural systems. We must, however, recognise that those loadings will be essentially arbitrary, and so will reflect value choices. Since those disadvantaged by any such change in pricing can legitimately campaign against its arbitrary nature, it will inevitably pose political difficulties. As a case study in that problem, a recent proposal by the Australian government for a modest carbon levy was successfully blocked by vested interests using the argument that it was an arbitrary price increase which would affect their profitability. It should also be recognised that differences in market power mean that any loadings will reflect value choices about the appropriate pattern of allocation of scarce resources, whether the resources in question are fuels or pollution rights.

4. ECONOMIC IMPACTS OF CURBING ENERGY USE Proposals to curb growth in energy use are sometimes opposed by claims that the economic effects would be intolerable, based on the results of modelling. The economic models are inevitably based on a set of assumptions about future rates of economic growth, the relationship between economic output and energy use, fuel prices, fuel demand elasticities and technological developments. We cannot be sure of these parameters even in the short term, let alone on the time scale of ten to fifteen years. The limitations of such an approach are shown by comparing actual energy use in recent years with forecasts of demand made in this way; this shows that the figures are very rubbery indeed [14]. There are fundamental methodological reasons for this difficulty, so the results of such modelling studies should always be treated with great caution. While there is a tendency to treat the results produced by computer models with respect which often borders on reverence, there is also an obligation to be aware of the limitations arising from the modelling methods and the input data. There are therefore strong grounds for being very sceptical about the results of modelling of future energy use and its economic implications. As the assumptions about the future inevitably reflect the values of those doing the study, it should not be surprising that most analysts produce results consistent with the values underlying their analysis [15].

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5. CREATING THE DESIRED FUTURE Social attitudes are the key to energy use, since tl~y determine both individual behaviour and the willingness of the community to accept regulation. Surveys show an increasing preparedness to consider long-team issues. Global climate change may well be, as Milbrath has argued, the most effective teacher of the need to live sustainably [16]. Increasing numbers of people now recognise that our economic decisions must be ecologically rational if we are to maintain standards, let alone improve them. It is fatuous to expect that stabilisation of the global atmosphere will be achieved through market forces. It is equally futile to claim that the economic cost of the changes we need to make can be quantified in advance. There is a wide range of "no-regrets" measures which will bring economic benefits as well as reducing

emissions [17], but it is also clear that the current policy environment encourages profligate use of resources, with consequent needless levels of emissions.

Change requires four things. There needs to be dissatisfaction with the present. Without that, there is no motivation to change. Second, there needs to be a vision of a better way. Without such a vision, there is unlikely to be change, because without a vision change is as likely to worsen the situation as it is to improve it. Third, there needs to be a viable path from where we are to where we want to be. Unless we can see a viable path, we have no realistic programme to implement our vision of a better world. Finally, there needs to be social and political commitment to move along the identified path. It is self-evident that societies only move along a path to which there is social and political commitment.

The identification of paths that will take us toward a truly sustainable society is now the highest priority. There is no shortage of dissatisfaction with the present. There is widespread recognition that many aspects of modem industrial society are not sustainable, as well as a growing recognition that our problems will not be solved by faith in economic growth or market forces. The accumulating ecological problems mean that it is not sensible to respond to the current crisis by simply promoting growth.

The standard response of increasing the scale of the current pattern of economic activity simply exacerbates all the ecological problems we now face. It seems absurd to argue that destroying our natural assets more rapidly will make us wealthy enough to save some of what remains. There are various visions of a future society based on a steady state [18], on sustainability [19] or on respect for the natural world [20]. What we lack - and urgently need - are credible strategies to take us forward. Without such defined pathways, there will not be the social or political commitment to move forward.

Hnally, there needs to be political commitment to purposive action aimed at securing our common future. The most serious obstacle is a fatalistic determinism which sees the future as the inevitable consequence of technology or economic forces. Just as the world in which we live today has been largely shaped by the decisions and actions of previous generations, so the decisions and actions of this generation are shaping the future of human civilisation. Our science gives us unprecedented capacity to understand the natural systems of the planet and the consequences of our actions. Our technology gives us a huge capacity to change the world, with a wider range of options than ever before to meet our needs. We have yet to develop the social maturity to put the long-term future of our descendants and the preservation of natural assets into our political calculus, currently dominated by short-term economics.

6. CONCLUSION Developed countries are committed by the terms of the Framework Convention on Climate Change to reducing greenhouse gas emissions to 1990 levels. The 1995 Conference of the Parties recognised that a more urgent approach is needed. This task is complicated by growth in the human population, with associated increases in energy use and consequent emissions. The goal will not be achieved unless there is an integrated policy approach based on an understanding of the social dimensions of energy use.

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Such an approach need not cause the sort of economic damage suggested by naive modelling, and some of the changes it would entail have economic benefits. Understanding the social nature of energy use and the inadequacy of current pricing leads inevitably to the conclusion that the changes necessary will not be brought about by leaving our future to market forces. Each nation needs to develop its own strategy, based on a comptebensive analysis of the sources of anthropogenic emissions and the social characteristics underlying those emissions. Further public education will be necessary to gather community support for restraint of extravagant energy use in the interest of future generations.

R E F E R E N C E S

1. World Meteorological Organisation, United Nations Environment Program and International Council of Scientific Unions, Conference Declaration, Villaeh (1985) 2. United Nations, Framework Convention on Climate Change, U.N., New York (1992) 3. ESD Working Group on Energy Use, Final Report, Australian Government Publishing Service, Canberra (1991) 4. P.C.Stern & E.Aronson [eds], ENERGY USE The Human Dimension, W.H.Freeman & Company, New York (1984) 5. I.Lowe, Int. J. Environment & Pollution 3, 1-3, 135-150 (1993) 6. Australian Labor Party, A 25-year vision for better Public Transport, Brisbane (1995) 7. I.Lowe, Living in the Greenhouse, Scribe Publications, Newham (1989) 8. J.Goldemberg, T.B.Johansson, A.K.N.Reddy & R.H.Williams, Energy for a Sustainable World, Wiley, New York (1988) 9. l.Lowe, NERDDC Report No. EG/370, Department of Resources and Energy, Canberra (1984) 10. l.Lowe, "Australia's Non-Renewable Resource Base" in L.Day & D.Rowland (eds), How Many More Australians?, Longman Cheshire, Sydney pp 39-52 (1988) 11. J.Hagedoom, The Dynamic Analysis of Innovation and Diffusion: A Study in Process Control, Pinter, London (1989) 12. L.Nabseth & G.F.Ray, The Diffusion of New Industrial Processes, Cambridge University Press, Cambridge (1974) 13. D.Leonard-Barton, J. Consumer Research 8, 243- 252 ( 1981 ) 14. I.Lowe (1993), op cit 15. Ibid 16. L.Milbrath, Envisioning a Sustainable Society, State University of New York Press, Albany (1989) 17. J.E.Kolm & I.J.Walker, The potential for reduction of carbon dioxide emissions in Australia, in DJ.Swalne [ed], Greenhouse and Energy, CSIRO Publications, Melbourne (1990) 18. H.Daly, The Steady State Economy, in R.Birrell, D.Hill & J.Stanley (eds), Quarry Australia?, Oxford University Press, Melbourne (1982) 19. L.Milbrath, op tit 20. J.Lovelock, The Ages of GALA, Oxford University Press (1988)