How a Recession is Good for the Environment
In the March 30 edition of The New Yorker, David Owen makes a good point about the relationship between the economy and our environmental scorecard:
[T]he world’s principal source of man-made greenhouse gases has always been prosperity. The recession makes that relationship easy to see: shuttered factories don’t spew carbon dioxide; the unemployed drive fewer miles and turn down their furnaces, air-conditioners, and swimming-pool heaters; struggling corporations and families cut back on air travel; even affluent people buy less throwaway junk.
Later he points out,
The world’s financial and energy crises are connected, and they are similar because credit and fossil fuels are forms of leverage: oil, coal, and natural gas are multipliers of labor in much the same way that credit is a multiplier of wealth. Human history is the history of our ascent up what the naturalist Loren Eiseley called “the heat ladder”: coal bested firewood as an amplifier of productivity, and oil and natural gas bested coal. Fossil fuels have enabled us to leverage the strength of our bodies, and we are borrowing against the world’s dwindling store of inexpensive energy in the same way that we borrowed against the illusory equity in our homes.
And now to the real nub of his commentary. Owen points out that the high price of gasoline earlier in 2008 resulted in a six percent drop in gasoline consumption. This, in turn, led to desirable activities on our part, including “[...]pushed down consumption and vehicle miles travelled, stimulated investment in renewable energy, increased public transit ridership, and killed the Hummer.” He goes on to argue, though, that development of more fuel efficient cars, like the hybrid, merely reduce the price of driving, and do not foster a fundamental change in travel, commuting, and related habits.
Take a moment to read the whole article – it is in the comments section, so not as long as a typical New Yorker piece. It is a good application of the power of incentives, the market place, and scarce resources.
I teach principles of economics courses and a course in the economics of healthcare at Southern Oregon University.
I don’t see how you, as an economist, could have failed to see the fallacy of Owen’s assumption regarding fuel economy and gasoline prices. If the former doubles, or the latter halves, do we suddenly double the miles we drive? He assumes the price elasticity of demand is 100%! At most it is 10-15%, probably less. This puts the lie to his contention that increased fuel economy does nothing to help reduce carbon emissions. Shame on New Yorker editors for letting this whopper pass by. They were too enthalled by his ideas to notice that they are based on false assumptions.