mpJyf Energy, economics, and environmental policy
The new administration will need to face the nexus between energy, economic, and environmental policy over the next few years. This need is precip itated by the immediacy of concern over global warming. But rising oil imports are adding to the balance of payments deficit and will ultimately inc r e a s e vulnerability to supply curtailments. Finally, energy production and use cause a range of residual damages to the environment. Energy demand could be reduced in many ways. Over the last 15 years, the GNP has increased by 40% but energy use has stayed roughly constant. ?\vo forms of energy use are particularly important for coping with global climate change: automotive fuel and electricity demand. The Energy Policy and Conservation Act of 1975 mandated that new vehicles achieve a fuel efficiency level of 27.5 miles per gallon by 1985. The Reagan administration scaled back these mandatory standards to 26 mpg after the 1985 model year. Besides administratively increasing the fuel efficiency standards to the statutory level, legislation should be considered to boost automotive and small truck fuel economy even further. Steven Plotkin, a senior associate of the Congressional Office of Technology Assessment, estimates that current technology could cost-effectively achieve an average fuel economy of 33 mpg by the 1995 model year. Savings in gasoline would offset the costs of the new technology. By the year 2000, it could be possible to achieve a cost-effective fuel efficiency standard of 38 mpg. Consumers would be unlikely, however, to choose such automobiles unless incentives to select them were made available. Changes in the fuel efficiency standards would be most effective with in-
creased gasoline taxes. U S . gasoline taxes are many times lower than such taxes in virtually all other industrialized countries. A higher gasoline tax would provide a greatly needed source of revenues, help reduce actual driving, and assist in changing consumer preferences-thereby buttressing the tighter fuel economy standards. Rebates could be made available to low-income drivers to deal with inequities. Achieving a least-cost, less-energyintensive system of using electricity represents another high priority. Electricity use has been rising faster than the GNP in recent years, and there is every reason to believe this trend will continue. The reasons are numerous. New electrical appliances, such as microwaves and electric heat pumps, have increased residential use of electricity. The changing character of the economy and new processes that use electricity are also resulting in increased use of electricity in the industrial sector. A least-cost strategy would use the optimum combination of BTUs and efficiency to achieve the least-cost result. This least-cost strategy cannot be achieved under the current regulatory system. If conservation measures are installed, the utility recovers fewer revenues and profits. In essence, cost-effective efficiency improvements can lower total costs to consumers but utilities lose in the process. It is no wonder that most utility conservation programs only occur at the insistence of a handful of state public utility commissions, Currently, a plethora of innovative rate structures has been proposed by utility experts to encourage utilities to either make or contract for cost-effective conservation investments. Also. the National Association of Regulatory Utility Commissioners has adopted a resolution favoring rate structures that
structures and demonstration of ths most promising candidates is in the national interest. Such a federal program need not be expensive. In structuring such a research and demonstration program, the federal government should rely on state initiatives, promoting thei development as laboratories to under stand what works in the real world. Boosting fuel economy and promo ing least-cost electricity make eco nomic, energy, and environmenta sense. The steps to improve automobilL efficiency could provide a source of revenues to reduce the deficit, and, by reducing oil imports, keep future world oil prices down. Fewer oil imports would reduce future energy vulnerability to supply curtailments. Reducing electricity demand would reduce longterm electricity prices. Both measures would reduce environmental damages from energy production and use, further improving total economic efficiency. And these steps would shor U.S. leadership in coping with gloha environmental problems.
warming, acid rain, and other environ-
Environment International 1988,5(3),
the process. Federal financial assistance to encourage development of innovative rate
W13936W89l09250649501.5010 @ 1989 American Chemical Society
Alvin L. Alm is president and CEO Alliance Technology C o p , an enviror mental engineering and consulring firm headquartered in Bedford, MA.
Environmental Index Source Box (1) Joan Martin-Brown, Washington Office of the United Nations Environment Programme symposium on “Managing the Problems of Industrial Hazards: The International Policy Issues”; National Academy of Sciences, Washington, DC, Feb. 27, 1989. (2) Michael Reich. Takemi Program ‘in International Health, Harvard School of Public Health; bid. 13) Survey of State Ground~~~~~
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