Sunday, November 18, 2007

The UN Panel Report on Climate Change

My first response to the release of the report on Global Warming by the UN Inter-governmental Panel on Climate Change was, for me, a new thought – one no doubt well understood by others before me.

The general recommendation as to the continued human release of green-house gases is two fold: one, to switch our source of energy away from hydro-carbons and, second, to use less energy. The second alternative seems, at first, merely a prescription to increase the cost of energy in order, through the supply/demand mechanics of classical micro-economic theory, to reduce energy consumption.

This alternative is not welcomed by many who link increased cost of a basic input for global production to lower global output and reduced wealth creation.

However, the flip-side of less use could be higher productivity.

The wage rates for labor have risen steadily with industrialization and post-industrialization as rates of productivity rose and rose.

Less and less units of labor were needed for production of the same quantity of output, so per-unit labor costs could go up without triggering higher prices for consumers. Each unit of labor contributed to the production of more and more goods and services.

Productivity increases for labor inputs came with the introduction of capital improvements to the means and methods of production. With machines and other supplements to human handiwork the value generated for society by each working individual grew exponentially. Adam Smith understood that this increase in output through specialization was the origin of the wealth of nations.

Should we not apply this same thinking to our inputs of energy as well as of labor?

If we make energy more productive – getting more from each joule and kilowatt, each amp and BTU, then might we not enjoy growing prosperity with less energy consumption?

A higher cost for each unit of energy consumed would not necessarily lead to higher total costs for consumers and reduced growth for the world.

The action step that should flow from taking this point of view would be at a minimum better measurement and public disclosure of energy efficiency in all uses of energy.

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