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For All the Ecological Concern,
Economy Drives Energy Use

by Jeffrey Ball
Wall Street Journal, May 27, 2008

Gasoline consumption is down. Hybrid-car sales are up. Wal-Mart is selling millions of squiggly energy-efficient light bulbs. Proof of a new wave of environmental consciousness?

For all the talk about global warming, what is prompting Americans to rein in their fossil-fuel use isn't the effect of their consumption on the planet. It is the effect on their pocketbooks.

The U.S. is at a "tipping point," with people beginning to factor energy use into everyday decisions, says Lee Schipper, who has studied energy consumption for decades, earlier for Royal Dutch Shell PLC and now as a visiting scholar at the University of California at Berkeley. But the driver isn't ecology, he says. "Sadly, it's economics. No pain, no gain."

The distinction between Americans' environmental and economic motives has important implications. It suggests that if energy prices fall again, as they did after the 1970s energy crisis, U.S. consumers might well return to sport-utility vehicles as fast as they are now trading down to smaller cars.

Of course, there is reason to think today's energy prices will remain higher than in the past. The short-term energy shock of the 1970s followed the Arab oil embargo, a supply constraint. Today's price pressure stems from what seems a longer-term trend: rising energy demand, particularly in the developing world.

But high energy prices alone don't guarantee an environmental revolution. One reason is that, in most cases, alternatives still are more expensive than fossil fuel. Many Americans don't want to pay that premium; many others can't afford to.

When electric utilities ask consumers whether they would be willing to pay more for power from renewable sources like the wind and sun, more than half the respondents typically say yes. The average participation rate in utilities' optional "green" energy programs: about 2%, according to the Department of Energy's National Renewable Energy Laboratory.

"Everybody calls themselves environmentalists," says Jeff Swenerton, a spokesman for the Center for Resource Solutions, a nonprofit group that advocates renewable-energy use. "But when it comes down to spending a bit more for these things, people just don't do it."

Wal-Mart, long criticized by environmentalists for promoting sprawling real-estate development, lately has become an environmental darling for a series of moves to save energy. Yet Wal-Mart's chief executive, Lee Scott, says there are limits to the company's environmental push -- because many of Wal-Mart's customers live paycheck-to-paycheck, unable to pay extra for chemical-free soap or organic-cotton T-shirts. "It's not a matter that they don't care about sustainability," he says. "It's a matter that they can't afford to pay more."

Another reason high energy prices don't ensure environmental progress: They often induce shifts to dirtier alternatives. Canada is squeezing oil from its tar sands -- a process so difficult and expensive that only high oil prices make it worthwhile. The effort is so energy-intensive that it produces massive amounts of greenhouse gases. In the U.S., there's new interest in turning cheaper domestic coal into synthetic gasoline -- another process that emits huge quantities of global-warming gases.

Now the economics are beginning to argue for less-consumptive behavior. The cost of driving a mile in the U.S. nearly doubled between 2002 and 2007 -- a steeper jump than in any six-year period since at least 1960, calculates Mr. Schipper at Berkeley. Last year, he adds, about 5.7% of the average U.S. household's spending went to gasoline -- a level not seen since 1983, around the time when oil prices entered sustained lows that launched the SUV era. "The tipping point is in the budget share" that the average U.S. family is now burning on the road, he says.

The environmental movement is sensitive to the potential economic squeeze of going green. Two of the country's biggest environmental-advocacy groups, the Environmental Defense Fund and the Natural Resources Defense Council, have recently sponsored studies supporting congressional proposals to slap industry with a cap on global-warming emissions -- a cap whose costs industry would almost certainly pass on to consumers. The studies' main argument: The caps wouldn't cost the economy too much.

Fred Krupp, the Environmental Defense Fund's president, has written a new book popularizing the call for a U.S. emissions cap. His book, "Earth: The Sequel," argues that curbing global warming can make Americans rich. It "will build the new industries, jobs, and fortunes of the 21st century," says the book, which Mr. Krupp co-wrote with Miriam Horn. That bottom-line boosterism is a far cry from the ecological appeal of, say, "Silent Spring," the 1962 book widely seen as helping launch the modern environmental movement.

For years, conservation has depended on economic pressure. Take Europe, where the average resident consumes less than half as much oil each year as the average American. It's not that Europeans are more environmentally minded than Americans -- it is that European governments for decades have hit consumers with high energy taxes, making conservation rational and not just virtuous.

What would happen to Americans' newfound energy consciousness if the price of a gallon of gasoline fell back to $1.50 tomorrow from its current average of about $3.93? "People would say the crisis is over and generally move back to their previous ways," says Arthur O'Donnell, the Center for Resource Solutions' executive director. "I hate to be cynical, but that's what I think."

Jeffrey Ball
For All the Ecological Concern, Economy Drives Energy Use
Wall Street, May 27, 2008

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