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Paying Off the Environmental Deficit

By James J. WinebrakeJames J. Winebrake is a PhD candidate at the University of Pennsylvania's Center for Energy and the Environment. / May 22, 1992



LAST year the average American consumed over 25 barrels of oil, over 3 1/2 tons of coal, and over 75,000 cubic feet of natural gas. This consumption cumulatively emitted more than 5 billion tons of carbon dioxide (a major greenhouse gas) into our global atmosphere, and hundreds of millions of tons of sulfur dioxide (the primary cause of acid rain) into our regional ecosystems. These vast emissions destroy the delicate balances in nature, on which we depend, and represent an enormous environmental deficit

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that continues to grow - a deficit that imposes huge costs on society.

Economically speaking, the fossil fuels we consume are a real bargain. For about $10 you can drive from Philadelphia to New York and back; for about $2 or $3 you can heat your house on the coldest of winter days; and for only 15 cents you can keep a 100-watt bulb on all night. But how much does this energy really cost?

The major cost of our fossil-fuel diet is environmental. Greenhouse gases, acid rain, and smog have all become household words. All are created primarily from the burning of fossil fuels, and all impose serious threats to the environment and debilitating costs on society. However, the market prices of fossil fuels do not include the hard-to-monetize environmental costs of their pollutants; nor do these prices reflect the detrimental ecological impacts of resource-extraction processes, such as oil spills,

strip mining, or pipeline leaks. Therefore, we over-consume these low-priced fuels, not having to pay the actual costs of that consumption.

The market prices of fossil fuels also exclude other substantial costs on our economy. It has been calculated that if the military costs associated with protecting oil reserves in the Middle East were included in the price of oil, that price would be almost double its current value. Further, our economy's dependence on this fuel leaves our nation vulnerable to OPEC-induced price shocks, and has produced a trade deficit that makes the auto industry's seem like a pittance. Each year we send over $50 billio n to OPEC oil producers, money that represents forgone United States jobs, investment, and savings.

A major theme of the Reagan and Bush administrations has been the effectiveness of free markets. This concept is based on the premise that private businesses compete on a "level playing field." In the energy markets, however, the level playing field is an illusion. When the external costs of consuming fossil fuels are not included in their market prices, the "free market" becomes distorted, and other less-polluting energy sources find it difficult to compete.

If such treatment of the energy markets continues, the US economy and the world's environment are headed toward inevitable ruin. The US government should take two steps to reduce its environmental deficit.

THE first step is to provide a level playing field for all energy sources to compete. This requires incorporating the actual costs to society of fossil-fuel consumption into the market prices for these fuels - something the private sector cannot do. Charging environmental fees on polluting energy sources or offering environmental rebates for nonpolluting sources are steps in the right direction.

Another governmental step is to undertake greater research, development, demonstration, and diffusion projects for nonpolluting, renewable energy and to provide incentives for the private sector to do the same. The current structure of the markets encourages private firms to under-invest in renewable- energy R&D, and so government participation is necessary. Infrastructure develop- ment, such as "solar stations" for electric cars, must keep pace with any technical advances. In the private sector, R&D inc entives, such as tax credits, can be used to encourage the development of such projects. And the talent-laden US research facilities can be refocused from military matters to renewable-energy development.

At a time when many people fear the collapse of our environmental foundation (if not for our generation, then for our children or grandchildren), it is foolish for the US not to take a more active role in the development of renewable-energy technologies. At least one presidential candidate has noted that a healthy environment is a prerequisite for a healthy economy - you cannot have one without the other. Until we back these words with appropriate action, we will merely continue to add to our environment al deficit. And sooner or later, all deficits must be paid.