Carbonomics: Chp. 2, Wreck the Economy?

Of all the controversies that we’ll address, the debate over whether a strong energy-security and climate-stability policy will wreck the economy has the simplest and most definitive resolution. If people implement such a policy at all sensibly, it will not come anywhere near wrecking the economy. The policy could even be free, though we should not count on that.

All serious studies of this question come to roughly the same conclusion for solid reasons. Fossil fuel, though one of the most important inputs to our economy, still costs less than 5 percent of income in a bad year. Moreover, energy policies are aimed at decreasing fossil-fuel use, which saves money even before you count the resulting decrease in the price of oil on the world market. There is simply no chance that a sensible but effective policy will reverse economic growth. It will likely make us 1 or 2 percent poorer—not counting environmental and security benefits—than we would be at some future time, when the world will be much richer than it is now.

Finally, it is helpful to compare these policy costs with projected energy costs over time. The DOE has projected energy costs as a percentage of income through 2030, as shown in Figure 2. The curve continues its historical downward trend into the future, not because energy will get cheaper, but because the country will continue to get rich faster than energy costs rise. The red line shows an energy policy that ramps up to 1 percent of GDP in 2020 and stays at that level. Notice that even when the DOE takes into account the costs of such an aggressive policy, it predicts that energy costs relative to national income will be close to an all-time low in 2030. “Wrecking the economy” is one fear we can lay to rest.

Figure 2. The DOE predicts that energy expenditures, as a percentage of income, will fall in the future. Even with an aggressive energy policy, reaching 1% of GDP by 2020, total energy and energy-policy expenditures should be lower in 2030 than in most of the previous sixty years.

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