Harper Lecture with Michael Greenstone, LAB’87: The Global Energy Challenge


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behalf of the club, I’d like to welcome you to this
afternoon’s event the Harper lecture series. I’m so glad all the are able
to join us for this opportunity just to support the
University of Chicago Campaign and also have a chance to relax,
socialize together, and discuss today’s topic– The
Global Energy Challenge. And now I’m pleased to introduce
Professor Michael Greenstone. Michael Greenstone is an
alumnus of the Lab School, graduating in 1987 and is
the Milton Friedman Professor in Economics and Director of the
Interdisciplinary Energy Policy Institute at
University of Chicago. He previously served
as Chief Economist for President Obama’s
Council of Economic Advisors and on the Environmental
Protection Agency’s Science Advisory Board. Greenstone, a member of the
American Academy of Arts and Sciences and Editor of the
Journal of Political Economy, increasingly
focuses his research on developing countries. Join me in giving
Michael a warm welcome. [APPLAUSE] PROFESSOR MICHAEL GREENSTONE:
Thanks everyone for coming out. I’m always excited to
talk about my research, but talking about
energy in Houston seems like an
especially good match. What I’m going to try
and talk about today are 10 Facts About Energy,
Growth and Public Policy. Most of these facts, I think,
individually, at some level, people are aware of them. But I’m going to
try and string them together in a way that hopefully
will lend new insight into what I think of as a global
energy challenge. So I am way more comfortable
with numbers and figures and tables and
charts, and so this will be the moment of
being artistic, today. And this is a
picture from Beijing from a couple years ago, and
I think this picture perfectly captures the global
energy challenge. So you’ve got the guy– And the way I think about
the global energy challenge is you can think of it as
like a stool with three legs. And it’s very hard to
deal with all three legs of the stool at once. You can often achieve
one or two goals, but it’s hard to
achieve all three goals that I think comprise
the energy challenge at once. But all three of them, I think,
are evident in this picture. And so the first thing
is, like, it’s visceral. You can feel all the
action and the motion, and China is a
country on the make. In the last 25 years, it’s
had a basically unprecedented increase in per
capita income that’s never been seen in human history
and reduction of bringing hundreds of millions of
people out of poverty. And you can feel it, just
jumping off that page. And so the first
leg of the stool, though, is that most of
that, or a lot of that, was done by greatly increasing
energy consumption in China. And you can see our guy
in the car was probably, not that long ago, was on the
bike, and the guy on the bike, probably not that
long ago, was walking on the other side of the fence. So the first leg of the stool
is how do you have access to inexpensive and
reliable energy that powers human advancement. The second leg of the stool
is also immediately evident. This is the middle of
the day in Beijing. And despite it being
in the middle the day, you can’t see the sun. And that’s also a byproduct
of the energy consumption. So most of the energy
consumption in Beijing, in China, and for the
world, for that matter, comes from fossil fuels. And the fossil fuels,
if not controlled– if the emissions aren’t
controlled– lead to scenes like this, where
you can’t see the sun. And our guy on the bike
is very, very aware of it. It’s changing his life in
ways that are not beneficial. He has to wear the mask. He’s obviously concerned
about health problems. He’s got goggles on. And it’s a little hard to
see in this picture– he even has gloves on. So the second leg
of the stool is how do you have all
this energy consumption without leading to the
environmental problems that are immediately evident there? And then the third leg of
the stool– you can’t see it, but you know it’s there–
it’s the possibility of disruptive climate change. And that’s because the
same fossil fuels that are producing this
pollution also leading to enormous emissions
of CO2, and that’s causing very rapid
changes in the planet that are exposing people
around the world to the possibility of
disruptive climate change and the consequences of that. So those are the three
legs of the stool. How do you have the economic
growth that energy provides? How do you avoid having enormous
environmental problems attached to it and the immediate
environmental problems, and the third is
what to do about CO2? And so we’ll go through some
facts that will hopefully shed a little light on this. OK, well, maybe we will. There we go. All right, so the first
fact is I stated it, and now I feel, as a true
University of Chicago person, you can’t just state something
without showing that it’s true. And the first is that energy
is critical for growth. And I like to joke that I
spend a lot of my day and night analyzing data, and data
is like the worst boyfriend or girlfriend that you ever had. And so if you think back to
what was unique about the worst boyfriend or
girlfriend you ever had is that person was
constantly disappointing you new and unpredictable ways. [LAUGHTER] Analyzing data is
a lot like that. You think something’s true,
and you look at the data, and then it turns out
not to quite be true. But this is an exception. And the exception
here is on the x-axis, we’ve got GDP per
capita, on the y-axis we have energy consumption. And you can basically
see, we do not have an example in
recorded human history of high levels of living
standards without lots and lots of energy consumption. Now, you have some
variance around that, but basically you cannot have
high levels of income without high levels of
energy consumption. And I’ve just highlighted it
in a couple countries, here. OK, so the second fact
that I want to talk about is energy access is a major
problem around the world. It’s not a problem
here in Houston, and it’s not a
problem in Chicago. But around the world,
it’s a major problem. So in the United States, per
capita electricity consumption is about 13,000 kilowatt
hours per person per year. And then you can look–
what the table allows us to do– is to look what
it’s like in other parts of the world. In say, England,
Germany, Russia, it’s all kind of in the 5,000
to 7,000 or 8,000 range. And then you come to China, home
to almost 1.4 billion people, it’s only a quarter of what
it is in the United States. India, it’s about 700
kilowatt hours per person– so maybe 1/20 of what it
is in the United States. And then there’s
the state of Behar, where a lot of my research takes
place– the State of Behar– probably most people sort of
don’t know the state of Behar that well– it has a population
of 100 million people. Per capita electricity
consumption there is 122 kilowatt
hours per person. So that growth that’s critical
for economic progress, that energy that’s critical
for economic progress, is not evenly distributed
around the globe. And I think a reasonable
supposition, which I’ll come back to, is that
that’s probably not going to last that way for long. And indeed, demand is
projected to grow very rapidly in developing countries
in the coming years. So here, this is like
total energy consumption. You can see in
the United States, the blue line is basically flat. The per person is basically
flat as we become more energy efficient over time. So it’s basically flat
from 1965 to the present. I’ve put on this chart
also India and China. And you can see–
actually, you can see what we saw
in that picture– is you can see this remarkable
increase in energy consumption in China that began
sometime in the ’90s. And the scale obscures
it, but there’s also been a pretty big
increase in India, although both of those
countries are at very low levels compared to the United States. All right, so how are
we going to do this? I’m worried we
missed a slide there. Indeed, this is the
slide we missed. So here’s the OECD
countries– you can think of them as
the rich countries– the non-OECD countries. And this is just showing
you what’s projected to occur between 2015 and 2035. And what you can see is that
all the world’s growth in energy consumption is
projected to take place outside of the rich,
currently rich, countries. All right, so where is all
that energy going to come from? Well, the best predictions
are that most of it’s going to continue to
come from fossil fuels, despite what we hear about
the enormous improvements in the efficiency of renewables. Fossil fuels are still
a remarkable invention that are able to produce
energy very inexpensively. And here is– it’s a little
bit hard to read this one. But this is between the present
and the end of the century, and what you can see is that
coal, oil, and natural gas are still projected to account
for maybe 75% of total energy consumption by 2040. Now, why is that? So here, we’re going to look at
what is true in the electricity sector. This is the cost of producing
a kilowatt hour of electricity from an existing coal plant,
from a new natural gas plant, a new coal plant, and
some other technologies, which I’ll discuss in a second. And you can see, the reason
that the world is so focused– or is projected to continue to
use fossil fuel so heavily– is that it’s very inexpensive
to produce electricity from fossil fuel. So an existing coal plant–
it’s about $0.3 cents a kilowatt hour. A new natural gas plant or a new
coal plant– a new coal plant, it’s higher. This would be in
the United States, because it faces stricter
environmental regulations, is maybe on the order of $0.6. And then here are
the low carbon energy sources that provide
an alternative to the fossil fuels. So this is wind. This is a new nuclear
plant, and that’s solar. It’s worth noting that
the wind and the solar are what I like to think
of as Frankenstein plants. They’re not actually–
in the sense that the problem
with wind and solar is the sun doesn’t
shine all the time, and the wind doesn’t
blow all the time. And if they’re going to play
a major role in the energy sector, they have to be
backed up by something. And so, in this graph,
I’ve backed them up with a natural gas plant. And so, you can see that
they are more expensive. And indeed, countries,
say, like India, who have very low levels
of energy consumption, for them to switch to low
carbon or cleaner energy sources would require choosing things
that cost maybe three times or four times as much
as relying on coal. OK, and the other
thing that’s worth noting about fossil
fuels– and I probably don’t have to say
this in Houston– is that not only are
they inexpensive, but they’re abundant. And so we’ll just ignore
the coal line, here, for a minute, which is
a little bit confusing. What’s striking
about this is this is the ratio of fossil fuel
reserves to production. So think of that
is how much we know we have divided by how
much we’re currently using. And what’s striking is
that that’s basically flat. So why is that so surprising? Actually, this is a great
University of Chicago moment– why is it so surprising
that that line is flat? That’s a question that you
guys are meant to answer. AUDIENCE: We keep finding– AUDIENCE: [INAUDIBLE] PROFESSOR MICHAEL GREENSTONE:
We keep finding it. And so, like, the
notion that we’re going to run out of
fossil fuels does not appear to be
supported by the data. And we seem to have a remarkable
ability to continue to find it, probably due to the work of
lots of people in this room, and certainly lots of people
in the broader energy economy. OK, not only are fossil fuels,
when used for power production, inexpensive, they’re also,
you know, very inexpensive in the transportation sector. And so this graph is a
little bit complicated, but let me try and talk
about what it does. So on the horizontal axis,
I’ve got the cost of batteries, and so what this graph
is trying to show you is when people
will find it cheaper to use electric
vehicles and when they’ll find it cheaper
to use internal combustion engines that rely on petroleum. And on the horizontal axis is
the cost of battery in dollars per kilowatt hour, and on the
y-axis is the price of oil, and both of those are in 2020. And then the red line, here,
are combinations for which, with a kind of
standard assumption about how much the car will be
driven and how long it’ll last, where the cost of owning
an electric vehicle is about equal to the cost of
owning the internal combustion one. And so above this line,
electric vehicles are cheaper, and that’s because
petroleum is very expensive. And below the line, internal
combustion engines are cheaper. And so there’s a
couple points on here that I think are
worth highlighting. Number one– so let’s just
go– everyone loves Elon Musk. The price of a 10
kilowatt battery for the powerwall
thing, the thing he wants to put in people’s
homes, is about $350 a kilowatt hour. At that cost of a battery,
what would the price of oil need to be to make it so that
it was roughly the same cost to drive an internal combustion
engine electric vehicle? Well, the answer
to that is $470. Now, I feel confident
that I can answer ask this question in Houston. What is the current
price a barrel of oil? AUDIENCE: [INAUDIBLE] PROFESSOR MICHAEL
GREENSTONE: It’s about $40, maybe a little bit less, now. So you could say, well, all
right, well that’s today. You know, there’s going to be
lots of advances in batteries. So here’s the Department
of Energy’s– their view of the current price is $225. And that would require
oil to be $420. The DOE’s target– so this is
aspirational– for the cost of batteries in 2020
is $125 in 2020. And that would
require oil prices to be $115 for it to
be break-even to drive an electric vehicle versus
internal combustion engine. And then finally, this
is the oil futures price of $55 in 2020. And the break-even cost of
batteries would need to be $64. So you could see,
we’re a long ways away from electric vehicles
being a major– or looking like a good
deal on the pure economics. It’s also noteworthy that,
even if that were the case, there’s the ultimate question
of where the– are you plugging the electric vehicle
into a coal plant, or are you plugging it into
some kind of renewable source? And as we saw a minute
ago– this is not working very well– the
cost of fossil fuels to produce electricity
remain a lot lower than the cost of low
carbon energy sources. OK, all right. So that’s background,
now then maybe we can think of that as all kind
of the first leg of the stool. So now, we’ll talk about the
second leg of the stool, which is fossil fuels increases– so
fossil fuels are really cheap, but they also have this feature
that is not so desirable. And that’s that they increase
pollution that shortens lives. All right, and so
to do this, I’m going to talk a little
bit about a paper of mine that I just finished. And it’s entitled “Revisiting
the Impact of Sustained Exposure to Air Pollution on
Life Expectancy from China’s Huai River Policy.” So we should go another slide,
since this isn’t working. And so the idea of
this paper is it would be very useful for
determining public policy. Well, how bad is it to
breathe polluted air? And there’s no
university in the world that I’m aware of that’s
going to ever allow people to run a randomized
experiment where you expose some set of people
to air pollution for their entire lives– no
matter the value for science– and other people to lower
levels of air pollution. And so what people
like me try to do is to find natural experiments. And so these are not the same
thing as a randomized control trial, but they’re
meant to mimic some of the features of a
randomized control trial, so that is to find variation
in pollution that seems unrelated to other factors. And so what I discovered
is that there’s something in China called a Huai
River Winter Heating Policy, and it dates back to the
planning period, when China didn’t have a lot of money. And parts of China
have very cold winters, and so they didn’t
have enough money to heat everyone’s
house all year. And so what they did
is– for research, a quite appealing
thing– is they drew a line across the
middle of the country. And they said, if you live
to the north of the line, you’re going to have
free coal, and we’re going to build you boilers,
and this free coal will only come during the
winter, and you’ll be able to heat
your home for free. If you live to the
south of the line, not only will you
not have free coal, you can’t have coal at all,
and you can have heating. And so the idea of
this paper was, well, what happens if we
compare the life consequences of that policy
for people who live just to the north of the
line versus people who live just to the south. OK, and so here’s a picture
of apartment buildings. And they did this in a
very inefficient way. They didn’t do it like our
generating systems are, with these enormous plants. They had these little,
kind of, small boilers right in residential
areas all over the place with no pollution controls. OK, and just so you can
visualize it, here’s the line. This is the Huai River. And then the river
ends somewhere here, and it kind of turns
into a mountain range. But the way that,
again, the policy worked is if you lived to the south
of this line– no heating. And if you lived to the north,
heating and lots of coal. And it’s worth noting– I gave
a lecture once at the University in Chengdu– and you know,
the legacy of this policy persists today. So it was in a
university building. It was kind of in
January or February. It was kind of cold in the
room, and all the students had on winter coats. And that’s just
the way things go. There was no heating there. OK, so I’m going
to compare places in just the north versus
places in the south. So here’s the first fact. The vertical line
here is the river, and these are degrees
latitudes to the north, and these are degrees
latitude to the south. And what’s really–
and then I’m going to plot particulate matter,
air pollution, on the y-axis. And what’s striking is that
right at the river’s edge, there’s this very large increase
in particulate matter air pollution. And so the one unintended
consequence of this policy was– yes, for heating, but
lots and lots of pollution associated with it. And so this is kind
of what I look for. And this was an incredible,
natural experiment. And so then I spent
about a decade trying to figure out how to get
access to life expectancy data from China. And in the next slide,
I’ll show you the results of what happened there. There, you have almost
the mirror image. Right as you get to
the river’s edge, there’s a decline
in life expectancy. And the size of that
decline in life expectancy is about 3 or 4 years,
3 and 1/2 years. And so, what one could
take away from that is although we didn’t get to
run the real randomized trial, probably thankfully, there
is a reliable estimate now of what the consequences of
sustained exposure to air pollution is, in
this case, in China. And so you can see, a reliance
on coal, in this case, leads to reductions
in life expectancy. This problem of particulate
matter air pollution is one that is not
unique to China, there’s whole northern
belts in India where it’s very, very, high. Other parts of
India are also high. It’s in Africa, and
in the Middle East. And it’s really reducing
life expectancies and leading to shorter
and sicker lives throughout the world, OK. All right, so that was the
second leg of the stool. The third leg of the
stool is fossil fuels are causing climate change. So here’s a distribution of
average daily temperatures in India. And the way you can read this
is that the typical Indian faces about 60 days a year where
the daily average temperature– that’s the average of
the high and the low– is between 78 and 81. And you can see
India has hotter days than lots of parts of the US. The typical person probably
has about 12 days a year where it’s between 91
and 93, and there’s even days after that. What’s projected to occur
with climate change? We had this push of the
distribution to the right. And you have this piling up of
days at the very high levels, and so it’s not just– when
people talk about climate change, they talk
about well, there will be a 2 degree C change
in global mean temperatures. You know, 2 degrees C is
a complicated concept. At least for me, when I
was in elementary school, every year the teachers would
kind of torture us with, this is a year we’re going
to convert to metric. And then it never
happened, and so I’ve always had a hard time with C. But in addition to–
here I’ve displayed it in Fahrenheit– it’s not just
like the average day went up by a little bit,
but you get lots of days at the really high
end of the temperature distribution. And that’s problematic,
because that’s where all the bad stuff
from temperature is. That’s where the
elevated mortality is. That’s where the reduced
agricultural yields are. That’s where there’s
evidence of even higher rates of criminal behavior. And so fossil fuels are
causing climate change, and it’s leading to all
kinds of knock-on effects. OK, it’s also worth talking
about– circling back to some of the first facts
about where the growth in energy consumption is going to
come– it is far from enough to think about just
the United States. Climate change really
is a global phenomenon. And this chart, I think,
helps to illustrate the nature of that. So here, what I’ve graphed are
the cumulative contribution of greenhouse gases. So since industrialization–
and you can see as of 2010, the United States
accounts for about 22% of all greenhouse
gases that have ever been put up in the atmosphere. China and India
are at about 16%. But as a century
unfolds, you could see that this will really
start to change dramatically, as those countries increase
their energy consumption. By the middle of the century,
China and India’s share will be 30%, the United States’
share will be 16% percent. And by the end of
century, if projected, they will account
for almost 40%, while the US share will be 12%. And the takeaway from
this is that there’s no solution to
climate change that doesn’t run through finding
ways for these countries to find it in their own interest
to reduce CO2 emissions, OK. And one other thing
that’s worth noting is, like, so how stark are the
consequences of climate change? You know, the
climate scientists, I find, to be not that great
at communicating things. Again, like, knowing that
global mean temperatures go up by 2 or 3 degrees C seems
not that helpful to me. And so here what I’ve done is
I’ve taken all of the reserves that we know about and asked
well, what if we use them all? What would be the– and this
is over a very long time scale, and you can see, we’ve
baked into the system about 1.7 degrees Fahrenheit. The fossil fuel
proved reserves– so this oil, gas, and coal. If we use those, that would be
an extra 2.8 degrees, and then in the energy
industry, they have something called resources. Those are things we can get
at with today’s technologies, but the prices
would probably have to be higher– oil and gas
would lead to another 3 degrees. And then if we used all the
coal–there’s just a ton of coal– it’s
about 8.5 degrees. So the only point
is there will have to be a conscious
choice not to use these or to find some way to bury
the emissions in the ground, or we will have, according
to kind of standard climate models, this rough–
almost unimaginable changes in global temperatures, OK. The next fact which is related
to this is the Paris Climate Talks, I think, are projected
to really have made some impact. You can view them as
half full or half empty. And you can see this
best– here’s kind of a business as
usual case, where the world did not
engage in any efforts to reduce CO2 emissions. By the end of the
century, we could expect about 8 degrees of warming. Here is what the
scientists are pushing for, which is the 2
degrees C increase, and this is the
path of emissions we would have to
follow, and you can see that would require
the really drastic decline in emissions. And remember, that’s supposed
to occur at the same time that there’s this very large
increase in energy consumption, so it’s quite the challenge. And here is kind of a
pathway that was roughly agreed to in Paris, which is
somewhere in between those two. And so what I want
you to take away from this is that really large
decline in CO2 emissions that would be required
against a business as usual in either
of these pathways is largely going to need to
occur in China and India, and the challenge–
or in other developing countries– the challenge– it
will also have to occur here– but the challenge is
that those countries have very low levels of income,
and there’s a reluctance, even here in the United States, just
to buy more expensive energy. And so asking people
who are poor to buy more expensive energy
seems challenging, I think, would maybe be
the way to put it. OK, so those first
7 Facts are, my wife thinks, a little gloomy. And so now I’m going
to try and turn to identify what some
core problems are and hopefully identify a path
forward that is maybe not quite so gloomy. So the 8th Fact is that energy
is mispriced in at least three really critical ways. And the reason I
want to emphasize that is I think the
energy systems that we have are a
consequence of the way we structure energy markets. And so if we misprice
energy, we should not be surprised if it produces
things that we don’t like. So the first thing is–
and this relates more to the leg of the stool
of why there is not access to reliable and
inexpensive energy in many parts of world– is that
in too many parts of the world, energy is treated as a right. And the problem when energy
is treated as a right, is that no one
really can supply it, because that means
that if it’s a right, no one’s going to pay for it. And so this is just
a graph of a lot of the technical transmission
and distribution losses in a lot of countries. And you can see– here’s
India, and here’s Pakistan. And they all have
very high losses. And what that is saying
is the distribution companies have high losses
because people are not paying, and as a consequence, supply
ends up being very low. OK, a second problem, which
the decline in energy prices has helped alleviate some,
is that end user subsidies are very high in lots
of parts of the world. And everyone knows the stories
of gasoline being $0.30 a gallon in Venezuela–
maybe it’s even lower. And there’s lots of
mixed price on energy. And the result of that is that
you can often have rationing. It’s motivated as
being something to help with distribution–
sorry– with redistribution goals. We should go back one– there. But what you can see
is that it’s actually very ineffective at dealing
with redistribution. Here is this share of the
subsidy in natural gas, electricity, and
gasoline that actually hits people in the
bottom 20% of the income. And so you have
these policies that lead to inefficient
use of energy that are very ineffective at
actually providing resources to poor families. All right, and now I’m going
to– the third way in which energy markets are structured
such that they produce outcomes that may not be desirable, is
that the graph I showed you earlier of how much
it costs to produce a kilowatt hour of electricity,
does not say anything about what the damages are
from carbon– climate change or from air pollution. And those damages should
be reflected in prices, and if they were
reflected in prices, we would be able to
make better choices. And so what I’m going
to do in this graph and the next graph
is try to show how conventional coal, which
looked like such a good deal, and natural gas, which
looked like such a good deal, and nuclear, which is
way out of the money, the economics of that
begins to change, if we had an energy system
room where the energy prices reflected
the human health, consequences of air pollution,
and the climate change consequences. And so what you can
see– so the blue is just the private costs
that we’ve been talking about. But what you could see is that
if you add the carbon cost, and if you had the health
cost– and we could spend a long time talking about
how they’re calculated, but if you take them
for a given right now– you have a very
different system. So nuclear, which has
been way out of the money, now looks like a completely
viable technology. Natural gas combined
cycle plant still looks like a good technology. Coal looks like it’s
out of the money. And so if we had an energy
system in the US and abroad, we would have much
different energy outcomes. It’s also worth noting that
some of these other technologies remain far out of the money. OK, the next point
I want to make is that energy policy often
is like environmental policy. It often kind of borders
on religion, and people just kind of– there’s things
that they believe to be true, and they’re not
often evidence-based. And I’ll just give you
one example of this. So one area where
that’s especially true is around the energy
efficiency policies. Energy efficiency
policies are much beloved, largely because they’re a
way to save energy and help the environment. And it’s widely– every
climate change plan has energy efficiency
policy at its core. So 44% of the IEA’s plan
to address climate change is supposed to come from
increases in energy efficiency. And what I found in some
research, which I’m not going to be able to go
into great detail about, is that, at least in the
residential sector in the US, the claims about
energy efficiency are somewhat overstated. So here, we ran a
real– we were actually able to run a randomized
control trial on 30,000 households in
Michigan, some of whom were randomized into
undertaking energy efficiency investments in their homes
and some of whom were not. And the striking
finding from that was that, of the
projected savings– so the engineering model said
that these households would achieve– only 39% of those
savings were actually achieved. And it’s just an
important reminder that it’s critical
to test policies. And that’s something that we
certainly put a lot of emphasis on at the University of Chicago. OK, so the last act
that I’ll talk about, and then we’ll have
some questions, is that the energy sector is
an incredibly dynamic place, and it’s causing rapid change
in many different dimensions. So the first, which is a
discovery of the ability to cost effectively pull natural
gas and petroleum, or oil, out of shale rock– everyone
knew it was there, but no one thought
it could be obtained at a reasonable price– has
really transformed the North American energy economy. It’s transformed the world. And there’s a lot of
ways to summarize that. And to date, it’s basically only
taken place in North America, but what you can
see here is it’s as if about 75 years’ worth of
current global gas consumption fell out of the sky. It’s also as if about 15
or 16 years’ of petroleum consumption, global consumption,
fell out of the sky. And that’s assuming
that all these countries find ways to access the
shale gas and the shale oil. OK, so that’s on the
fossil fuel side. There’s been really
tremendous innovation, which reflects the insight and
hard work that has gone on, largely in North America. It’s also worth looking
at– the green line here is the cost of
solar PV, and what one reads in newspapers
is approximately true. There’s been tremendous
improvement in solar PV that have brought the
cost of that down. It is still more expensive
than fossil fuels, but there are hopes that
that will decline as well. And here are some of
the projections on what could happen to batteries. We talked a little
bit about that as it relates to automobiles. OK. All right, so I’ll
just close with– and then we’ll have, I’m sure,
a good chance to talk about some of the things that came
up– in addition to being on the faculty in the
Economics Department, I direct Energy Policy
Institute of Chicago, which has, as its mission,
discovery, impact in education. And what we aim
to do, I think, we focus on the three
legs in the stool that I talked about–
markets and pricing, which are how can you have markets
and pricing that deliver inexpensive and reliable
access to energy, how do you deal with climate change
that is also a function of some of our energy choices,
and how do you deal with the
environmental consequences? At the heart of what we
try to do, of course, is frontier research. That’s the first
thing that anyone in the University of Chicago
who is worth their salt wakes up in the morning
trying to think about. But what we try to
do, which I feel is an emerging
model in academia is find– a weak point
of academia is that we’re really good at
creating very complex languages that allow us to
talk to each other, but not so good at communicating
outside of our little circles. And at the Energy
Policy Institute, we put a lot of
emphasis in finding ways to communicate the results
of the frontier research in ways that are easy to
access for the outside world. And this is just a sampling
of some of the research that we’ve done
and its influence on the media and other ways. And you know,
there’s no question that the energy challenge
is interdisciplinary. What I will say is that I came
here to Chicago 18 months ago– one of the reasons I
came– I had been at MIT– is that at MIT, the
energy problem was treated as really an
engineering and science problem. And my own view is that
engineering and science kind of follow the economics. And so, the
University of Chicago is unique, not in having
this collaboration across disciplines,
but in having, kind of, economics as the lead
horse, as opposed to maybe being at the end. OK, so with that, I think I’d
be happy to answer any questions that people might have. Yeah. [APPLAUSE] AUDIENCE: So thinking about
that north/south line in China, and thinking about–
you started this, talking about the
developing countries and the quality of life
improves with energy. And I’m wondering if
that analogy was really answering the right question,
because maybe they didn’t do it the right way, putting these
little coal-fired boilers in place. But is the question
really if they didn’t have the energy, what
would their life expectancy be? If they didn’t have the
coal there, would it be– PROFESSOR MICHAEL GREENSTONE:
No, so that’s a great question. AUDIENCE: It would certainly
be a miserable life. PROFESSOR MICHAEL GREENSTONE:
So the way I think of that paper and that line of research
is not a referendum on should we have
energy, but rather what are the consequences of
air pollution for human health. And then, there’s
all kinds of ways that you can reduce
air pollution that don’t roll you all the way
back to don’t use energy. And so that could be– AUDIENCE: It just didn’t seem
to me representative of– you know, we’re 25% of the global
energy use, here in the States, I think, something like that. It just didn’t seem like
a representative example of whether or not
energy impacts life. I think it actually
improves life expectancy, and it has for– PROFESSOR MICHAEL
GREENSTONE: Yeah, so I don’t want to be
too didactic, here. But let’s not confuse the
two legs of the stool, here. One leg is how do
you have access to inexpensive and reliable
energy that powers growth? So I think the short answer is
that you set up energy markets so they’ll deliver that. The second is are there
ways that you can do that without leading to the
massive environmental problems that one sees in China? And I think a simple
thing in China would have been to install
pollution abatement equipment and not have all
these little boilers. It’s not to not use energy. I mean, look out
the window, here. There’s lots of energy
consumption in Houston, but you don’t have all the
high levels of air pollution. AUDIENCE: So if you applied the
PM 10 data to the Beijing area, how much shorter are
their lives because of the coal plant, power plant? PROFESSOR MICHAEL
GREENSTONE: Yes, we have to define what it
means, what you’re comparing it to– but the comparison I was
making in the paper is that if you live just north of
the line relative to south, you live about 3 1/2 years less. AUDIENCE: But, you know what
the PM data is for the Beijing, right? I mean, it’s horrible. PROFESSOR MICHAEL
GREENSTONE: Yes. AUDIENCE: So can you extrapolate
and apply your research to that area, say how short– PROFESSOR MICHAEL GREENSTONE:
So here’s the way to say this, if China brought it
all of the country into compliance with China’s
environmental standards for PM, there would be, I
think it’s, like, 2 and 1/2 billion extra
life years gained. AUDIENCE: You know,
I look at this, and it reminds me
of the Dominicans that taught me about
spirituality when I was in high school. It would good to be pure,
but that’s not possible, when you’re a 14-year-old. What’s possible for
China and India is not to say we’re going to convert
to really expensive alternative, it’s to do something that
says we’re going to control the pollution, right? Doesn’t that seem like
the possible mission that we should be asking
people to work on? Because you’re not going
to go to really, really expensive alternatives. You’re going to use the things
that are politically feasible. And the things that seem
feasible is to say, here’s how to reduce the pollution. PROFESSOR MICHAEL
GREENSTONE: I think, what I take away from
this and your question is– I think the notion that
China and India are going to devote tons and
tons of resources to reducing CO2 is
probably not very likely. They have very
immediate concerns, extraordinarily low levels
of income– more so in India than in China. But there’s an immediate
problem they could confront, and it’s probably
in their interest, and that’s dealing
with the air pollution. And I think there is
a path to doing that. There are also some CO2
benefits along the way. AUDIENCE: You showed
two charts that I thought were very interesting. The first was the break-even
for the internal combustion engine versus the electric car. And you showed the
prices being astronom– obviously very uneconomic
at current standards. At the very end, you skipped
through it very quickly, but you showed the price
of batteries falling very, very– I mean, the rates
obviously flattening out or decreasing. But have you done analysis
on when you thought those would be more economic? PROFESSOR MICHAEL GREENSTONE:
What if we used WTI futures? For December, 2020,
that’s $55– that would require batteries, $64. AUDIENCE: So now
follow-up question, sorry. This is a purely– this
model is purely based upon energy prices,
correct– none of the secondary
or tertiary cost associated with the energy? So you went on earlier and– PROFESSOR MICHAEL
GREENSTONE: Oh yeah, so this was ignoring the CO2
and air pollution consequences. AUDIENCE: So can you rerun
all this, combining– PROFESSOR MICHAEL GREENSTONE:
I’ve made a version of this, and it shifts the
line up and increases the space in which electric
vehicles can operate– would look cost effective. It is also true I’m
ignoring range anxiety, and things like that, in here. So it’s not a
perfect graph, but it tries to encapsulate,
I think, what some of the core
economic questions are. AUDIENCE: Can you
talk a little bit on energy intensity of
countries as countries get richer and wealthier–
the energy intensity improves, meaning countries
like US or Germany, the GDP growth equated to their
energy consumption reduces. So countries like India and
China, as the GDP increases, they will get more
efficient, particularly China now that they’re switching
from manufacturing to more of a service-based
industry, where 85% of the growth that
we expect in the GDP is going to come from services. And the second
part of my question is China and India have been
very aggressive in production of renewable energy. China is the largest producer of
renewable energy on the planet. So don’t you think that these
countries already contributing in a way to reduce CO2
emissions– maybe not enough? But– PROFESSOR MICHAEL
GREENSTONE: So I’m not making any statement
about what’s enough. These are all facts. There’s no moral
judgments, here. These are, like,
decisions that countries are going to have to make,
basically about how much resources– Again,
let’s just go back. There’s these three
legs of the stool. They’re trying to
maximize economic growth, and subject to dealing with
whatever air pollution problems that it’s producing, and
then subject to some concern about CO2, which
is down the line. And based on their income
level and local preferences and local politics,
I think countries are going to locate themselves
in different places. Now, to your broader
question about how much can we expect energy
intensity to change over time, there’s no question all
these countries– US, too– are becoming more energy
efficient over time. The really low levels of energy
consumption in China and India, though, I think–
more so in India, are likely to swamp that. And you saw that
in the statistics over what the projected total
energy consumption will be. And that’s kind
of– if you think about what is the
core– you know, this is meant to be much
broader than just climate. But the core challenge
in my view for climate is that by hook or
crook, the world is relying on today’s
relatively poor countries to spend more on
energy, and that’s a difficult, difficult ask. Like, one possibility is that
US could ship a bunch of money to those countries,
but I wouldn’t want to run for
President– I think people see what running for
president is like, right now. I would not– and my
wife is very beautiful– but I would not want
to run for president on a campaign of sending
$20 billion a year or more to some other country. MODERATOR: And this will
be the last question before some remarks
from the Club. PROFESSOR MICHAEL GREENSTONE:
I there’s one more after that. AUDIENCE: I’m sure
you probably have done some work on carbon pricing. Any headline comments
on carbon pricing as either a depressant
on economic growth or as an incentive
for innovation? PROFESSOR MICHAEL
GREENSTONE: Yeah. So I think part of the challenge
is that the low carbon energy sources are just
expensive, right now. And why is that? There’s not really an
incentive for companies to develop lots of resources
to develop a new product, because we, by and large, the
world doesn’t price carbon. And I think getting the
price of carbon above zero would have, I think, probably a
tremendous first order of facts on that. And I think that any
path to doing something about climate change has, I
think, got to run through that. I think you had a second
part of your question, which escapes me. AUDIENCE: Well, both. So does a carbon price, in your
view and based on your data, depress economic growth overall? PROFESSOR MICHAEL
GREENSTONE: Oh, sure. So there’s, you know, so again,
what I want to draw you to is like conventionally measure–
so ignore the health benefits. There’s no question that
higher energy prices are not good for economic growth. The degree to which
that’s counterbalanced by health problems and the
possibility of CO2 problems is a deeper question
and one that I’ve tried to shed some light on. But I think, if I wanted you to
take away one thing from this, it’s how difficult it
is– near impossible– to achieve all three legs. So if you want to push
an economic growth, there’s a risk that you’re
going to make the air pollution problems around the
world– not so much, here– and the CO2 problems worse. And if you want to just
push on those two things, you’re going to make the
economic growth slower. AUDIENCE: Now, natural gas only
has about 50% of the CO2 output that coal does, to say
nothing of other pollutants. It seems like if we could switch
from coal to natural gas– 40% of the US electricity is
still generated from coal, down from 50%. But the worldwide effort
to reduce the use of coal to natural gas–
it seems like that would be a very good fix for
much of the world’s problems. Not all, but that would be
a big help, I would say. PROFESSOR MICHAEL
GREENSTONE: Natural gas has a lot of
advantages over coal. As you emphasized, it has
half the carbon content on the particulate matter,
criteria pollutants. It’s a lot better. I think that the
tremendous increase in the supply of natural gas
around the world, I think, could be viewed
as both a benefit in helping that transition. And then if you were
only narrowly focused on the CO2 leg of the stool, you
might wonder– well goodness, the increase in the supply
of global fossil fuels has gone up a lot, here, and
is that beneficial on that? And that’s a tough question. AUDIENCE: There’s
no way to get away from fossil fuels for
many years to come. Just if we had a lower
CO2 emitting ones, that would be a big benefit. PROFESSOR MICHAEL GREENSTONE:
It would have a large CO2 impact, that’s for sure. OK, I’ll be around and happy
to talk to people on the side. Thank you for the
great questions. [APPLAUSE] CAMILO PARRA: My
name is Camilo Parra, and I’m the current president
of the Alumni Club of Houston. I graduated from
the College in 1991, and I’m honored to be
with you this afternoon. I invite each of you to
continue the conversation. Perhaps you’ll
discuss whether you’re going to put that
deposit on the Model 3 down during the reception
that will begin immediately following these remarks. I would like to
extend a big thanks to Tim for sharing
more information about the University of Chicago
Campaign Inquiry and Impact, to Eric, for
introducing our speaker, and to Michael, of course,
for that great talk. And thanks again for each of you
for sharing your valuable time with us this afternoon. Tim mentioned the
125,000 engagement goal. And just by being
here this afternoon, you’re helping us
meet that total. You are our best ambassadors. Bring your friends and
fellow alumni to events like Harper Lectures that
helps us strengthen our career networks and reach our
125,000 engagement goal. Your attendance today
counts on so many levels. Thanks for joining the
thousands of alumni around the world who are
giving to support scholarships and new inquiry, attending
events, leading reunions, and so much more. Thank you for being
here this afternoon and for making
our University one of the great centers of
education, discovery, and impact. [APPLAUSE]

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