Presentation by Michael Greenstone, "The Coming Energy Boom, Environmental Quality, and Productivity Growth"

1. OECD
NBER
September
2014
PARIS
The Coming Energy Boom, Environmental Quality, and Productivity Growth
Ensuring Productivity Growth and Innovation in the Long Run
September 26, 2014
Michael Greenstone,
The Milton Friedman Professor in Economics, University of Chicago; Director of the Energy Policy Institute at Chicago (EPIC)

3. OECD
NBER
September
2014
PARIS
Overview
1.Energy Consumption is Critical to Well-Being and is Projected to Grow Sharply

4. China
France
Mexico
USA
Canada
India
Energy Growth is Critical for Living Standards
ln(GDP Per Capita)

5. Energy Access is a Major Problem in Many Countries
KWh/capita
75th Percentile
25th Percentile

6. Country Population
(millions)
KWh/Capita
USA 312 13246
UK 63 5472
Germany 81 7081
Russia 143 6486
China 1357 3298
Pakistan 182 449
Bangladesh 157 259
India 1252 684
Bihar (State) 104 122
Ghana 26 344
It takes 131 KWh
to use a 60 watt
bulb for 6 hours
per day for a full
year

7. 285 quadrillion Btu
535 quadrillion Btu
Projected Energy Consumption Growth is
Concentrated in Non-OECD Countries

8. OECD
NBER
September
2014
PARIS
Overview
1.Energy Consumption is Critical to Well-Being and is Projected to Grow Sharply
2.Fossil Fuels are the Cheapest Energy Sources but They Cause Air Pollution and Climate Change

9. Electricity Generation from Fossil Fuels is Relatively Inexpensive (USA)
3.2
4.9
5.5
6.2
8.9
9.4
12.2
0
2
4
6
8
10
12
14
Existing
Coal
Existing
Natural
Gas
New
Natural
Gas
New Coal
Wind
(Onshore)
backed up
New
Nuclear
Solar (PV)
backed up
Private Costs…
¢/KWh

10. OECD
NBER
September
2014
PARIS
10

11. New Drilling Techniques are Game Changers for Natural Gas and Petroleum

12. Tremendous Innovation in Fossil Fuels in the Last 5-10 Years

13. Rank Country
Shale oil
(billion barrels)
Rank Country
Shale gas
(trillion cubic feet)
1 Russia 75 1 China 1,115
2 U.S. 58 2 Argentina 802
3 China 32 3 Algeria 707
4 Argentina 27 4 U.S. 665
5 Libya 26 5 Canada 573
6 Australia 18 6 Mexico 545
7 Venezuela 13 7 Australia 437
8 Mexico 13 8 South Africa 390
9 Pakistan 9 9 Russia 285
10 Canada 9 10 Brazil 245
345 7,299
32 113
Source: EIA
Top 10 countries with technically
recoverable shale oil resources
Top 10 countries with technically
recoverable shale gas resources
World Shale Oil
World Consumption of
Liquids in 2010
World Shale Gas
World Consumption of
Natural Gas in 2010
Tremendous Innovation in Fossil Fuels
in the Last 5-10 Years

14. Projected Carbon Emissions, OECD and Non-OECD
0
5
10
15
20
25
30
35
1990
2010
2020
2030
2040
Carbon Emissions (Gt)
OECD
Non-OECD

15. Global PM 2.5 Concentrations

16. Mean temperature (°C), Year 2013 relative to Year 1880

17. 0
1
2
3
4
5
6
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
Change In Temperature Relative to Pre Industrial Era (Celsius)
Predicted Change in Global Temperature Based on 6 SRES Scenarios (IPCC Data)

18. 3,600
2012 Economically Recoverable Reserves
Carbon Poten al (GtCO2 )
Conventional Fossil Fuels Unconventional Fossil Fuels
282
550
975
1725
2475
Already
Emitted
between
2000 and
2012
1.5°C, 50%
2°C, 80%
3°C, 80%
2.5°C, 80%
768 GtCO2
Preventing Disruptive Climate Change Requires
Leaving Valuable Resources in the Ground
18

19. Restraining Climate Change is a Global Project
010020030040050060070080019902005202020352050206520802095Source: EPA (emissions) and MIT Global Atmospheric CO2ConcentrationsParts per millionReference caseEffect of U.S. cap-and-trade bills in 110th CongressEffect of U.S. legislation reducing emissions by 80% between 2005 and 2050

20. Any Mitigation Strategy Requires Large, Expensive Emissions Reductions from Developing Countries
0
5
10
15
20
25
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2065
2070
2075
2080
2085
2090
2095
2100
Billions of Tons of CO2-e
Figure 1: Chinese Emissions under Baseline vs. Mitigation Scenarios
Baseline Emissions
Emissions under 550 ppm target
Source: Deshpande and Greenstone (2010). Calculations based on Energy Modeling Forum estimates.

21. OECD
NBER
September
2014
PARIS
Overview
1.Energy Consumption is Critical to Well-Being and is Projected to Grow Sharply
2.Fossil Fuels are the Cheapest Energy Sources but They Cause Air Pollution and Climate Change
3.The Productivity Consequences of Air Pollution: Evidence from China

22. OECD
NBER
September
2014
PARIS
22
Chen, Ebenstein, Greenstone, and Li (2013) “Evidence on the Impact of Sustained Exposure to Air Pollution on Life Expectancy from China’s Huai River Policy”

23. China’s Winter Heating System
•Heating system was established in the 1950-1980 period
–Heating powered by combustion of coal in boilers
–Policy Operates During Winter: Nov 15- March 15
 Coal for boilers is heavily subsidized, most frequently provided for free

24. Residential Chimneys

25. The Huai River Policy

26. 0
200 400 600 800
-20 -10 0 10 20
Degrees North of the Huai River Boundary
TSP in South TSP in North Fitted Values from Cubic in Latitude
The estimated change in TSP (and
height of the brace) just north of
the Huai River is 247.5 μg3
and is statistically significant
(95% CI: 114.5, 380.6).
Air Pollution is Higher North of the Huai River

27. 65 70 75 80 85 90 95
-20 -10 0 10 20
Degrees North of the Huai River Boundary
L.E. in South L.E. in North Fitted Values from Cubic in Latitude
The estimated change in life expectancy (and
height of the brace) just north of the Huai River
is -5.04 years and is statistically significant
(95% CI: -8.81, -1.27).
Life Expectancy is Lower North of the Huai River

28. 500 Million People in Northern China are losing more than 2.5 billion years of life expectancy

29. Loss of 2.1 Billion Life Years in India
WHO
Indian NAAQS
Air Pollution Standards
Loss of 2.5 Billion Life Years in Northern China
PM2.5 Levels Imply Large Life Expectancy Losses in Other Countries Too

30. OECD
NBER
September
2014
PARIS
Overview
1.Energy Consumption is Critical to Well-Being and is Projected to Grow Sharply
2.Fossil Fuels are the Cheapest Energy Sources but They Cause Air Pollution and Climate Change
3.The Productivity Consequences of Air Pollution: Evidence from China
4.The Productivity Consequences of Climate Change: Evidence from India

31. “The Unequal Effects of Weather and Climate Change: Evidence from Mortality in India” -Burgess, Deschenes, Donaldson, Greenstone

32. 0
10 20 30 40 50 60 70
<49 49-52 52-54 55-57 58-60 61-63 64-66 67-69 70-72 73-75 76-78 79-81 82-84 85-87 88-90 91-93 94-96 >=97
Historical Distribution: 1957-2000 Average Hadley 3 A1FI (error-corrected): 2070-2099 Average
Historical and Prediction Distribution of Daily
Average Temperatures in India

33. Effect of Daily Average Temperatures on Agricultural Yields
-0.010-0.0050.0000.005 <7070-7273-7576-7879-8182-8485-8788-9091-9394-96>=97Daily Average Temperature (F) Estimate95% C.I. Estimated Impact of a Day in 10 Temperature-Day Bins on Log Agricultural Yield, Relative to a Day in the 70-72 Farenheit Bin

34. -0.010 -0.005
0.000 0.005
<70 70-72 73-75 76-78 79-81 82-84 85-87 88-90 91-93 94-96 >=97
Daily Average Temperature (F)
Estimate 95% C.I.
Estimated Impact of a Day in 10 Temperature-Day Bins on Log Agricultural Real Wage,
Relative to a Day in the 70-72 Farenheit Bin
The Effect of Daily Average Temperatures on Log
Real Agricultural Wages

35. Mortality Impact of Daily Temperature in India and United States
-.0050.005.01 <7070-7273-7576-7879-8182-8485-8788-9091-9394-96>=97Daily Average Temperature (F) India EstimateIndia 95% C.I. US EstimateEstimated Impact of a Day in 10 Temperature-Day Bins on Log Annual Mortality Rate, Relative to a Day in the 70-72 Farenheit Bin

36. Predicted Impact of Climate Change on Indian
Life Expectancy at Birth
-8 -6 -4 -2
0 2
2015-2029 2030-2044 2045-2059 2060-2074 2075-2099
Rural India Urban India
Years

37. OECD
NBER
September
2014
PARIS
Overview
1.Energy Consumption is Critical to Well-Being and is Projected to Grow Sharply
2.Fossil Fuels are the Cheapest Energy Sources but They Cause Air Pollution and Climate Change
3.The Productivity Consequences of Air Pollution: Evidence from China
4.The Productivity Consequences of Climate Change: Evidence from India
5.Energy Pricing Policies Cause Poor Supply, Strain Budgets, Inequality, and Excessive Reliance on Fossil Fuels

38. 1.Low Rates of Payment for Electricity
2. Large but Poorly Targeted Energy Subsidies
3. Pollution and Climate Damages are not Priced
3 Problems with Energy Pricing

39. Repayment Rates are Low in Developing Countries. Leading to “Circular Debt”
0
5
10
15
20
25
Percentage of Output
Electricity Transmission and Distribution Losses

40. Distribution Losses Limit Supply
0
5,000
10,000
15,000
20,000
0%
5%
10%
15%
20%
25%
30%
35%
40%
KWh Consumption per Capita
Aggregate Transmission & Distribution Losses (%)
USA
UK
Brazil
Russia
India
China
Pakistan

41. 3 Problems with Energy Pricing
1.Low Rates of Payment for Electricity
2. Large but Poorly Targeted Energy Subsidies
3. Pollution and Climate Damages are not Priced

42. End User Energy Consumption Remains Heavily Subsidised

43. Ratio of End User Energy Subsidy to Military Expenditure
0
1
2
3
4
5
6
7
8
Iran
Egypt
Venezuela
Bangladesh
Indonesia
Argentina
Nigeria
Mexico
Ecuador
Thailand
Pakistan
Algeria
Vietnam
Libya
Saudi Arabia
India
Russia
Angola
South Africa
China
Ratio

44. Energy Subsidies Benefit the Wealthy, not the Poor
6%
9%
10%
Electricity
Natural Gas
Gasoline
Share of Fossil Fuel
Subsidies Received
by the Lowest 20%
Income Group

45. 1.Low Rates of Payment for Electricity
2. Large but Poorly Targeted Energy Subsidies
3. Pollution and Climate Damages are not Priced
3 Problems with Energy Pricing

46. Fossil Fuels Greatly Benefit from Failure to Price Pollution and Climate Damages
9.1
11.7
6.6
9.4
9.9
13.3
0
2
4
6
8
10
12
14
16
18
Existing
Coal
New Coal
New
Natural
gas
New
Nuclear
Wind
(Onshore)
backed up
Solar (PV)
backed up
¢/kWh
Private Costs
Non-Carbon External Costs
Carbon-External Costs

47. Policy Implications
1.Virtuous Circle Between Repayment Rates, Energy Supply, and Growth
2.Energy Subsidies Are Expensive, Exacerbate Inequality, and Usually Favor Fossil Fuels
3.Pricing Energy Based on Full Social Costs Would Reduce Health and Climate Damages

48. Papers Cited
•BP Energy Outlook 2035
•Burgess, Deschenes, Donaldson, Greenstone (2013) “The Unequal Effects of Weather and Climate Change: Evidence from Mortality in India”
•Chen, Ebenstein, Greenstone, Li (2013) “Evidence on the Impact of Sustained Exposure to Air Pollution on Life Expectancy from China’s Huai River Policy”, Proceedings of the National Academy of Sciences, 2013, 110 (32).
• Deshpande and Greenstone (2010). Comment on “On the Economics of Climate Policy”: Is Climate Change Mitigation the Ultimate Arbitrage Opportunity?”.E. Journal of Economic Analysis &Policy :Vol. 10: Iss. 2 (Symposium), Article 20.

49. Papers Cited Continued…
•EIA Energy Outlook 2014. http://www.eia.gov/forecasts/aeo/pdf/0383(2014).pdf
•E. Somanathan, Rohini Somanathan, Anant Sudarshan, Meenu Tewari (2014). The Impact of Temperature on Productivity and Labor Supply: Evidence from Indian Manufacturing
•Greenstone, et al. (2014) “Lower Pollution, Longer Lives: Life Expectancy Gains if India Reduced Particulate Matter to Air-Quality Standards”
•Greenstone, Looney (2012) “Paying Too Much for Energy? The True Costs of Our Energy Choices”