A Low-Carbon Economy (LCE) and a Low-Fossil Fuel Economy (LFFE)

Written by Dusty Miriam Gutierrez

A Low-Carbon Economy (LCE) or Low-Fossil Fuel Economy (LFFE) refers to an economy which has a minimal output of greenhouse gas (GHG) emission into the atmosphere. Carbon dioxide, an undesirable byproduct of many industrial and commercial processes, is a greenhouse gas. That is, it is believed to contribute to global warming.

Attempts to reduce carbon dioxide emissions address major concerns among industrial nations. First, an LCE addresses unreasonable accumulation of GHG (specifically carbon dioxide, CO2) in our atmosphere. Some scientists claim that the overconcentration of this gas could dangerously change our climate in the near future. Second, an LCE is necessary to reduce dependency on fossil fuel while developing alternative energy sources and energy-efficient products. Third, oil and natural gas are depleted resources. As they are depleted through time, coal might become a strong substitute in the demand for energy. Coal power plants are the greatest industrial emitters of carbon dioxide gas and could worsen global environmental situations. Fourth, as depleted resources become more limited, their global demand will most likely increase, bringing unprecedented price increases in future decades. Fifth, the Tyoto Treaty, originally ratified in 1997, needs to be renewed in 2012. This treaty is an international agreement that requires substantial reduction of greenhouse-gas emissions, especially by big emitters such as the US, China, and India. 

There are many things our country can do to break away from its dependency on petroleum, natural gas, and other fossil raw materials. Our country needs to develop the use of low carbon-biofuels such as cellulosic fuels (i.e. bioethanol, biobutanol). Our country needs to expand its use of energy-efficient products, such as the creation of fuel-efficient vehicle shapes and configurations, and more alternatives of flexible-fuel vehicles. Our country needs to turn to more energy-efficient methods, such as petroleum fuel surcharges (which increase consumer cost), greater use of marine and electric-rail transport, less use of air and truck transport, and more pipeline capacity for common fluid commodities such as water, ethanol, butanol, natural gas, and hydrogen

There are various technical solutions to achieve an LCE while continuing to exploit non-renewable resources. The solutions are increases in renewable-energy use, national energy efficiency, carbon-capture and storage technology, and new fuels development. Carbon capture and storage (CCS) is a technological process that separates carbon dioxide from other gases produced by large stationary power plants. The carbon dioxide is then transported and stored deep into the earth or into the ocean. 

There are various low-carbon energy sources which can be developed. Renewable energy is energy generated from natural resources such as sunlight, wind, rain, tides, and geothermal heat, all of which are naturally replenished. Renewable energy also includes the further development of domestically-produced biofuels, solar cells, fuel cells, wind farms, ocean wave energy, and greater use of geothermal heat pumps. Nuclear power is another proposed strategy to provide carbon capture and storage (CCS).  To be successful, all of these technical solutions and strategies must have the support of the Federal Government through investment, regulation, and education.

There are several economic proposals made to transition the US to an LCE such as command and control regulations, emission trading, and carbon tax. Emission trading, or a “cap and trade system,” has recently emerged as a preferred tool for addressing global greenhouse gas (GHG) emissions. 

A cap and trade system works by setting a fixed limit on emissions (the cap), and distributing rights to emit, called allowances, up to the level of the cap to regulated entities. These regulated entities can then transfer the allowances among themselves. (This is trading.) Any increase in allowances and emissions of one firm is matched by a corresponding reduction of allowances and emissions elsewhere. The cap is reduced over time, and over time greater emissions reductions are obtained. 

Under acap and trade regulatory system, firms can either reduce emissions to the level of their allowance holdings, through whatever technologies or process improvements are available, or they can purchase allowances to cover additional emissions. A firm that finds it relatively easy and inexpensive to reduce emissions can free up emissions allowances which it can then sell to other firms. This buying and selling of allowances establishes a market price for the permit, which reflects the underlying cost of reducing emissions of that pollutant.

Summary

Global implementation of LCEs is proposed as a means to avoid catastrophic climate change, and to reach an ideal zero-carbon economy. The aim of the LCE is to regionally integrate all domestic sectors of the economy such as manufacturing, agriculture, transportation, and power generation around materials and technologies that produce energy with less GHG emissions. Another aim of the LCE is the international effort to reduce the greenhouse gas carbon dioxide. 

Solutions to achieve an LCE require the continuous effort to exploit non-renewable resources. The adaptation of an economic strategy that measures unit price of emission production is necessary to spur the development of non-renewable resources.   The elimination of emission leakage requires complete geographic coverage of carbon dioxide emissions. The implementation of an economic system is necessary to reduce carbon dioxide emission levels at national, multi-national, and/or global levels. The increased participation of the US in the international effort is necessary to reduce the greenhouse-gas carbon dioxide and to allow for more global regulation of CO2. 

Regardless of the global economic and financial situation around the globe, the concept of an LCE must be part of the economic plans of all governments around the globe. The concepts of an LCE and new innovation and technologies, not only address climate change, but could also spur the economies free of fossil fuel and bring together stronger economies into the 21^st Century. For the US, an economy free of fossil fuel could mean the beginning of the Third Industrial Revolution, with a wave of new energy policies, innovations, and new ways of organizing business. New waves of technical and organizational exploration could carry the American industrial society into new levels of production domestically and globally. 

  The American auto industry is the core of the manufacturing industry in the US.   This industry and auto-related industries account for 4% of the Gross Domestic Product in the US. Both of these industries also support a large percentage of the US labor market. 

The American auto industry is facing a serious financial crisis as a result of the current credit crunch and unfavorable domestic and global economic conditions. The credit crunch has placed constraints on the auto industry daily financial operations and has also weakened the demand for car purchases. Automakers, with unknown market expectations and without much government support, have invested heavily in low-emission vehicles.  The decline of the auto industry can bring serious detrimental effects to other sectors of the economy.

In response to the current US financial crisis and consequent economic slowdown, Congress has passed a $25 billion bailout package for the auto and auto-parts industries. This package however, may reach $50 billion in the Obama Administration by early 2009. For this package to be likely to succeed, the congressional-package objectives must be carefully defined, must be within a timeframe, and must be within reasonable governmental energy constraints.

An immediate objective is to help the consumer by providing direct and affordable auto loans; thus helping sustain employment in the auto and auto-part industries, helping support sales of automobiles, and helping preserve the short-term liquid assets of the industries.   Short-term liquid assets could be sustained by selling inventory cars at discount prices and thus turning these items into liquid assets.

A medium-term objective will be to provide the funds necessary for the automakers to design and develop more marketable and fuel-efficient vehicles. These two objectives will allow automakers to become more competitive in domestic and global markets while meeting new environmental restrictions imposed by Congress. Environmental restrictions might include producing advanced-technology cars that emit less carbon dioxide, fewer toxic pollutants, and less smog-causing pollutants. 

The current US economic conditions cannot possibly support a sudden transition to production of fuel-efficient vehicles along with a sudden imposition of higher corporate taxes. Both the production of fuel-efficient vehicles and the payment of higher corporate taxes could only lead automakers and related businesses to undesirable bankruptcies. 

 

The US economy has entered a recession period. A recession is a significant decline in economic activity spread across the economy, lasting more than a few months. Roughly speaking, a recession may also be seen as two consecutive quarters of negative growth of gross domestic product (GDP). 

The major cause of our current recession is the $4 trillion early decline in the value of US homes, which could escalate to higher declines in other business activities. However, the root cause of the recession has been the Federal Reserve’s low-interest-rate policy on short-term loans. This policy led to uncontrolled growth in the housing market in the early 1990s, the willingness of mortgage lenders to underwrite fraudulent loans, and the consequent decline in the housing market in 2008. 

The US faces both short-term and long-term challenges ahead. In the short-term, the Federal Reserve needs to closely control the inflow of capital into the financial market. It also needs to guarantee money market securities that big companies need for day-to-day cash flow. In the long-term, the US economy needs aggressive government policies that will revive the economy so it will continue to lead in global markets. Changing the capitalist role of the US can only contribute to weaken market expectations and may lead to a global recession.

Recessions can be brought to a halt by counteracting government policies. So, what have the US policy makers done so far to halt the recession? While the economy is in transition, the current administration has accepted to incur a proactive $1 trillion expense to revive the banking industry and a short-term lending market. 

 After the Obama administration takes office, it plans to implement changes to the economy. The Obama administration’s policies of change focus on long-term economic recovery. They focus on areas where government can intervene to redistribute the wealth, to establish social reform in the health industry, to implement middle-class tax cuts and higher corporate taxes, to introduce massive efforts to rebuild infrastructure, to invest in research and development of alternative sources of energy, and to help middle-size US-based companies survive in an increasingly global competition, hampered by increasing US foreign-oil dependency.

These changes could lead to bigger government spending, non-aggressive policies in solving the immediate energy crisis, and higher taxes levied on capital-gains, big corporations, and medium-size businesses. These changes could bring undesirable slow growth and could slow down job creation.  

In the short-term, the Obama administration has offered little insight into how change will come to America. What we know is that Congress will take time to approve the distribution of the $1 trillion banking-industry bailout (short-term challenge). 

Meanwhile, fear and inactivity of market participants (both domestic and global) could create a long and deep recession period. Many businesses fear the consequences of the Obama administration policies and might be already planning to shelter themselves from higher taxes and other undesirable government policies.

Confidence in an economic system depends strongly on speculation of market investors. The possibility of US economic default is globally feared. Investors in the US and abroad are focusing on the core of the US economic problem. The core problem is the massive destruction of capital caused by markdowns and trouble assets (mortgage assets, bad mortgages, bad credit, irresponsible builders and irresponsible consumers). The erroneous US economic policies can lead advanced economies into a recession, which will prolong the financial market recovery period in the US and abroad, and bring fears of a global depression. 

A message to the Obama administration is to avoid bringing CHANGE in turbulent economic times. Resolve the core of the financial problem with non-partisan economic policies. Policies to protect the middle class might hardly revive the economy. Don’t change the leading role of the US among advanced economies. Don’t bring into the country Marxist economic reforms such as social reforms and income distribution. These changes will introduce confusion in global markets and reduce the market expectations of market speculators. Marxist reforms in the midst of market speculations could only prolong recessionary periods and provoke a global economic recession.