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Reduce Greenhouse Emissions and Make a Profit: My Forty-Year Focus on Climate Change

Commentary

Thomas R. Casten

Volume 38.1, January/February 2014

In 1975, Cummins Engine executives asked me to look at the twenty-five-year future and then suggest the major problems that a multinational manufacturing company would face over that period. One year into the analysis, I identified population growth as the major problem and thought that climate change would be the next most important issue. In 1975, the rate of fossil fuel combustion was such that we were releasing an amount of carbon into the atmosphere every year that nature had taken about one million years to store. Furthermore, various pundits estimated that 1975 fossil fuel consumption levels would burn all estimated fossil fuel in 400 years.

My second major conclusion was that climate change mitigation would require solutions that profitably reduced CO2 emissions, since the world’s governments would not collectively enact and enforce economically punitive measures. That conclusion informed my entire career. Since 1977, I have founded and managed several companies with a mission of profitably reducing greenhouse gas emissions by capturing energy that is normally wasted and turning it into clean electricity and heat. Now seventy-one, I am more engaged than ever (although my son Sean is now the CEO), and I continue to see mitigating climate change as a major economic opportunity for entrepreneurs and for society.

However, today, the world fossil fuel burn is more than double the 1975 rate, and atmospheric concentrations of CO2 continue to rise.

My experience suggests a contrarian view on the climate change debate that may be worth sharing with my fellow skeptics, including those of you skeptical of climate science. You may have a sign error in your assumptions about the cost (benefit) of reducing carbon dioxide emissions.

My colleagues have been involved in nearly 300 waste energy-recycling projects involving $2 billion of total investment, and nearly all continue operating. These projects generate 11,000 megawatts of heat and power and avoid 5 million tons of CO2 per year, and they reduce manufacturing costs. The projects collectively save the host companies $50 to $100 million per year, after returns to investors and lenders. In other words, these projects cut manufacturing costs by $10 to $20 per ton of avoided CO2 emissions, after repayment of capital.

By contrast, nearly everyone assumes the opposite, namely that any requirement to reduce CO2 emissions will increase the costs of energy services and cut our standard of living. Few seem to realize that it costs a great deal to buy fossil fuel and then waste the energy, leaving nothing behind but carbon dioxide. I suspect people assume the system of generating and delivering electricity and thermal energy is economically optimal, in which case reducing CO2 emissions would make the system less efficient and thus more expensive. But the energy system is far from optimal; it is full of needless waste.

Consider the logic of assumed energy system optimality. Economic theory says that in a free market, an invisible hand will drive self-interested producers to optimal production of goods and services. Let us stipulate the theory is correct, consistent with our observation of continuous improvement of most production. Then consider the free market conditions required for this invisible hand to function. To be free, markets require a set of characteristics, including:

• Freedom of entry. (Prohibited in electric by utility monopoly franchises.)

• Freedom of exit, i.e., freedom to fail. (Regulatory commissions typically do not allow utilities to fail.)

• Accurate price signals. (Energy is heavily subsidized all over the world, which hides the real costs and thus suppresses investments in efficiency and encourages over consumption.)

• Costs that include the costs of externalities imposed by production. (The National Academy of Sciences found an average of $32 of societal cost per ton of coal burned from health and environmental damage, roughly equal to the cost of a ton of coal, but this cost does not show up in the price of coal.)

In other words, obsolete regulations control the market for generating and delivering heat and power, thus crippling the invisible hand.

A true free market for energy would unleash the invisible hand, and efficiency could double over the next two decades. Competition would find economically optimal solutions, using some mix of emission controls, greater efficiency, and renewable technologies. Forcing electricity and thermal generation to bear their true cost would drive competitors to substitute human and financial resources for fossil fuel, all while reducing the price of energy services.

To appreciate the opportunity, consider the stagnant history of the electric industry. In 1960, the industry burned 100 units of fuel to deliver 33 units of electricity, and threw away 67 units as waste heat. Five decades later, the system is inching toward delivering 34 units of electricity for every 100 units of fuel. This defines stagnation. Can you think of any other industry that continues to operate at 1960’s efficiency?

I suspect that the mistaken assumption of energy generation optimality colors how people view climate change evidence. As humans, we try to avoid unpleasant conclusions by questioning the evidence. The tobacco industry understood this human foible and caused untold health problems. Now the fossil fuel industry follows the same playbook, spending heavily to discredit climate science. Sadly, these commercially driven efforts to discredit specific science end up discrediting all science, effectively “dumbing down” the American population.

Climate “skeptics” or contrarians cite the fossil industry funded studies as evidence against human-induced climate change and then dismiss the obvious bias, asserting that all scientists are biased. I accept that we all have biases, but the scientific method largely counters biases. Science demands replication of results by others. Science keeps all conclusions open to challenge from further evidence. Science demands peer-reviewed analysis, and there is an incredibly active competition for ideas and ownership of ideas. By contrast, those denying anthropomorphic climate change largely work outside the scientific process. Companies with stakes in fossil fuel sales fund these authors, and the authors largely refuse to submit their papers to peer-reviewed journals. Wealthy libertarians see climate change mitigation as an excuse for big government and join the effort to discredit mainstream science.

However, the evidence mounts that global warming is changing the planet faster than the scientific predictions. Science has a natural bias for under-claiming, since peer review will attack all but the most robust logic. The IPCC consensus process adds further conservatism. We see global warming impacts consistently exceeding the impacts predicted ten to twenty years prior. Glacial melting, rising ocean temperatures and sea levels, thawing of polar ice, frequency and intensity of storms, and the percentage of Earth’s surface impacted by 3-sigma weather events are largely exceeding earlier predictions.

I stay focused on proving that reducing greenhouse gas emissions will also reduce the true costs of energy services. We are convinced the pace of innovation will quicken as soon as governments modernize obsolete rules and regulations to eliminate the barriers to efficiency. Our experience suggests that climate change mitigation is an opportunity, just waiting for better governance. This makes climate change mitigation an opportunity for politicians as well. Eliminating the barriers to efficiency and market actors, seeking personal profit, will capture waste energy, thus reducing the cost of energy services and, as a byproduct, decrease greenhouse gas emissions. That would be good for all of us . . . and for our climate.

Thomas R. Casten

Thomas R. Casten is founder and chair of Recycled Energy Development, LLC, Westmont, Illinois, and author of Turning Off the Heat: Why America Must Double Energy Efficiency to Save Money and Reduce Global Warming (Prometheus Books, 1998). He is a Fellow of the Committee for Skeptical Inquiry and a former member of its Executive Council, as well as a former member of the Center for Inquiry board.