Green Revolution 2.0: a Sustainable Energy Path
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S u S t a i n a b l E de v E l o p m E n t inSightS Green Revolution 2.0: A Sustainable Energy Path Nalin Kulatilaka a b o u t t h E au t h o R The Green Agricultural Revolution Role of Energy in Nalin Kulatilaka is the Wing Tat Lee greatly increased crop yields and Sustainable Development Family Professor of Management and averted mass starvation, but it also Co-Director of the Clean Energy & Economic development depends on turned small farms into factory farms Environmental Sustainability Initiative factors of production that are often that concentrated production in few (CEESI) at Boston University. His research in scarce supply, and energy is often locations and reduced the diversity of is in real options, energy intermediaries, the most critical factor. Having access and financial contracting. He is the author of the widely acclaimed book, Real Options (1999), and over 75 scholarly papers. The author has benefited from valuable suggestions from many friends and colleagues. Special thanks go to members of the Clean Energy & Environmental Sustainability Initiative (CEESI), to a reliable and cost-effective supply which engages university-wide resources crops. In this paper I propose a strategy to help prepare for a world where of energy is a vital ingredient for for a Green Energy Revolution, centered increasing demand for energy resources economically sustainable development. on a smart electricity network, that must be balanced with environmental, But development often also comes takes a different path: By enabling economic and social sustainability. with negative spillovers in the form rich information flows, it allows of congestion and environmental for diversity of energy sources. By externalities that can have far-reaching conveying more accurate cost signals, Sustainable Development Insights is a impact on quality of life, and ultimately it creates incentives to reduce levels of series of short policy essays supporting impose a heavy drag on development the Sustainable Development consumption and shifts consumption itself. The challenge is to devise an energy Knowledge Partnership (SDKP) and patterns to reduce the peak capacity strategy that is both economically and edited by Boston University’s Frederick needs. By bringing energy farms closer environmentally sustainable. S. Pardee Center for the Study of the to demand centers, it reduces losses. Longer-Range Future. The series seeks And by improving the quality of power, to promote a broad interdisciplinary Transitioning from our fossil fuel driven it enables the creation of valuable new dialogue on how to accelerate economy will be a slow and costly process services. sustainable development at all levels. that requires careful management. Most www.un.org/esa/dsd http://tinyurl.com/susdevkp www.bu.edu/pardee 006 october 2010 Green Revolution 2.0: A Sustainable Revolution Green Energy Path of the world’s current capital stock higher standards of living lead to Weaning an economy from and social systems are designed more energy-consuming human dependency on fossil fuels and to function with fossil fuels that activities that also rely on more substituting a portfolio of renewable are in limited supply. Even with refined energy forms like electricity. energy sources positions a country improvements in exploration and The development challenge then is to strongly against scarcity and negative extraction technologies, the scarcity raise standards of living while keeping environmental spillovers. A prudent of fossil fuels will act as a drag on energy intensity low (Corless 2005). and sustainable growth strategy, growth and add to global insecurities therefore, must recognize the and exacerbate wealth imbalances. As The energy mix (the type and form realities of scarcity, spillovers, and the “peak oil” literature argues, it is of the energy) to a large extent also equity. In other words, a sustainable not a question of if, but when and at determines the spillover effects. The development strategy must include what levels the production levels peak complicated inter-dependencies a sustainable energy future — one that and begin to decline. The resulting between energy use in human systems harnesses a diverse mix of plentiful uncertainty is sufficient reason to base and natural systems can have harmful energy sources in ways that are long-range growth plans on renewable side effects on human health and economically sustainable, minimizes sources of energy. A diversified natural ecosystems. Most complex environmentally harmful side energy portfolio will have significant and far-reaching spillovers are due effects, and addresses distributional short-run benefits as well. Reducing to greenhouse gas emissions from concerns across nations and disruptions arising from geopolitically burning fossil fuels and its impacts populations within nations. driven supply uncertainty and on the global climate. This climate improving trade imbalances due to externality increases the urgency The challenge for the 21st century heavy dependence on foreign energy to wean our economies from fossil is to find a path to such an energy sources further strengthens the case fuels. Although there is significant future. I argue doing so calls for for seeking energy independence. uncertainty about the exact levels of addressing a wider complementary climate change, there is mounting system for “green energy” that includes not only less-polluting energy sources, but also more “Weaninganeconomyfromdependencyonfossilfuelsand efficient ways to transport, store, substitutingaportfolioofrenewableenergysourcespositions and use energy. Transitioning from acountrystronglyagainstscarcityandnegativeenvironmental an oil dependent, carbon-emitting, legacy capital stock to one that spillovers.Aprudentandsustainablegrowthstrategy,therefore, depends on renewable sources is mustrecognizetherealitiesofscarcity,spillovers,andequity.” a costly and time-consuming task. This paper takes a complementary network view of the energy challenge. With supply constrained, improving scientific evidence that anthropogenic In complementary systems the efficiency becomes a natural path climate change will occur over the proliferation of one component to a sustainable energy future. A next century. The resulting global (hardware) leads to innovation and large fraction of primary energy is warming, rise in sea level, and variety in other complementary lost before its final use. According extreme weather events will lower the components (software) in to the U.S. Department of Energy/ value of existing capital that is well subsequent time periods. Hence, Energy Information Administration’s adapted to the present climate and the transition away from a fossil estimates, more than 55 percent destroy wealth (IPCC 2007). As the fuel-based ecosystem must consider is lost in the various steps involved global political community unites changes to the traditional energy in harnessing, transporting, and around this problem, it is inevitable sector as well as complementary converting processes. As economies that the social costs of the climate sectors including energy-using work their way up the development externality will be internalized in appliances; incentives that affect ladder, industrial sectors tend the price of carbon emissions and individual habits and business to improve in energy efficiency. reflected in cost of fossil fuels. practices; and reforms to regulations Unfortunately, the accompanying and institutions. For instance, small 2 sustainable development insights | 006 | october 2010 investments can induce efficiency the First green Revolution Meanwhile, the International Rice improvements in the short run. During the middle part of the 20th Research Institute (IRRI) in the Philippines developed hybrid Larger infrastructure investments century, countries around the world varieties of rice that had shorter and behavior changes are needed to were grappling with the challenges crop cycles (allowing more crop sustain these efficiency gains and to of feeding their rapidly growing seasons); grew in submerged facilitate the inclusion of clean energy populations. In his best seller The conditions (opening flood-prone sources. But the value from the Population Bomb, Paul Ehrlich (1968) land for rice cultivation); and were complementary system grows non- predicted that programs aimed at disease and pest resistant (better linearly with the size of the network increasing food production would suited for tropical climates). The (Amram and Kulatikika 2009). be unable to avoid mass starvation. hybrid rice IR8, which became the Such arguments leading to limits poster child of this innovation, more I argue that the heart of transforming to growth do not take into account than doubled the per acre yields. the energy sector will be a modern price responses and hinge on the electricity network. With its growing assumption that technological Much else, however, was needed to pervasiveness in modern society, change would be slower than realize high crop yields. The new seeds the “smart” electricity network is a population growth. The Green had to be made available to farmers central asset to growth. By building Revolution debunked this notion. in developing countries; new farming ubiquitous measurement, monitoring, and communication capabilities to complement the energy generation table 1: green agricultural platform and distribution infrastructure, Technology Infrastructure Markets and Public such a smart electricity network can Financial Policy catalyze