Of course people and businesses are not maximising their economic self 
interest. They look for the short-term profit, not the economy. Why 
spend $3 on a light bulb when a 30-cent one would do the job? The fact 
that it consumes only 25% of the juice and lasts 6 times longer is not 
material, nor is the fact that, over 10 years, your 30 c bulb will cost 
you 3 times as much in replacement bulbs and electric power.

Even less so is the economical car; downsizing from a SUV consuming 15 
l/100 km to a conventional car consuming 10 l/100 km is a great 
ego-wrench, although the latter is half the price at, say, $18,000, but 
it gives that great feel-good feeling that one is doing their bit for 
the environment. But going the extra mile to an economical car at, say, 
$25,000, consuming 5 l/100 km, is not worth the extra 7 grand, because 
fuel is still dirt cheap at $3/gallon. You can buy nearly 2,500 gallons 
for the extra cost, can't you? The fact that fuel may cost $5/gallon in 
2 years and $10/gallon in 5 years is not foreseeable (probably more if 
some idiot decides to turn Iran into glass).

In 1970, my erstwhile boss built a new factory. The architect cut costs 
by having virtually no insulation, in a place where winter temps could 
drop to -20°C on occasion. Instead, he put in the two biggest heating 
oil tanks in French-speaking Switzerland: after all, the oil cost only 
about CHF 6/100 l, so he could buy the 60,000 l to fill the tanks for 
just CHF 3,600 and that would just about last the winter for the same 
cost as a middle-management guy's salary for 1 month. In 1974, the price 
of oil octupled with the crisis. Heating became a heavy charge. Today, 
his son is paying CHF 75/100 l. I left the company in 1974 but I did a 
rough calculation before I left that, had he paid for extra insulation 
at the construction, he would have been in profit in 18 months at the 
1974 prices. Today, his son is still heating the air outside his factory 
and globally for the extra CO2 he produces. Even today, architects 
hesitate to up the cost of a construction by adding good insulation.

Why can we see no farther than the tips of our noses?

Brian

PS I'm told my hybrid car arrives on the island today, after 7 months of 
waiting for it! Yesterday, I replaced my 17 year-old 260 W TV with a 105 
W one (it had finally rendered its soul to its maker, Sanyo!).
Joe Fjelstad wrote:
>  
> Tackling climate change 
> A bargain
> May 4th 2007
>>From Economist.com 
> About 0.1% of world GDP would do it
> 
> AFP
> THE Intergovernmental Panel on Climate Change (IPCC), set up under the  
> auspices of the United Nations to establish a consensus on global warming and  what 
> to do about it, has now completed its fourth assessment report. The first  
> two parts, published earlier this year, about the science and the impacts of  
> climate change, were designed to spread gloom. Change was happening, they said;  
> it was mankind�s fault; and it was going to be damaging. The third part,  
> released on Friday May 4th in Bangkok, is about mitigating climate change, and  
> is designed to spread hope. Just as mankind caused the problem, it says, so  
> mankind can stop it�and at a reasonable cost. 
> In some areas of economic activity, emissions could be cut with no cost to  
> consumers or taxpayers. The heating and lighting systems of many buildings, for 
>  instance, are startlingly inefficient. Improving this would cut both 
> emissions  and bills. Economists are troubled by this, for it implies that people and 
>  businesses are not maximising their economic self-interest; yet the low 
> take-up  of energy-efficient lightbulbs suggests this is indeed the case. 
> Governments are  therefore beginning to tighten regulations on the energy efficiency 
> of  buildings, and to talk about, for instance, banning incandescent 
> lightbulbs. The  IPCC reckons that such measures could cut 30% of projected emissions 
> from this  sector at no extra cost. 
>  
> 
> 
> Transport is trickier, because car ownership is rocketing and the demand for  
> fuel is fairly inelastic. If people want to drive they are going to drive,  
> unless governments jack up petrol prices to levels that are politically  
> unacceptable. So for emissions to fall in the transport sector, new  technologies, 
> such as more efficient biofuels or electric cars, are needed.  Given a big R&D 
> effort in this sector, there is a good chance that those  will be forthcoming. 
> Similarly, in power generation, there is scope for cutting emissions. The  
> cost of renewable energy, such as wind and solar, has been falling. Nuclear  
> generating technology has improved. Carbon capture and storage, which involves  
> taking the carbon dioxide (or C02) out of power station flue gases and 
> injecting  it back into the earth, is also a possibility, though that technology is at 
> an  early stage. 
> Technological solutions to climate change, then, are available. But most of  
> those on offer in the power and transport sectors cost more than fossil-fuel  
> generated energy. Fortunately, economics comes to the rescue. Burning fossil  
> fuels imposes a cost to society that is not reflected in their price. 
> Economics  says that it should be; and if it were, the price of using fossil fuels 
> would  rise in relation to the price of using renewable energy.  
> Unfortunately, the social cost of carbon is hard to calculate. Plenty of  
> economists have tried, with unconvincing results. It requires estimating the  
> impact of climate change on economic growth, which involves too many unknowns.  
> So the IPCC report starts from the other end. Rather than trying to work out 
> the  social cost of carbon, and letting it feed through to reduce greenhouse-gas 
>  concentrations in the atmosphere, it starts from a manageable greenhouse-gas 
>  concentration and works backwards to a carbon price. Conveniently, it says 
> the  �social cost of carbon is at least comparable to, and possibly higher than 
>  carbon prices for even the most stringent scenarios assessed by the IPCC�. 
> And what is the right price? The report says that to stabilise greenhouse-gas 
>  concentrations at 550 parts per million (a level most scientists think 
> safeish)  would require a price of $20-50 per tonne of carbon by 2020-30. That is 
> along  the lines of the carbon price established the European Emissions-Trading 
> Scheme,  which varied between $6 and $40 in 2005-06. It has not bankrupted 
> the European  economy so far. The IPCC�s economic models reckon, on average, 
> that if the world  adopted such a price the global economy would be 1.3% smaller 
> than it otherwise  would have been by 2050; or, put another way, global 
> economic growth would be  0.1% a year lower than it otherwise would have been. 
> The world would barely notice such figures; so one might think that climate  
> change can be easily sorted. The problem, of course, is that the numbers work  
> only if they are applied globally. If a few countries�even a few big  
> countries�adopt a carbon price, it will make little difference. All the world�s  big 
> emitters need to do it. Which brings the world straight back to the problem  
> that sank Kyoto. No country alone can make a difference, and it is in every  
> country�s interest to ensure that everybody else bears the burden. As the IPCC  
> report convincingly argues, the technology and the economics of this problem 
> are  easily soluble. It is the politics that is so  difficult.
> 
> 
> 
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>