A Random Essay

The Impact of Economics and Industry on the Environment

This debate crossed my mind as I was taking a shower (of all places). It floated in my mind as I fumed about the incessant rumble of several air-conditioning systems running from my neighbours’ flats. Having studied the basics of economics back in JC, I formed a pretty logical argument regarding the link between economics and the increasingly urgent problem of global warming.

I’m sure the first reaction to the title would be to think of all the negative impact that economics and industrialization has on the environment. Until today my stance was that the Industrial Revolution way back in the 18th century was the spark that created the demon called environmental degradation. It’s not an illogical one; in fact nearly all evidence of environmental damage today point towardthe overzealous Man, his never-ending thirst of economic and social progress. The burning of fossil fuels to create energy was a major factor in inspiring the improvements Man has made to his way of living, as well as empowering him to exert his influence over the previously all-powerful Mother Nature.

The main principle of economics is the law of demand & supply, something which we all know and love. It’s deceptively simple: somebody wants something; another will provide it – at a price. The first signs of this probably emerged ages ago, when tribes of pre-humans engaged in the primitive version of barter trade, probably exchanging meat for firewood etc. Fast forward to 18th century humanity. Populations were relatively high then, so naturally there would be a high demand for anything that would enhance their standard of living. Then came the miracle drug called Energy (in the form of steam), powered by the seemingly endless supply of coal, oil and wood. Mankind greedily fed on this Energy, driving an insatiable demand for everything that burns fuel. The suppliers gladly obliged, profiting from the feast. Science and engineering came into the picture, churning out a Pandora’s Box of applications for Energy, from clothes to cars, from light bulbs to planes. And all this while, the atmospheric carbon dioxide content, as well as the myriad forms of pollution, started to climb.

On this note we can point the accusing finger at Mankind and economics for engineering the rise of the global warming phenomenon. It’s a simple equation: HUMANITY = Economics = Demand + Supply = Industry = GLOBAL WARMING. That places economics in a rather flattering role, does it not? With Mr. Gore and so many other scientists and environmentalists placing the blame on it, it seems a guilty culprit.

However, economics has the potential to undo the wrongs, to reverse what has already been playing out. Thanks to greater enlightenment and spotlighting on the subject, there has been a sudden change in ideology, spurning millions of people to create what I call the Green Economy. All over the world, there is a small but growing group of people willing and able to subscribe to a greener way of life, which in turn sparks off another group of highly entrepreneurial people to create products which supply exactly just that. And the driving force behind all this? Technology, the offspring of science and engineering, the 2 factors which spawned the problem in the first place. The examples today are countless – the increasing popularity of hybrid/fuel cell vehicles, solar power (and just about any other form of greener energy), biofuels (though the debate still rages on about its greenliness), more efficient appliances, blah blah blah, green this green that. Unfortunately price still remains a high barrier to mass adoption of these products. This is where economics has the potential to exert itself again – when supply increases, price falls, demand rises. With advances in technology, production costs will fall, resulting in manufacturers increasing their outputs. This is already evident in the photovoltaic industry, where the costs of producing solar cells are slowly falling, coupled with a surge of firms into the industry.

The problem with all this is that technology takes time; time which is slowly ticking away the rise in the alcohol. Here is where another aspect of economics takes centre stage – scarcity. Scarcity may seem like a bad thing – who wants to run out of oil? That is precisely the permanent fix to the impending global warming disaster. As we all know, fossil fuels do not last forever and take ages to replenish. The day the last drop of oil burns may be the day we stave off our thirst for the black gold. Fortunately economics may hasten our change of taste – oil is already becoming its nickname. At more than 100USD a barrel, people around the world are feeling the pinch on their wallets. Not only does it affect fuel prices, inflation is also closely linked to it. More often than not many are forced to change their way of living, a greener way of living, even if it may not be that obvious. Consumers aside, the industry is also panicked into looking into cheaper, alternative ways of firing up their factories and plants. One negative fallout would be the proliferation of cheaper, dirtier coal burning power plants, already evident in rapidly developing China. The other, more optimistic view would be the motivation for firms to invest in R&D, to accelerate the magical but slow technology. Already, clean burning coal plants and possible nuclear plants are replacing existing ones in China, while Australia wants to test carbon sequestering. People are rushing to buy hybrid cars which translate to huge savings on the ever rising petrol prices while leaving behind a smaller carbon footprint. Electricity prices will rise in the short term, forcing people to cut down on usage. In a not-so-nice-but-green kind of equation: SCARCITY = Reduced supply = High prices = Reduced demand = GREEN.

Not everyone welcomes high prices of course. While the US slips into recession and prices of oil and commodities skyrocket, everyone will have to lead less lavish lifestyles. Hardest hit would be the poor, and more will slip into poverty. I do not wish to be insensitive to them, but humanity will have to make some sacrifices in order for us to be able to combat global warming. If you think about it, if all of us were still living the way we lived a few centuries ago, the Earth would be a much cooler place. At the moment probably a few pockets of us still live off the land and I respect them for that. But for the rest of us, the life that we’ve always led is hard to change. We can always hope for the economy to bring about greener technology, but what we can do NOW is to sacrifice a little here and there. Trust me, you will feel better, once you believe that you have made AN impact. And that in itself is economics – Earth needs something and WE shall provide it.

Lim Hong Yi
29/04/08