Feature : Energy, EVs, environment and the economy

By M. Rizwan Muzzammil

According to recent media reports, the Sri Lankan government has committed to supplying 70 per cent of its domestic electricity with renewable energy sources by 2030, with the longer-term goal of achieving a fully renewable electricity supply by 2050. The government is incentivised by “debt-for-renewables swap”, which enables heavily indebted countries to restructure a portion of their external debt on to more favourable terms in exchange for environmental commitments.

In addition, a strong push is observed for fully electric vehicles (EVs) with incentives on offer.

In general the public opinion on these environmental developments is likely to be positive. On a global level the environment is a hot topic, with climate change, carbon dioxide emissions, EVs, and sustainable growth occupying the minds of many policy makers.

It is now widely accepted that fossil fuels (oil, coal and natural gas) negatively impact the environment by causing climate change through carbon dioxide emissions.

For these reasons renewable energy and achieving ‘net zero emissions’ through EVs is considered to be a top priority. This is prescribed to happen even at the expense of economic growth, which is deemed to be detrimental for Earth’s resources.

However, some research on this topic shows that the situation is more nuanced than what may first seem apparent. The author presents some arguments for the reader’s consideration. The author references material from the books ‘Fossil Future’ (2022) by Alex Epstein and ‘In Defense of Capitalism’ (2023) by Rainer Zitelmann. The reader is encouraged to refer to these books for more details.

Fossil fuels

In ‘Fossil Future’ Epstein notes that cheap and reliable energy is needed to keep people warm when it is too cold, and cool when it is too warm. It is used to build shelter, to transport food and resources, for manufacturing and many other applications essential for human flourishing.

Fossil fuels are a cheap and reliable energy source and have been a major reason for the rapid development of economies around the world. As a direct result of fossil fuels large human populations have been saved from tremendous hardship, starvation and poverty.

Epstein points out that much of the present day narrative on fossil fuels overly focuses on the negatives while ignoring the tremendous positives. Despite the efforts at improving renewable energy technologies, mainly solar and wind, they are still at present no substitute for fossil fuels as a cheap and reliable energy source.

Though climate change is a problem fossil fuels can be used to protect, mitigate and adapt to its adverse effects, which are predicted to occur gradually over a manageable period of time.

EVs

The push for EVs is a substantial step from the now common semi-electric hybrids. Hybrid vehicles are a well-tested means of transport, and there is much experience in the market with regards to the repair and safety of such vehicles (the Prius is now in its 25th year). However the problems related to the mass adoption of EVs are still not widely understood. Some examples follow:

Due to the presence of the battery, EVs are about 30 per cent heavier compared to ordinary vehicles. In the event of a collision between an EV and ordinary vehicle, the latter is likely to suffer disproportionately more damage, and passengers more likely to be injured. In addition, multi-story carparks, bridges and highways may need to be reinforced to take on the increased vehicle weights.

Furthermore, EVs that have been involved in accidents can sustain damage to the battery. A chemical leak could result, leading to toxic contaminations and fires, requiring specialised equipment to manage. Emergency response units may need to be properly equipped to deal with such problems.

The charging of EVs may also require an upgrade to the electric grid and household wiring, so that higher electric loads can be handled. In the US State of California, gasoline cars are to be banned for sale by 2035. In order to manage the electric loads on the grid consumers will be required to charge their vehicles only at certain times of the day. For a developing country like Sri Lanka managed charge times may prove to be a hindrance to economic growth.

Earth’s resources are finite

Many who are concerned about the environment believe that economic growth is problematic. This is because Earth’s raw materials are finite and therefore infinite growth is impossible.

In ‘In Defense of Capitalism’, Zitelmann points out that despite finite raw materials, the correlation between economic growth and resource consumption is becoming weaker in the modern era.

Companies are constantly looking for new ways to produce more efficiently with less raw materials. They do this not mainly to protect the environment but rather to cut costs and increase profit. The resulting innovation has promoted a trend called miniaturisation.

Zitelmann gives the example of the smartphone, which has now replaced many devices. A basic smartphone now contains a calculator, telephone, video camera, alarm clock, voice recorder, navigation system, maps, camera, mp3 player (replacing cassette or CD player), compass, answering machine, scanner, measuring tape, radio, torch, calendar, encyclopedia, dictionary, foreign language dictionaries, address book etc. Therefore, the answer to the limited resources problem is more complex than what seems obvious.

What does it really cost?

The push for renewables and EVs is a government initiative, i.e. a form of central planning, and not driven by free-markets. This push is incentivised or subsidised by taxpayer money. This implies that consumers in a free market would reject such solutions absent these incentives, as the true price would be unpalatable.

The masking of the true price is a concern for the general health of the economy. If we consider the general Sri Lankan economic crisis, it can be summed up by saying that the people did not know the true costs of what they consumed, either because it was taxpayer subsidised by debt and money printing (inflation), or the dollar value was manipulated by the central bank. Had they known the true cost it is entirely likely that Sri Lankans would have consumed within their means and the crisis never happened.

All government plans must happen by legislative incentives or subsidies. Despite the evils this is considered acceptable because it is widely believed the health of the environment cannot be left to free-markets.

But history tells us otherwise. Zitelmann points out that environmental degradation has been a far more serious problem in centrally planned countries. This despite these same countries often claiming (sometimes boastfully) the environment to be of primary importance.

Example of the Soviet Union

Consider the former USSR. In 1990, Zhores Medvedev noted: “The Soviet Union has lost more pasture and agricultural land to radioactive contamination than the total acreage of cultivated land in Switzerland. More land has been flooded by hydroelectric dams than the total area of Netherlands. More land was lost between 1960 and 1989 through salinization, changes in the water table, and dust and salt storms than the total areas of cultivated land in Ireland and Belgium put together. Amidst acute food shortages, the total acreage of cultivated land has declined by one million hectares a year since 1975. The Soviet Union is losing its forests at the same rate as rainforests are disappearing in Brazil. In Uzbekistan and Moldavia, chemical poisoning with pesticides has led to such high rates of mental retardation that the educational curricula in secondary schools and universities have had to be modified and simplified.” In the book, Ecocide in the USSR (1992), Feshbach and Friendly Jr. said “no other industrial civilization so systematically and so long poisoned its land, air, and people.”

Private property as a solution

In general, countries which have Socialist governments have often ended up with grossly mismanaged environments. Nearer to home India is a good example. The Sri Lankan environment also leaves much to be desired.

But why does this happen? Zitelmann, refers to the German economist Polleit, who states “By monopolising legislation and jurisdiction, states have been the originators of many environmental problems: For example, by allowing companies and consumers to dump pollutants on roads and into rivers, oceans, and the air at no cost. Often, this practice is justified on the basis of the ‘common good,’ which places the rights of polluters above the rights of the aggrieved (property owners). For example, owners of property located near an airport must endure increasing aircraft noise without being compensated by the airport operator.”

Thus the problem occurs fundamentally due to property ownership, namely, the government being the owner and manager of natural resources, and doing a poor job of it due to the lack of market incentives.

A solution to this could be to privatise natural resources to as great an extent as possible. This could include land, roads, rivers and even ocean segments. Since the resources will have market value, the owners would be scrupulous in ensuring that they are in no way damaged by others. Anyone responsible for damaging property would be held accountable. Problems such as air and noise pollution could also be dealt with in this way.

A perfect solution is unlikely, but still the protection of private property is a well understood concept and likely to yield better results compared to a government solution.

In fact the most environmentally clean nations are those that are most economically free with more private property. Zitelmann reviews three research indexes: Yale University’s Environmental Performance Index (EPI), The Heritage Foundations ‘Index of Economic Freedom’ and the ‘Open Market Index’ (OMI) and finds close positive correlations between economic growth, free-markets and the environment.

Another study, ‘Is Free Trade Good for the Environment?’’ by Antweiler et al, found that if openness to international markets raises output and income by 1 per cent, pollution concentrations fall by about 1 per cent. The study goes on to say “at an early stage of a country’s economic growth, a high level of environmental degradation is observed, while, after a critical point of economic growth, a gradual decline in environmental degradation is reported.”

Conclusions

The historical evidence and research show that a centrally planned approach to protecting the environment tends to backfire and not achieve intended goals. The Sri Lankan government could effect better outcomes by relaxing import controls to improve innovation (anyway upcoming), removing subsidies and incentives, and privatising energy producers and other natural resources as much as possible. Sri Lankans could be better served by deciding for themselves what vehicle, energy and environment is best suited for their needs without incentives or subsidies.

(The writer, a civil engineer, resides in Singapore. He can be reached on write2rizwan.m@gmail.com. His previous published articles can be viewed on rizwanmuzzammil.substack.com).