Harper Lecture with Michael Greenstone, LAB’87: The Global Energy Challenge

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Michael Greenstone is an alumnus of the Lab School, graduating in 1987 and is the Milton Friedman Professor in Economics and Director of the Interdisciplinary Energy Policy Institute at University of Chicago. He previously served as Chief Economist for President Obama's Council of Economic Advisors and on the Environmental Protection Agency's Science Advisory Board. Greenstone, a member of the American Academy of Arts and Sciences and Editor of the Journal of Political Economy, increasingly focuses his research on developing countries. Join me in giving Michael a warm welcome. [APPLAUSE] PROFESSOR MICHAEL GREENSTONE: Thanks everyone for coming out. I'm always excited to talk about my research, but talking about energy in Houston seems like an especially good match. What I'm going to try and talk about today are 10 Facts About Energy, Growth and Public Policy. Most of these facts, I think, individually, at some level, people are aware of them. But I'm going to try and string them together in a way that hopefully will lend new insight into what I think of as a global energy challenge.

So I am way more comfortable with numbers and figures and tables and charts, and so this will be the moment of being artistic, today. And this is a picture from Beijing from a couple years ago, and I think this picture perfectly captures the global energy challenge. So you've got the guy– And the way I think about the global energy challenge is you can think of it as like a stool with three legs. And it's very hard to deal with all three legs of the stool at once. You can often achieve one or two goals, but it's hard to achieve all three goals that I think comprise the energy challenge at once. But all three of them, I think, are evident in this picture. And so the first thing is, like, it's visceral. You can feel all the action and the motion, and China is a country on the make. In the last 25 years, it's had a basically unprecedented increase in per capita income that's never been seen in human history and reduction of bringing hundreds of millions of people out of poverty.

And you can feel it, just jumping off that page. And so the first leg of the stool, though, is that most of that, or a lot of that, was done by greatly increasing energy consumption in China. And you can see our guy in the car was probably, not that long ago, was on the bike, and the guy on the bike, probably not that long ago, was walking on the other side of the fence. So the first leg of the stool is how do you have access to inexpensive and reliable energy that powers human advancement. The second leg of the stool is also immediately evident. This is the middle of the day in Beijing. And despite it being in the middle the day, you can't see the sun. And that's also a byproduct of the energy consumption. So most of the energy consumption in Beijing, in China, and for the world, for that matter, comes from fossil fuels. And the fossil fuels, if not controlled– if the emissions aren't controlled– lead to scenes like this, where you can't see the sun. And our guy on the bike is very, very aware of it. It's changing his life in ways that are not beneficial. He has to wear the mask.

He's obviously concerned about health problems. He's got goggles on. And it's a little hard to see in this picture– he even has gloves on. So the second leg of the stool is how do you have all this energy consumption without leading to the environmental problems that are immediately evident there? And then the third leg of the stool– you can't see it, but you know it's there– it's the possibility of disruptive climate change. And that's because the same fossil fuels that are producing this pollution also leading to enormous emissions of CO2, and that's causing very rapid changes in the planet that are exposing people around the world to the possibility of disruptive climate change and the consequences of that.

So those are the three legs of the stool. How do you have the economic growth that energy provides? How do you avoid having enormous environmental problems attached to it and the immediate environmental problems, and the third is what to do about CO2? And so we'll go through some facts that will hopefully shed a little light on this. OK, well, maybe we will. There we go. All right, so the first fact is I stated it, and now I feel, as a true University of Chicago person, you can't just state something without showing that it's true. And the first is that energy is critical for growth. And I like to joke that I spend a lot of my day and night analyzing data, and data is like the worst boyfriend or girlfriend that you ever had. And so if you think back to what was unique about the worst boyfriend or girlfriend you ever had is that person was constantly disappointing you new and unpredictable ways. [LAUGHTER] Analyzing data is a lot like that. You think something's true, and you look at the data, and then it turns out not to quite be true.

But this is an exception. And the exception here is on the x-axis, we've got GDP per capita, on the y-axis we have energy consumption. And you can basically see, we do not have an example in recorded human history of high levels of living standards without lots and lots of energy consumption. Now, you have some variance around that, but basically you cannot have high levels of income without high levels of energy consumption. And I've just highlighted it in a couple countries, here. OK, so the second fact that I want to talk about is energy access is a major problem around the world. It's not a problem here in Houston, and it's not a problem in Chicago. But around the world, it's a major problem. So in the United States, per capita electricity consumption is about 13,000 kilowatt hours per person per year. And then you can look– what the table allows us to do– is to look what it's like in other parts of the world.

In say, England, Germany, Russia, it's all kind of in the 5,000 to 7,000 or 8,000 range. And then you come to China, home to almost 1.4 billion people, it's only a quarter of what it is in the United States. India, it's about 700 kilowatt hours per person– so maybe 1/20 of what it is in the United States. And then there's the state of Behar, where a lot of my research takes place– the State of Behar– probably most people sort of don't know the state of Behar that well– it has a population of 100 million people. Per capita electricity consumption there is 122 kilowatt hours per person. So that growth that's critical for economic progress, that energy that's critical for economic progress, is not evenly distributed around the globe. And I think a reasonable supposition, which I'll come back to, is that that's probably not going to last that way for long. And indeed, demand is projected to grow very rapidly in developing countries in the coming years. So here, this is like total energy consumption.

You can see in the United States, the blue line is basically flat. The per person is basically flat as we become more energy efficient over time. So it's basically flat from 1965 to the present. I've put on this chart also India and China. And you can see– actually, you can see what we saw in that picture– is you can see this remarkable increase in energy consumption in China that began sometime in the '90s. And the scale obscures it, but there's also been a pretty big increase in India, although both of those countries are at very low levels compared to the United States. All right, so how are we going to do this? I'm worried we missed a slide there. Indeed, this is the slide we missed. So here's the OECD countries– you can think of them as the rich countries– the non-OECD countries. And this is just showing you what's projected to occur between 2015 and 2035. And what you can see is that all the world's growth in energy consumption is projected to take place outside of the rich, currently rich, countries.

All right, so where is all that energy going to come from? Well, the best predictions are that most of it's going to continue to come from fossil fuels, despite what we hear about the enormous improvements in the efficiency of renewables. Fossil fuels are still a remarkable invention that are able to produce energy very inexpensively. And here is– it's a little bit hard to read this one. But this is between the present and the end of the century, and what you can see is that coal, oil, and natural gas are still projected to account for maybe 75% of total energy consumption by 2040. Now, why is that? So here, we're going to look at what is true in the electricity sector. This is the cost of producing a kilowatt hour of electricity from an existing coal plant, from a new natural gas plant, a new coal plant, and some other technologies, which I'll discuss in a second. And you can see, the reason that the world is so focused– or is projected to continue to use fossil fuel so heavily– is that it's very inexpensive to produce electricity from fossil fuel.

So an existing coal plant– it's about $0.3 cents a kilowatt hour. A new natural gas plant or a new coal plant– a new coal plant, it's higher. This would be in the United States, because it faces stricter environmental regulations, is maybe on the order of $0.6. And then here are the low carbon energy sources that provide an alternative to the fossil fuels. So this is wind. This is a new nuclear plant, and that's solar. It's worth noting that the wind and the solar are what I like to think of as Frankenstein plants. They're not actually– in the sense that the problem with wind and solar is the sun doesn't shine all the time, and the wind doesn't blow all the time. And if they're going to play a major role in the energy sector, they have to be backed up by something.

And so, in this graph, I've backed them up with a natural gas plant. And so, you can see that they are more expensive. And indeed, countries, say, like India, who have very low levels of energy consumption, for them to switch to low carbon or cleaner energy sources would require choosing things that cost maybe three times or four times as much as relying on coal. OK, and the other thing that's worth noting about fossil fuels– and I probably don't have to say this in Houston– is that not only are they inexpensive, but they're abundant. And so we'll just ignore the coal line, here, for a minute, which is a little bit confusing. What's striking about this is this is the ratio of fossil fuel reserves to production.

So think of that is how much we know we have divided by how much we're currently using. And what's striking is that that's basically flat. So why is that so surprising? Actually, this is a great University of Chicago moment– why is it so surprising that that line is flat? That's a question that you guys are meant to answer. AUDIENCE: We keep finding– AUDIENCE: [INAUDIBLE] PROFESSOR MICHAEL GREENSTONE: We keep finding it. And so, like, the notion that we're going to run out of fossil fuels does not appear to be supported by the data. And we seem to have a remarkable ability to continue to find it, probably due to the work of lots of people in this room, and certainly lots of people in the broader energy economy. OK, not only are fossil fuels, when used for power production, inexpensive, they're also, you know, very inexpensive in the transportation sector. And so this graph is a little bit complicated, but let me try and talk about what it does.

So on the horizontal axis, I've got the cost of batteries, and so what this graph is trying to show you is when people will find it cheaper to use electric vehicles and when they'll find it cheaper to use internal combustion engines that rely on petroleum. And on the horizontal axis is the cost of battery in dollars per kilowatt hour, and on the y-axis is the price of oil, and both of those are in 2020. And then the red line, here, are combinations for which, with a kind of standard assumption about how much the car will be driven and how long it'll last, where the cost of owning an electric vehicle is about equal to the cost of owning the internal combustion one. And so above this line, electric vehicles are cheaper, and that's because petroleum is very expensive. And below the line, internal combustion engines are cheaper.

And so there's a couple points on here that I think are worth highlighting. Number one– so let's just go– everyone loves Elon Musk. The price of a 10 kilowatt battery for the powerwall thing, the thing he wants to put in people's homes, is about $350 a kilowatt hour. At that cost of a battery, what would the price of oil need to be to make it so that it was roughly the same cost to drive an internal combustion engine electric vehicle? Well, the answer to that is $470. Now, I feel confident that I can answer ask this question in Houston. What is the current price a barrel of oil? AUDIENCE: [INAUDIBLE] PROFESSOR MICHAEL GREENSTONE: It's about $40, maybe a little bit less, now. So you could say, well, all right, well that's today.

You know, there's going to be lots of advances in batteries. So here's the Department of Energy's– their view of the current price is $225. And that would require oil to be $420. The DOE's target– so this is aspirational– for the cost of batteries in 2020 is $125 in 2020. And that would require oil prices to be $115 for it to be break-even to drive an electric vehicle versus internal combustion engine. And then finally, this is the oil futures price of $55 in 2020. And the break-even cost of batteries would need to be $64. So you could see, we're a long ways away from electric vehicles being a major– or looking like a good deal on the pure economics. It's also noteworthy that, even if that were the case, there's the ultimate question of where the– are you plugging the electric vehicle into a coal plant, or are you plugging it into some kind of renewable source? And as we saw a minute ago– this is not working very well– the cost of fossil fuels to produce electricity remain a lot lower than the cost of low carbon energy sources.

OK, all right. So that's background, now then maybe we can think of that as all kind of the first leg of the stool. So now, we'll talk about the second leg of the stool, which is fossil fuels increases– so fossil fuels are really cheap, but they also have this feature that is not so desirable. And that's that they increase pollution that shortens lives. All right, and so to do this, I'm going to talk a little bit about a paper of mine that I just finished. And it's entitled "Revisiting the Impact of Sustained Exposure to Air Pollution on Life Expectancy from China's Huai River Policy." So we should go another slide, since this isn't working. And so the idea of this paper is it would be very useful for determining public policy.

Well, how bad is it to breathe polluted air? And there's no university in the world that I'm aware of that's going to ever allow people to run a randomized experiment where you expose some set of people to air pollution for their entire lives– no matter the value for science– and other people to lower levels of air pollution. And so what people like me try to do is to find natural experiments. And so these are not the same thing as a randomized control trial, but they're meant to mimic some of the features of a randomized control trial, so that is to find variation in pollution that seems unrelated to other factors. And so what I discovered is that there's something in China called a Huai River Winter Heating Policy, and it dates back to the planning period, when China didn't have a lot of money.

And parts of China have very cold winters, and so they didn't have enough money to heat everyone's house all year. And so what they did is– for research, a quite appealing thing– is they drew a line across the middle of the country. And they said, if you live to the north of the line, you're going to have free coal, and we're going to build you boilers, and this free coal will only come during the winter, and you'll be able to heat your home for free. If you live to the south of the line, not only will you not have free coal, you can't have coal at all, and you can have heating. And so the idea of this paper was, well, what happens if we compare the life consequences of that policy for people who live just to the north of the line versus people who live just to the south. OK, and so here's a picture of apartment buildings. And they did this in a very inefficient way. They didn't do it like our generating systems are, with these enormous plants. They had these little, kind of, small boilers right in residential areas all over the place with no pollution controls.

OK, and just so you can visualize it, here's the line. This is the Huai River. And then the river ends somewhere here, and it kind of turns into a mountain range. But the way that, again, the policy worked is if you lived to the south of this line– no heating. And if you lived to the north, heating and lots of coal. And it's worth noting– I gave a lecture once at the University in Chengdu– and you know, the legacy of this policy persists today. So it was in a university building. It was kind of in January or February. It was kind of cold in the room, and all the students had on winter coats. And that's just the way things go. There was no heating there. OK, so I'm going to compare places in just the north versus places in the south. So here's the first fact. The vertical line here is the river, and these are degrees latitudes to the north, and these are degrees latitude to the south.

And what's really– and then I'm going to plot particulate matter, air pollution, on the y-axis. And what's striking is that right at the river's edge, there's this very large increase in particulate matter air pollution. And so the one unintended consequence of this policy was– yes, for heating, but lots and lots of pollution associated with it. And so this is kind of what I look for. And this was an incredible, natural experiment. And so then I spent about a decade trying to figure out how to get access to life expectancy data from China. And in the next slide, I'll show you the results of what happened there. There, you have almost the mirror image. Right as you get to the river's edge, there's a decline in life expectancy. And the size of that decline in life expectancy is about 3 or 4 years, 3 and 1/2 years.

And so, what one could take away from that is although we didn't get to run the real randomized trial, probably thankfully, there is a reliable estimate now of what the consequences of sustained exposure to air pollution is, in this case, in China. And so you can see, a reliance on coal, in this case, leads to reductions in life expectancy. This problem of particulate matter air pollution is one that is not unique to China, there's whole northern belts in India where it's very, very, high. Other parts of India are also high. It's in Africa, and in the Middle East. And it's really reducing life expectancies and leading to shorter and sicker lives throughout the world, OK. All right, so that was the second leg of the stool. The third leg of the stool is fossil fuels are causing climate change. So here's a distribution of average daily temperatures in India. And the way you can read this is that the typical Indian faces about 60 days a year where the daily average temperature– that's the average of the high and the low– is between 78 and 81.

And you can see India has hotter days than lots of parts of the US. The typical person probably has about 12 days a year where it's between 91 and 93, and there's even days after that. What's projected to occur with climate change? We had this push of the distribution to the right. And you have this piling up of days at the very high levels, and so it's not just– when people talk about climate change, they talk about well, there will be a 2 degree C change in global mean temperatures. You know, 2 degrees C is a complicated concept. At least for me, when I was in elementary school, every year the teachers would kind of torture us with, this is a year we're going to convert to metric. And then it never happened, and so I've always had a hard time with C. But in addition to– here I've displayed it in Fahrenheit– it's not just like the average day went up by a little bit, but you get lots of days at the really high end of the temperature distribution. And that's problematic, because that's where all the bad stuff from temperature is.

That's where the elevated mortality is. That's where the reduced agricultural yields are. That's where there's evidence of even higher rates of criminal behavior. And so fossil fuels are causing climate change, and it's leading to all kinds of knock-on effects. OK, it's also worth talking about– circling back to some of the first facts about where the growth in energy consumption is going to come– it is far from enough to think about just the United States. Climate change really is a global phenomenon. And this chart, I think, helps to illustrate the nature of that. So here, what I've graphed are the cumulative contribution of greenhouse gases. So since industrialization– and you can see as of 2010, the United States accounts for about 22% of all greenhouse gases that have ever been put up in the atmosphere. China and India are at about 16%. But as a century unfolds, you could see that this will really start to change dramatically, as those countries increase their energy consumption.

By the middle of the century, China and India's share will be 30%, the United States' share will be 16% percent. And by the end of century, if projected, they will account for almost 40%, while the US share will be 12%. And the takeaway from this is that there's no solution to climate change that doesn't run through finding ways for these countries to find it in their own interest to reduce CO2 emissions, OK. And one other thing that's worth noting is, like, so how stark are the consequences of climate change? You know, the climate scientists, I find, to be not that great at communicating things. Again, like, knowing that global mean temperatures go up by 2 or 3 degrees C seems not that helpful to me. And so here what I've done is I've taken all of the reserves that we know about and asked well, what if we use them all? What would be the– and this is over a very long time scale, and you can see, we've baked into the system about 1.7 degrees Fahrenheit.

The fossil fuel proved reserves– so this oil, gas, and coal. If we use those, that would be an extra 2.8 degrees, and then in the energy industry, they have something called resources. Those are things we can get at with today's technologies, but the prices would probably have to be higher– oil and gas would lead to another 3 degrees. And then if we used all the coal–there's just a ton of coal– it's about 8.5 degrees. So the only point is there will have to be a conscious choice not to use these or to find some way to bury the emissions in the ground, or we will have, according to kind of standard climate models, this rough– almost unimaginable changes in global temperatures, OK. The next fact which is related to this is the Paris Climate Talks, I think, are projected to really have made some impact. You can view them as half full or half empty.

And you can see this best– here's kind of a business as usual case, where the world did not engage in any efforts to reduce CO2 emissions. By the end of the century, we could expect about 8 degrees of warming. Here is what the scientists are pushing for, which is the 2 degrees C increase, and this is the path of emissions we would have to follow, and you can see that would require the really drastic decline in emissions. And remember, that's supposed to occur at the same time that there's this very large increase in energy consumption, so it's quite the challenge. And here is kind of a pathway that was roughly agreed to in Paris, which is somewhere in between those two. And so what I want you to take away from this is that really large decline in CO2 emissions that would be required against a business as usual in either of these pathways is largely going to need to occur in China and India, and the challenge– or in other developing countries– the challenge– it will also have to occur here– but the challenge is that those countries have very low levels of income, and there's a reluctance, even here in the United States, just to buy more expensive energy.

And so asking people who are poor to buy more expensive energy seems challenging, I think, would maybe be the way to put it. OK, so those first 7 Facts are, my wife thinks, a little gloomy. And so now I'm going to try and turn to identify what some core problems are and hopefully identify a path forward that is maybe not quite so gloomy. So the 8th Fact is that energy is mispriced in at least three really critical ways. And the reason I want to emphasize that is I think the energy systems that we have are a consequence of the way we structure energy markets. And so if we misprice energy, we should not be surprised if it produces things that we don't like. So the first thing is– and this relates more to the leg of the stool of why there is not access to reliable and inexpensive energy in many parts of world– is that in too many parts of the world, energy is treated as a right.

And the problem when energy is treated as a right, is that no one really can supply it, because that means that if it's a right, no one's going to pay for it. And so this is just a graph of a lot of the technical transmission and distribution losses in a lot of countries. And you can see– here's India, and here's Pakistan. And they all have very high losses. And what that is saying is the distribution companies have high losses because people are not paying, and as a consequence, supply ends up being very low. OK, a second problem, which the decline in energy prices has helped alleviate some, is that end user subsidies are very high in lots of parts of the world. And everyone knows the stories of gasoline being $0.30 a gallon in Venezuela– maybe it's even lower. And there's lots of mixed price on energy.

And the result of that is that you can often have rationing. It's motivated as being something to help with distribution– sorry– with redistribution goals. We should go back one– there. But what you can see is that it's actually very ineffective at dealing with redistribution. Here is this share of the subsidy in natural gas, electricity, and gasoline that actually hits people in the bottom 20% of the income. And so you have these policies that lead to inefficient use of energy that are very ineffective at actually providing resources to poor families. All right, and now I'm going to– the third way in which energy markets are structured such that they produce outcomes that may not be desirable, is that the graph I showed you earlier of how much it costs to produce a kilowatt hour of electricity, does not say anything about what the damages are from carbon– climate change or from air pollution. And those damages should be reflected in prices, and if they were reflected in prices, we would be able to make better choices. And so what I'm going to do in this graph and the next graph is try to show how conventional coal, which looked like such a good deal, and natural gas, which looked like such a good deal, and nuclear, which is way out of the money, the economics of that begins to change, if we had an energy system room where the energy prices reflected the human health, consequences of air pollution, and the climate change consequences.

And so what you can see– so the blue is just the private costs that we've been talking about. But what you could see is that if you add the carbon cost, and if you had the health cost– and we could spend a long time talking about how they're calculated, but if you take them for a given right now– you have a very different system. So nuclear, which has been way out of the money, now looks like a completely viable technology. Natural gas combined cycle plant still looks like a good technology. Coal looks like it's out of the money. And so if we had an energy system in the US and abroad, we would have much different energy outcomes. It's also worth noting that some of these other technologies remain far out of the money. OK, the next point I want to make is that energy policy often is like environmental policy. It often kind of borders on religion, and people just kind of– there's things that they believe to be true, and they're not often evidence-based. And I'll just give you one example of this. So one area where that's especially true is around the energy efficiency policies.

Energy efficiency policies are much beloved, largely because they're a way to save energy and help the environment. And it's widely– every climate change plan has energy efficiency policy at its core. So 44% of the IEA's plan to address climate change is supposed to come from increases in energy efficiency. And what I found in some research, which I'm not going to be able to go into great detail about, is that, at least in the residential sector in the US, the claims about energy efficiency are somewhat overstated. So here, we ran a real– we were actually able to run a randomized control trial on 30,000 households in Michigan, some of whom were randomized into undertaking energy efficiency investments in their homes and some of whom were not. And the striking finding from that was that, of the projected savings– so the engineering model said that these households would achieve– only 39% of those savings were actually achieved. And it's just an important reminder that it's critical to test policies.

And that's something that we certainly put a lot of emphasis on at the University of Chicago. OK, so the last act that I'll talk about, and then we'll have some questions, is that the energy sector is an incredibly dynamic place, and it's causing rapid change in many different dimensions. So the first, which is a discovery of the ability to cost effectively pull natural gas and petroleum, or oil, out of shale rock– everyone knew it was there, but no one thought it could be obtained at a reasonable price– has really transformed the North American energy economy. It's transformed the world. And there's a lot of ways to summarize that. And to date, it's basically only taken place in North America, but what you can see here is it's as if about 75 years' worth of current global gas consumption fell out of the sky. It's also as if about 15 or 16 years' of petroleum consumption, global consumption, fell out of the sky. And that's assuming that all these countries find ways to access the shale gas and the shale oil. OK, so that's on the fossil fuel side.

There's been really tremendous innovation, which reflects the insight and hard work that has gone on, largely in North America. It's also worth looking at– the green line here is the cost of solar PV, and what one reads in newspapers is approximately true. There's been tremendous improvement in solar PV that have brought the cost of that down. It is still more expensive than fossil fuels, but there are hopes that that will decline as well. And here are some of the projections on what could happen to batteries. We talked a little bit about that as it relates to automobiles. OK. All right, so I'll just close with– and then we'll have, I'm sure, a good chance to talk about some of the things that came up– in addition to being on the faculty in the Economics Department, I direct Energy Policy Institute of Chicago, which has, as its mission, discovery, impact in education. And what we aim to do, I think, we focus on the three legs in the stool that I talked about– markets and pricing, which are how can you have markets and pricing that deliver inexpensive and reliable access to energy, how do you deal with climate change that is also a function of some of our energy choices, and how do you deal with the environmental consequences? At the heart of what we try to do, of course, is frontier research.

That's the first thing that anyone in the University of Chicago who is worth their salt wakes up in the morning trying to think about. But what we try to do, which I feel is an emerging model in academia is find– a weak point of academia is that we're really good at creating very complex languages that allow us to talk to each other, but not so good at communicating outside of our little circles. And at the Energy Policy Institute, we put a lot of emphasis in finding ways to communicate the results of the frontier research in ways that are easy to access for the outside world. And this is just a sampling of some of the research that we've done and its influence on the media and other ways. And you know, there's no question that the energy challenge is interdisciplinary. What I will say is that I came here to Chicago 18 months ago– one of the reasons I came– I had been at MIT– is that at MIT, the energy problem was treated as really an engineering and science problem.

And my own view is that engineering and science kind of follow the economics. And so, the University of Chicago is unique, not in having this collaboration across disciplines, but in having, kind of, economics as the lead horse, as opposed to maybe being at the end. OK, so with that, I think I'd be happy to answer any questions that people might have. Yeah. [APPLAUSE] AUDIENCE: So thinking about that north/south line in China, and thinking about– you started this, talking about the developing countries and the quality of life improves with energy. And I'm wondering if that analogy was really answering the right question, because maybe they didn't do it the right way, putting these little coal-fired boilers in place. But is the question really if they didn't have the energy, what would their life expectancy be? If they didn't have the coal there, would it be– PROFESSOR MICHAEL GREENSTONE: No, so that's a great question.

AUDIENCE: It would certainly be a miserable life. PROFESSOR MICHAEL GREENSTONE: So the way I think of that paper and that line of research is not a referendum on should we have energy, but rather what are the consequences of air pollution for human health. And then, there's all kinds of ways that you can reduce air pollution that don't roll you all the way back to don't use energy. And so that could be– AUDIENCE: It just didn't seem to me representative of– you know, we're 25% of the global energy use, here in the States, I think, something like that. It just didn't seem like a representative example of whether or not energy impacts life. I think it actually improves life expectancy, and it has for– PROFESSOR MICHAEL GREENSTONE: Yeah, so I don't want to be too didactic, here. But let's not confuse the two legs of the stool, here.

One leg is how do you have access to inexpensive and reliable energy that powers growth? So I think the short answer is that you set up energy markets so they'll deliver that. The second is are there ways that you can do that without leading to the massive environmental problems that one sees in China? And I think a simple thing in China would have been to install pollution abatement equipment and not have all these little boilers. It's not to not use energy. I mean, look out the window, here. There's lots of energy consumption in Houston, but you don't have all the high levels of air pollution. AUDIENCE: So if you applied the PM 10 data to the Beijing area, how much shorter are their lives because of the coal plant, power plant? PROFESSOR MICHAEL GREENSTONE: Yes, we have to define what it means, what you're comparing it to– but the comparison I was making in the paper is that if you live just north of the line relative to south, you live about 3 1/2 years less.

AUDIENCE: But, you know what the PM data is for the Beijing, right? I mean, it's horrible. PROFESSOR MICHAEL GREENSTONE: Yes. AUDIENCE: So can you extrapolate and apply your research to that area, say how short– PROFESSOR MICHAEL GREENSTONE: So here's the way to say this, if China brought it all of the country into compliance with China's environmental standards for PM, there would be, I think it's, like, 2 and 1/2 billion extra life years gained. AUDIENCE: You know, I look at this, and it reminds me of the Dominicans that taught me about spirituality when I was in high school. It would good to be pure, but that's not possible, when you're a 14-year-old. What's possible for China and India is not to say we're going to convert to really expensive alternative, it's to do something that says we're going to control the pollution, right? Doesn't that seem like the possible mission that we should be asking people to work on? Because you're not going to go to really, really expensive alternatives. You're going to use the things that are politically feasible. And the things that seem feasible is to say, here's how to reduce the pollution.

PROFESSOR MICHAEL GREENSTONE: I think, what I take away from this and your question is– I think the notion that China and India are going to devote tons and tons of resources to reducing CO2 is probably not very likely. They have very immediate concerns, extraordinarily low levels of income– more so in India than in China. But there's an immediate problem they could confront, and it's probably in their interest, and that's dealing with the air pollution. And I think there is a path to doing that. There are also some CO2 benefits along the way. AUDIENCE: You showed two charts that I thought were very interesting. The first was the break-even for the internal combustion engine versus the electric car. And you showed the prices being astronom– obviously very uneconomic at current standards. At the very end, you skipped through it very quickly, but you showed the price of batteries falling very, very– I mean, the rates obviously flattening out or decreasing.

But have you done analysis on when you thought those would be more economic? PROFESSOR MICHAEL GREENSTONE: What if we used WTI futures? For December, 2020, that's $55– that would require batteries, $64. AUDIENCE: So now follow-up question, sorry. This is a purely– this model is purely based upon energy prices, correct– none of the secondary or tertiary cost associated with the energy? So you went on earlier and– PROFESSOR MICHAEL GREENSTONE: Oh yeah, so this was ignoring the CO2 and air pollution consequences. AUDIENCE: So can you rerun all this, combining– PROFESSOR MICHAEL GREENSTONE: I've made a version of this, and it shifts the line up and increases the space in which electric vehicles can operate– would look cost effective. It is also true I'm ignoring range anxiety, and things like that, in here. So it's not a perfect graph, but it tries to encapsulate, I think, what some of the core economic questions are. AUDIENCE: Can you talk a little bit on energy intensity of countries as countries get richer and wealthier– the energy intensity improves, meaning countries like US or Germany, the GDP growth equated to their energy consumption reduces.

So countries like India and China, as the GDP increases, they will get more efficient, particularly China now that they're switching from manufacturing to more of a service-based industry, where 85% of the growth that we expect in the GDP is going to come from services. And the second part of my question is China and India have been very aggressive in production of renewable energy. China is the largest producer of renewable energy on the planet. So don't you think that these countries already contributing in a way to reduce CO2 emissions– maybe not enough? But– PROFESSOR MICHAEL GREENSTONE: So I'm not making any statement about what's enough. These are all facts. There's no moral judgments, here. These are, like, decisions that countries are going to have to make, basically about how much resources– Again, let's just go back.

There's these three legs of the stool. They're trying to maximize economic growth, and subject to dealing with whatever air pollution problems that it's producing, and then subject to some concern about CO2, which is down the line. And based on their income level and local preferences and local politics, I think countries are going to locate themselves in different places. Now, to your broader question about how much can we expect energy intensity to change over time, there's no question all these countries– US, too– are becoming more energy efficient over time. The really low levels of energy consumption in China and India, though, I think– more so in India, are likely to swamp that. And you saw that in the statistics over what the projected total energy consumption will be. And that's kind of– if you think about what is the core– you know, this is meant to be much broader than just climate. But the core challenge in my view for climate is that by hook or crook, the world is relying on today's relatively poor countries to spend more on energy, and that's a difficult, difficult ask.

Like, one possibility is that US could ship a bunch of money to those countries, but I wouldn't want to run for President– I think people see what running for president is like, right now. I would not– and my wife is very beautiful– but I would not want to run for president on a campaign of sending $20 billion a year or more to some other country. MODERATOR: And this will be the last question before some remarks from the Club. PROFESSOR MICHAEL GREENSTONE: I there's one more after that. AUDIENCE: I'm sure you probably have done some work on carbon pricing. Any headline comments on carbon pricing as either a depressant on economic growth or as an incentive for innovation? PROFESSOR MICHAEL GREENSTONE: Yeah. So I think part of the challenge is that the low carbon energy sources are just expensive, right now.

And why is that? There's not really an incentive for companies to develop lots of resources to develop a new product, because we, by and large, the world doesn't price carbon. And I think getting the price of carbon above zero would have, I think, probably a tremendous first order of facts on that. And I think that any path to doing something about climate change has, I think, got to run through that. I think you had a second part of your question, which escapes me. AUDIENCE: Well, both. So does a carbon price, in your view and based on your data, depress economic growth overall? PROFESSOR MICHAEL GREENSTONE: Oh, sure. So there's, you know, so again, what I want to draw you to is like conventionally measure– so ignore the health benefits. There's no question that higher energy prices are not good for economic growth.

The degree to which that's counterbalanced by health problems and the possibility of CO2 problems is a deeper question and one that I've tried to shed some light on. But I think, if I wanted you to take away one thing from this, it's how difficult it is– near impossible– to achieve all three legs. So if you want to push an economic growth, there's a risk that you're going to make the air pollution problems around the world– not so much, here– and the CO2 problems worse. And if you want to just push on those two things, you're going to make the economic growth slower. AUDIENCE: Now, natural gas only has about 50% of the CO2 output that coal does, to say nothing of other pollutants. It seems like if we could switch from coal to natural gas– 40% of the US electricity is still generated from coal, down from 50%. But the worldwide effort to reduce the use of coal to natural gas– it seems like that would be a very good fix for much of the world's problems.

Not all, but that would be a big help, I would say. PROFESSOR MICHAEL GREENSTONE: Natural gas has a lot of advantages over coal. As you emphasized, it has half the carbon content on the particulate matter, criteria pollutants. It's a lot better. I think that the tremendous increase in the supply of natural gas around the world, I think, could be viewed as both a benefit in helping that transition. And then if you were only narrowly focused on the CO2 leg of the stool, you might wonder– well goodness, the increase in the supply of global fossil fuels has gone up a lot, here, and is that beneficial on that? And that's a tough question. AUDIENCE: There's no way to get away from fossil fuels for many years to come. Just if we had a lower CO2 emitting ones, that would be a big benefit. PROFESSOR MICHAEL GREENSTONE: It would have a large CO2 impact, that's for sure. OK, I'll be around and happy to talk to people on the side. Thank you for the great questions.

[APPLAUSE] CAMILO PARRA: My name is Camilo Parra, and I'm the current president of the Alumni Club of Houston. I graduated from the College in 1991, and I'm honored to be with you this afternoon. I invite each of you to continue the conversation. Perhaps you'll discuss whether you're going to put that deposit on the Model 3 down during the reception that will begin immediately following these remarks. I would like to extend a big thanks to Tim for sharing more information about the University of Chicago Campaign Inquiry and Impact, to Eric, for introducing our speaker, and to Michael, of course, for that great talk. And thanks again for each of you for sharing your valuable time with us this afternoon. Tim mentioned the 125,000 engagement goal. And just by being here this afternoon, you're helping us meet that total. You are our best ambassadors.

Bring your friends and fellow alumni to events like Harper Lectures that helps us strengthen our career networks and reach our 125,000 engagement goal. Your attendance today counts on so many levels. Thanks for joining the thousands of alumni around the world who are giving to support scholarships and new inquiry, attending events, leading reunions, and so much more. Thank you for being here this afternoon and for making our University one of the great centers of education, discovery, and impact. [APPLAUSE] .