editorials

When it comes to reducing greenhouse gases, some solutions will actually save money, but that might not make them any easier to enact.

A recent study by the McKinsey & Co. consulting firm found that reducing emissions of climate-changing greenhouse gases through the year 2030 will require more than new technologies. We can't just invent our way out of this one. That's the bad news.

The good news is that of the 3 gigatons of annual reductions in greenhouse gases that the country hopes to achieve by 2030, almost 40 percent could be captured through investments in energy-reducing strategies that require no new technologies, and the costs of these strategies would be outweighed by savings from lower energy costs.

However, those potential savings won't come without some serious market tweaking. Why? Because the person who might bear the costs of the energy-reducing strategies may not be the person reaping the savings.

Take the example of new houses and rental units. The residential housing stock is forecasted to grow from 113 million homes to 147 million by 2030, accounting for about an eighth of the country's greenhouse gas emissions. Apartment landlords and developers building new homes are focused on the bottom line. Their incentive is to reduce costs, not to cut energy costs over the lifetime of the property, because home builders and landlords generally do not pay for the energy use. That means that in equipping the home with appliances, landlords and developers often do not choose the most energy-efficient appliances, even though savings from reduced energy use over the lifetime of the appliances would more than make up for the added costs.

The energy savings of superior appliances may not balance out their added costs for several years. However, the initial home buyer or renter might be planning on living there for a short term, so they too may have little incentive to pay for the added costs of energy efficiency in the home. It may be that only over the course of several owners would the costs of energy-efficient appliances be recouped.

In any case, consumers have difficulty looking at a time horizon of more than a few years. In the long run, an energy-efficient light bulb may more than pay for itself, but consumers tend to be shortsighted. As economist John Maynard Keynes said, "In the long run, we're all dead."

The case of commercial and industrial buildings is only somewhat better. Those owners may take a longer view of capital expenses, but that is countered by the value they might place on spending their money in other ways. An extra dollar invested in an energy-saving machine might return a dime, but that extra dollar invested in other parts of their business might return a quarter. Which would you choose?

In order to achieve a substantial reduction in greenhouse gases, some people will have to pay somewhat more in order for others to pay a lot less.

The Minnesota Climate Change Advisory Group formed earlier this year faces a difficult task formulating politically feasible proposals for reducing greenhouse gases in the state. Any serious program will impose higher costs to deter polluting behavior and create incentives to encourage beneficial behavior. Essentially, the group will need to pick winners and losers. When the advisory group reports back with recommendations by the end of January, we should hear a howl from the losers. If we don't, there's a good chance the advisory group didn't go far enough.