For these very reasons economic incentives provide powerful mechanisms that might be employed more generally in order to reduce the present waste of energy. A trading scheme for emission permits is now being tested in the EU with the aim that it will be more generally introduced at the beginning of the first commitment period in 2008. But as yet it includes only emissions from stationary sources, such as power stations and the metallurgic industry. The basic idea is to stimulate a reduction of carbon dioxide emissions where it can be most easily achieved and at least cost. A limited number of tradable emission permits have been issued and distributed (either free of charge, or more appropriately through an auction). Enterprises that can reduce their need for fossil fuel energy by comparatively cheap means are able to sell some of their permits to those for whom a more efficient use of energy would be more expensive. In the long term a gradual decrease in the total number of permits would reduce the total use of energy produced by burning fossil fuels.
This introduction of emission permits has led to a substantial increase in the price for electricity in Europe, which was expected because of the limited numbers of permits that were distributed. Tactics have also been developed that minimise the effects that are detrimental to the participants. Trade between EU countries and those not taking part is, however, becoming distorted to the disadvantage of EU countries. It is no surprise that there are protests against the increasing energy prices, but these are just a manifestation of the ongoing increase in demand that in the long term will make the switch to non-carbon emitting primary energy relatively less costly than it would otherwise have been. An expansion of such a trading scheme to the world as a whole would be desirable, but the time is not yet ripe to do so because of the very different financial resources that characterise the international scene. It might actually be preferable to begin with the establishment of a set of regional markets in order to try out the basic idea further.
Another kind of effort to reduce emissions has emerged in the last few years. Companies have been formed that sell emission reduction certificates to private enterprises, organisations or even individuals. For the money received, they guarantee reductions of greenhouse gas emissions somewhere in the world, primarily in developing countries. The Norwegian government will, for example, enter into such an agreement to assist in reducing emissions by paying for such efforts. These kinds of initiatives are, of course, welcome but it remains unclear how effective they will be in the long term. In particular, governments must not use them as alternatives to reducing emissions 'at home'.
A few more specific examples will illustrate the role of market measures more clearly.
Increasing demand for more energy is most strongly felt in the transport sector. Energy efficiency in transporting goods on the road has improved substantially during recent decades. The reduction of fuel costs has been important in market competition, but the greater demand for transportation has anyhow increased total fuel consumption. Further reductions will primarily depend on whether fuel costs increase further or not; the open market has come to stay. The private transportation sector is also developing rapidly and is similarly increasing its share of the total energy use because of the increasing standards of living of most people in the world. There are more automobiles on the roads and aeroplanes in the air, and there is an urge amongst people in industrialised as well as in many developing countries to spend an increasing part of their spare time and a larger share of their increased earnings on travelling. On the other hand, it is likely that more efficient engines will significantly decrease the fuel consumption per unit distance travelled and slow the rate of increase of the energy use, but we do not know how quickly this might be achieved. Hybrid cars increase the efficiency of the fuel use by 30-40% and electric cars would do so further, but batteries with adequate storage capacity are not yet available, although technical development is on the way. The use of electric cars would obviously also reduce air pollution in densely populated areas, but it would imply an increasing demand for electricity to be produced without an increase of carbon dioxide emission. However, the rapidly expanding fleet of cars in the world means that we may not see a reduction in the global demand for fuel in the transport sector for quite some time, rather the opposite. This demonstrates the need for a change of life style, though this is not easily achieved. However, social tensions are increasing, particularly in the megacities of developing countries because of intolerable congestion that put limits of the future rate of growth but will most likely not stop it. The conflicts between traditional rural life and the hectic pace of industrialised societies are causing problems. The wishes of people in developing countries to follow in the footsteps of the inhabitants of industrialised countries means that the present number of cars in the world (almost one billion) might possibly have doubled by the middle of this century.
Another approach to reducing the use of fossil fuels in the transport sector would be to use biofuels more widely, especially ethanol. Plans are being developed in Brazil to increase its production capacity to supply about 5% of the fuel required for the expected fleet of cars in the world in 2025, which implies the production of at least 100 million tons of ethanol per year. Even such a major national effort would, however, lead to a reduction of the total amount of carbon dioxide emitted by the use of fossil fuels by just a little more than 1%. To supply the world fleet of cars towards the middle of the century with biofuels from the tropics would require a land area of about 3 million km2, which corresponds to about 20% of all of the land in the world that is being used today for agriculture, a fact that again illustrates the scope of the problem that is confronting us.
The use of ethanol as a fuel in the transportation sector is being taken seriously in a number of other tropical countries. Ethanol is environmentally friendlier than gasoline and may well become a competitive source of energy in the world market, as gasoline prices rise. This might ease the potential conflicts between developed and developing countries in the negotiations of the structure of international treaties within the FCCC. Recall, however, the uncertainty about how much actually would be gained by replacing gasoline by ethanol in the transport sector, as pointed out in Section 13.3.4. The production of ethanol from corn, wheat, cellulose, etc. at middle latitudes is less efficient and hardly yet a rational solution for the future.
There are a number of means of increasing energy end-use efficiency in both industry and the private sector. The use of heat-pumps might well halve the requirement of energy for the provision of heat to public premises as well as private homes. Producing the electricity required without the emission of carbon dioxide remains and might well be a problem where renewable energy sources or nuclear energy are not available.
Better insulation wherever heating is required is an obvious measure on many occasions and will be economically more profitable the more energy prices increase. It is generally not adequately recognised that major savings can be achieved in this way. Considerable energy savings can also be achieved in the maintenance of good indoor air quality by using effective heat exchange arrangements for the ventilation systems.
These simple examples are just a few illustrations of the multitude of measures that can be used to reduce carbon dioxide emissions.
A hydrogen society is the name given to a society that uses hydrogen as a non-polluting fuel in the transport sector and more generally as an energy carrier from the place of production to final use. It should be recognised, however, that the use of hydrogen as the energy source for air traffic brings with it increased injections of water vapour into the stratosphere and enhances the formation of clouds in the stratosphere and upper troposphere, which might contribute to climate change. On the other hand, it would eliminate direct emissions of carbon dioxide wherever it is used, though it raises the basic question of which primary energy is to be used to produce the hydrogen (see National Research Council (2004b)). In the long run solar energy or other forms of renewable energy would be the preferred option, but this will not be possible for quite some time. Rather, the most plausible solution for the supply of the energy required for hydrogen production seems to be electricity from coal-based power plants combined with carbon sequestration and storage.
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