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_ The Zero Emissions Strategy Conference
Contributed by Robert Ayres, Sandoz Professor of Management and the Environment, INSEAD
For the Zero Emissions Targeting Conference, The Commons, 6 August 1997.
Herman Kahn was of course one of the epic early figures of the 'futures business". After he left RAND and started his own operation, which eventually became the storied Hudson Institute, he surrounded himself with a team of very bright and aggressive young scientists and social scientists. One of these back in the middle sixties was the then young Robert Ayres. Herman's contributions to futures thinking were many and enormous (quite literally), and his willingness to join just about any debate on just about any subject was legend. And woe be to the unprepared opposition! With this past in mind, we encouraged Robert to step back a few years and, using his imaginaction, wit and sense of fair play, see if he could constitute what might have happened if he and Herman debated the issues of this meeting today. His best effort follows. Have a look and tell us what you think. Knowing Herman, I am sure that he would not have objected. (This introductory comment by Eric Britton.)
RUA. Herman Kahn! Is it really you? I didn't know the WorldWideWeb was available in your ... area. How did you find me?
HK. Oh, I've been following your career, at a distance as it were, since you left Hudson Institute.
RUA. But how did you manage to follow it after you left the ... material ... world?
HK. Well, that should be obvious to the author of Information, Entropy and Progress. The place where I reside now is, as you might say, immaterial. It is the realm of pure information. I live, in effect, inside the web! Did you ever read that series by Orson Scott Card? Ender's Game, and the others - Speaker for the Dead, Xenocide, ... Do you remember the entity Jane? Who lived in the computer network and prevented the xenocide? I don't mean my ex-wife, by the way. My widow, I guess I should say. You probably do remember her ...
RUA. Yes I do, though we only met a few times. Did she move to Indianapolis when the rest of the Institute moved? I haven't seen her since ...
HK. Nor have I, at least not with my old visual equipment, eyes, lenses, retina, optic nerves, and all that. No need for glasses here, by the way ... But I'm talking about the Jane in the Orson Scott Card stories, not the Jane who married me. But I keep getting distracted. There was also a Jane who published books on navies and air forces and tanks and so on. I used her books a lot, in the old days. If that Jane was a she...
VIRTUAL MODERATOR. Better stick to the subject. Herman, may I ask why you have come to visit us? I presume you wanted to say something about our virtual conference?
HK. Yes. Well, no! Not about the conference itself, although I must say you've made a mess of it. I used to run my real conferences a lot better.
RUA. Well, thanks. You did most of the talking, as I remember. Perhaps you'd like to take over now? Eric and I could use a break. I'd like to see you in action again. That is, not "see" exactly, but ...
VM. Now we're getting distracted again.
HK. No. That is, yes. I'm calling about the subject of the conference, not the organiza-tion of it. Zero Emissions! What a ridiculous idea. Haven't you ever heard of conservation of mass? I thought you studied physics. Economists like to pretend that "goods" are immaterial, but they aren't. All goods are material. Even the Internet depends on optical fibers and satellites and PCs and so on. That is, for you guys who still live down there ...
RUA. That's interesting. You say we are "down there". Are you now "up there" or "out there", or are you "in there" like Jane the NetEntity?
HK. Stop trying to be William Safire. You'll never make it. And don't interrupt me when I'm doing one of my monologues. You know I can't stand being interrupted.
RUA. (aside) Didn't Jane ever interrupt?
VM. Ahem!
RUA. Sorry. Please carry on.
HK. I was saying that all goods are ultimately material. So economic growth means more goods must be produced. And that means more materials must be extracted, processed, and finally disposed of. Not only that, the capitalist engine of eco-nomic growth is accelerating, now that the Soviet communist empire has finally collapsed (thanks to some of the policies I and my friends recommended, I'm happy to say) and the Chinese communists have sensibly given up socialism and adopted capitalism. Even India is finally getting it's act together. India could be the Japan of the 21st Century, you know.
RUA. So who was the MacArthur of India?
HK. There you go interrupting again. I was just about to tell a joke, and now I've forgotten it. But you remember that I predicted the rise of Japan, back in the 60s, and everybody laughed.
RUA. You did indeed. And they did. But you have the last laugh. It was one of your greatest insights, unquestionably. You talked a lot about "Confucianist ethics" and so on. Now the politicians of Southeast Asia are using the same line of argument to justify their authoritarian tendencies. I'm sure Lee Kwan Yew read your book. He probably attended one of your seminars, too.
HK. I can't recall him, but it is possible. Everybody came to my World Futures seminars. But don't blame me for every one party state that has been in power too long. The plus side is that political stability is good for free market economies, and market forces are now predominant in almost every major country. And when competitive free markets are allowed to function, people get richer, and less tolerant of oppressive governments, so democracy is likely to follow eventually. I've never believed that democracy was a necessary precondition for economic growth, as a lot of Americans seem to believe. China will become democratic in its own good time. See what happened in Taiwan! And South Korea!
VM. Yes, the Taiwanese and South Koreans have got rich and become more demo-cratic, as you say. And North Korea and Cuba have stayed poor and undemo-cratic. No argument about that. But now you are getting distracted again. What was your main point about economic growth?
HK. Simply - and you know I find it difficult to say anything simply - that economic growth is both inevitable and desirable ... You Agree? ... .. but that means more and more mobilization of materials. And, conservation of mass means that all those material goods eventually become wastes. You've said it yourself: every bit of material substance extracted from the earth's crust and incorporated in a product must eventually become a waste.
VM. And this doesn't worry you? You don't see a problem?
HK. No and No. First, no, there is no problem of resource scarcity. We've been through all that, you know. The Club or Rome and it's "Limits to Growth" thesis has been demolished long ago. As my friend Julian Simon would say, there is only one scarce resource, and that is human intelligence. The more people there are on the earth, the more intelligence there is to solve problems. Why is it that the richest countries are the ones with no natural resources to speak of? Great Britain. The Netherlands. Japan. Germany. Hong Kong. Singapore. Switzerland. Israel. Even in the United States, it was New England that industrialized. The New Englanders had to do really ingenious things, like making ice from their frozen ponds into a profitable export to the West Indies, where they bought rum and sold it in Europe in exchange for ...
RUA. Yes, I follow the argument, although I don't think the slave trade was something to brag about. I agree that the US didn't originally get rich (as Churchill thought) from its abundant natural resources, though the natural resources must have been helpful later on. But that is not really the issue is it? Do you postulate indefinitely increasing population, like Julian Simon, along with simultaneously increasing wealth and no resource scarcity?
HK. Yes to the second part, but no to the first part. I'm sure Julian doesn't really think the population will grow indefinitely. He just doesn't think it is a big problem. At some point, when a country gets rich enough and urbanized - as Europe is today - children become an expensive luxury, not a necessity for economic survival, as they are in rural India. The country with the lowest birthrate in Europe is Italy, where the Catholic Church has its headquarters! Ironic, no?
RUA. Ironic, yes. One of these days the Church will have to allow its priests to marry and have children, if only to reproduce the priesthood!
HK. Well, I'm a Jew, myself, so I won't comment on that. But I think we agree that the population problem is self-adjusting. It just a problem of ensuring sufficient economi-c growth. And that also takes care of itself if the government does not get in the way. You can see it happening all over the world, right now.
RUA. So you are a closet libertarian! You must have read Atlas Shrugged at an impres-sionable age.
HK. Well I'm out of the closet, I guess. Ha Ha. Of course I made my views pretty clear in The Next Two Hundred Years and The Resourceful Earth (which I co-edited with Julian Simon, as you know)
RUA. So you did. In fact I participated in that project for a bit. You had forgotten? But, for the record, how do you get around the problem of resource scarcity? Malthus may not have allowed sufficiently for the role of technology in increas-ing the productivity of agriculture, but that doesn't undermine his whole argu-ment. (Besides, he was a libertarian, too, don't forget. His whole thesis was that the government should be less generous with welfare for the poor, because it would only encourage the poor to go on having too many children!)
HK. I didn't say Malthus was wrong about everything! Actually I didn't mention him. You did. But the answer to the resource scarcity problem is technology, triggered by rising prices. Hal Goeller and Al Weinberg explained it pretty well in their 1976 paper in Science. I think it was called "The Age of Substitutability". If a material really becomes scarce, prices will rise and people will either find substitutes for the material itself, or they will find new sources or cheaper ways to produce it. Or recycle it.
This free market mechanism works so well that resource scarcity has never yet been a problem. Every time a scarcity starts to develop, the "substitution" mechanism starts to work, often with wonderful results. When charcoal became expensive (because of deforestation) in England, they learned how to smelt iron with coal, and coal became a valuable resource. It never had been valuable before. When coal mines got too deep and drainage became a problem, Newcomen came up with the steam engine to solve that problem, and then somebody noticed that steam engines could replace horses to pull carts (carrying coal, as it happened) and the steam railway was born. Somebody else noticed that a steam engine could drive a paddle wheel and make a ship go upsteam against the current, or against the wind. So steamships were born. In the middle of the 19th century whale oil was the cleanest and best fuel for oil lamps. So sperm whales were hunted nearly to extinction and whale oil began to get scarce and expensive.
This encouraged a search for alternatives. One of them was "rock oil". A group of investors hired Benjamin Silliman of Yale to investigate this stuff, and on the basis of his report, sent "Colonel" Drake to drill for oil in Pennsylvania. A new resource was discovered. Actually, it was created by technology. At first, it was just a substitute for whale oil, but there was a by-product called gasoline, that was to volatile for use in oil lamps. They used it for dry cleaning. But somebody thought of using it as a fuel for internal combustion engines that could be made small enough to drive a carriage (in place of a couple of horses). Thus the automobile was created. And then the aeroplane. Rock oil had no real value before Silliman and Drake. It was just a nuisance. Now they call it "black gold". At the end of the 19th century Germany needed nitrates, both for fertilizer and munitions. The British controlled the only good natural supply, from Chile. So the Germans learned how to make synthetic ammonia. Now everybody does it. At the beginning of World War II the Japanese overran most of the world's natural rubber plantations, in Malaya and Indo China. Did that stop the US war effort? Hardly. It just stimulated the synthetic rubber industry. I could go on and on.
VM. No doubt. But what exactly was your point again? Try and make it more succinct.
HK. That shortages practically don't occur because technology responds so quickly and effectively.
VM. OK. Herman is a technological optimist on the resource issue. Bob, correct me if I'm wrong, but aren't you rather optimistic on the technological potenti-al for reducing materials and energy use, in order to approach the Zero Emissions target? Whereas Herman seems to be a pessimist on that question. Why is that?
RUA. As for Herman's pessimism, you'll have to ask him. My optimism is based on much the same historical experience that Herman just outlined for us. Remember, he argues that there is a substitute for everything. B-ut he also pointed out that it was market price increases, or the expectation of same, that triggers the substitu-tion mechanism. Charcoal prices rise, and coal follows. Whale oil prices rise and voila, petroleum. Nitrate prices rise, and that induces a chemical company to invest a lot of money to develop an alternative source. Yes?
HK. On the money (so to speak). I always said you were quite bright. That's why I hired you!
RUA. Thanks a lot. But then it follows that all it takes to induce firms to find substi-tutes for virgin materials - that is, to recycle a lot more and to use a lot less in the first place - is a rise in price. Isn't that so? And we could achieve that, in principle, by taxing raw materials, such as oil and gas, instead of labor. Or, by several other means.
VM. That makes sense, doesn't it Herman?
HK. Not at all. You can't impose a tax on materials in one country without adversely affecting the competitiveness of its industry vis a vis other countries. The-re is no way to tax only domestic raw materials, and if the tax were applied to imports, it would be blatant protectionism! We tax labor rather than capital and resources, because labor is immobile (relatively speaking, of course) whereas capital and resources can cross national boundaries. That's what "globalization" is all about. And it is globalization that is driving economic growth through trade and invest-ment. We can't turn the clock back!
VM. What about that, Bob?
RUA. Perhaps we have to reconsider whether globalization is such a great idea. I'm beginning to have my doubts. But I want to return to a point Herman made earlier about scarcity and prices, as a driver of technological change. My question to Herman is this: What happens when there is no market for the scarce stuff? For instance, take the case of a public good, such as common land. Garrett Hardin wrote a classic article some years ago, "The Tragedy of the Commons", which made the point that, when something is common property, nobody has any incentive to conserve. On the contrary, if I don't grab my share, someone else will. This was the case for sperm whales, for instance. As the price rose, whalers just sailed longer distances, and so on, to find and capture the last few whales. Now the African Rhinos and the Indian tigers are in danger of extinction for the same reason. The fewer there are, the higher the price and the more incentive for poachers.
HK. What happens is that the resource is abused and eventually destroyed, of course. For instance, in the case of common land, if everybody grazes their livestock on it, all the grass will be eaten down to the roots, the soil will dry out and heat up and blow away, and the land will turn into a desert. This is what happened to the once fertile lands of North Africa and the Middle East. They were consistently overgrazed by cattle, sheep and goats. It is happening now in the Sahel. B-ut the answer is clear: Privatize! Once the land is privately owned, and fenced, the owner does have an economic incentive to conserve, because he (or she) can decide rationally that future consumption may be worth more than current consumption. But under private ownership the owner can be sure that the land is not overgrazed, so it will continue to be productive next year too. Similarly, suppose the tigers were privately owned by the same people who now poach them. If they preserved the last few tigers now, they would breed and produce more tigers for the next generation. This is called "sustainable consumption" I believe.
RUA. You have given the Libertarian answer. And, what you say is true up to a point, although it is also likely that a privately owned forest operated for profit will never allow trees to live long enough to grow really big. All the commercially managed forests are essentially mono-cultures with practically no species diver-sity. It would mean the end of the giant Sequoias and thousand year-old Red-woods, and quite a few other species ... .
HK. But people will pay to see them. It is called "eco-tourism", nowadays. So there are other ways to justify conservation.
RUA. Yes, that is partly true too, but only partly. Eco-tourism might save the tigers and rhinos and pandas - it is not proven, but it is a possibility, I agree - but it cannot save wilderness areas that can only remain as wilderness if people don't go there. There are a number of species of very shy birds, for instance, that cannot survive near human habitations or in areas where people go regularly.
HK. There is a libertarian answer for this case, too. Such places have what is called an "option value" for people, then people will pay to preserve them. The Wilderness Society, and the Audubon Society, and the World Wildlife Foundation, and others, all try to preserve areas of natural diversity for their own sake.
RUA. But not nearly enough. However, I've gotten myself distracted. There was another point I wanted to make a few minutes ago that is less easy to answer. It is, simply, that not all public goods, or common property resources, can be privat-ized. Fisheries, for a start. The fish swim in the sea. Nobody owns the sea, even if a nation can exclude the fishing boats of other nations from within a certain distance of its shores.
HK. But, there is a Libertarian solution, in principle. Property rights can be created here, too. The fishermen can be licensed and the number of licenses can be limited. They could also be bought and sold, as property.
RUA. In principle, yes, but the process doesn't work very well, even for inshore fishing, and it works hardly at all for deep sea fishing. Europe has tried to adjudicate fishing rights among national fisheries. But up to now very little has been agreed, and what has been agreed is not enforced. The fisheries are still declining. The problem is not only the difficulty of reaching agreement, but also the problem of enforcement. Property rights are valueless unless they are enforceable. On land one can put up fences and keep guard dogs (at some cost, of course), but at sea this won't work. It would, at the least, involve some pretty fancy police work, inspections, and so on. All government employees, presumably.
HK. No reason the police couldn't be privatized, too.
RUA. You mean like the schools and jails? Then the rich would hire more police and guards and have more means of enforcement than the poor, wouldn't they? I'm not sure I like that idea. I'd rather keep the police in the public sector.
VM. I think we're off the track again.
RUA. Yes, I really wanted to make a different point. I'm in favor of privatization where it is feasible. But there are cases where privatization is NOT possible, sometimes for technical reasons, sometimes for legal reasons. Take clean air. There is no way to privatize the air, because it covers the whole planet. You could conceiv-able create licenses to pollute, and they could be made exchangeable. But the ownership of a license to pollute is not the same as ownership of a certain quantity of clean air. There is no way to keep a given volume of air clean, or to inhibit it's circulation in any manner.
VM. So what?
RUA. So there can be no market for clean air, as such. It follows that clean air doesn't have a price. Licenses to pollute may have a price, but that is a different matter. Also, there is no substitute for air ... .
HK. But if clean air gets scarce, the number of licenses to pollute can be reduced and the price of a license will go up, so the polluters will start to look for substitutes for the act of polluting. So it amounts to the same thing.
RUA. No, the existence of a market for licenses to pollution isn't equivalent to a market for clean air. We have a market failure. In the first place, the license to pollute is given by the government, and there is no automatic connection between the number of licenses or the amount of pollution allowed, and the quality of the air. The only link is through the political process, or possibly through a regulatory process put in place by the political process. Either way, there is a government function involved. Not only that, the licenses to pollute wouldn't have any market value unless there is strong and automatic enforcement against cheaters. It isn't like a marketplace where the shopkeeper keeps the goods under glass, or keeps a sharp eye on the shoppers and yells "stop thief" if a customer doesn't pay, and so on. I believe Libertarians don't like government intervention of any kind.
VM. Never mind what Libertarians would say. It isn't germane. Your point is that, for licenses to pollute, both allowable levels and enforcement are inherently govern-ment functions outside the domain of the marketplace ...
RUA. Yes. And I would also point out that Herman's privatization scenario is extremely hypothetical. The point is that markets for abstract "rights" and "permits" don't exist now. They would have to be created and nurtured - also by government - against a lot of resistance. Not only are there interest groups that have an eco-nomic stake in the present system (lawyers, for instance), there are also people who would oppose the creation of new property rights for moral reasons. A lot of people object strongly, on moral grounds, to creating "rights" to pollute. Making those rights exchangeable for money would be even more objectionable to such people, I imagine.
VM. So, for all these reasons, you think that the creation of property rights to pol1ute is not such a neat solution to the problem of creating incentives to technological innovation? In fact, it may not be acceptable even in principle? And where does that leave us?
RUA. It follows that the automatic "technological substitution engine" that Herman has been talking about, which works OK for replacing scarce commodity resources, like copper or tungsten, won't work very well - if it works at all - in the case of clean air. Let me add that the same argument applies to a number of other environmental assets or amenities, including clean water, the ozone layer, the carbon cycle, the nitrogen cycle, the hydrological cycle, and biodiversity. There is no way to privatize them directly. Nor is there any way to create an equivalent market that will be equivalent to privatization. In other words, there is nothing to prevent "the tragedy of the commons" except government intervention.
HK. I'm not so sure, but suppose I agreed. I don't see the connection with Zero Emissions.
VM. Neither do I. At first, Herman seemed to be arguing that waste emissions are inevitable concomitants of economic growth, and that economic growth will not be inhibited by resource shortages, because technology is so potent. Is that right so far?
HK. Yes.
VM. Then Herman seemed to be arguing that excessive consumption, and waste, can be prevented by privatizing ALL resources, to create economic incentives for conservation. Is that right?
HK Yes. More or less.
VM. But Bob has argued that privatization can't be effective in some cases, because of market failures.
RUA. Yes. And there are other more technical reasons, too.
VM. Whence it seems to follow that technological substitutes would not become available automatically, even if they exist in principle ... .
RUA. Which they may not. I can't think of any technological substitute for the ozone layer, or for the carbon cycle, or for biodiversity ...
VM. Point taken. But, at the end of the day, Herman is arguing that technology is extremely potent - capable of substituting for any material resource, at least, while you are saying that technology is either less potent, or less likely to be mobilized. Have I understood you both?
HK. Yes, I think so.
RUA. Yes, I think that is what it amounts to.
VM. But here is what puzzles me. If Herman is right, and technological substitutes exist and can be found for virtually (!) anything, there should be no technological barrier to more or less complete "dematerialization" of the economy. It would only be a question of creating the right incentives. Have I got that right?
HK. Hmmf. Yes. But not by taxation...
VM. But, as I understood it, Bob, your argument was that there are fundamental limits to technological substitution, due to market failures. Have I understood correctly?
RUA. Yes. I guess it amounts to that.
VM. So, it appears that you have now undermined your original argument in favor of zero emissions by reducing material inputs and you are now defending the position Herman took at the outset. Similarly, he has undermined his own original position (against the technical possibility of zero emissions) and is now defending yours position. Have I understood you both?
RUA. Yes, but ... I mean no, but ... However ... On the other hand ...
HK. Hmmf. Very interesting. Let's see what the other participants in this conference ha-ve to say! Perhaps I'll tune in again tomorrow.
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