Managing a Changing Climate
 Robert Kaufmann &
Cutler Cleveland: Calculating the Costs
Center for Energy and Environmental Studies (CEES) geographer Robert Kaufmann has taken a different approach to visualizing the problems associated with climate change. His studies connect the natural productivity of the land, a measurement called net primary production, or NPP, to economics. “NPP can be viewed as the ‘currency’ of nature,” says Kaufmann. Using satellite imagery and a unit called the normalized difference vegetation index, or NDVI, he has mapped the “value” of NPP in terms of dollars and cents. He uses his model to estimate the impact of climate change and environmental degradation on economic output. Only by assigning a proper economic value to NPP, says Kaufmann, can the true value of a healthy environment and the real costs of environmental damage be measured.
The economics of energy is a complex, interdisciplinary field. It requires fluency in disparate studies—from geophysics and geography to the economics of oil markets and the political maneuverings of organizations like OPEC (Organization of the Petroleum Exporting Countries).
With degrees in biology, economics, and energy policy, Kaufmann has the right mix of tools. A basic premise of economics, says Kaufmann, is that in order to understand how much something is worth, you must first know how much there is; in the case of energy, this means calculating a reliable figure of remaining oil supplies. However, Kaufmann says, the prevailing model to calculate supply, known as the Hubbert model—and named after famed geophysicist Marion King Hubbert—is flawed. Kaufmann says that the problem with the Hubbert model is that it assumes as long as there is oil in the ground, supply will increase steadily. By looking at historical data, Kaufmann has found something different is going on. His analysis of oil production data shows that demand, itself, can impact oil production. For instance, in the early 1970s, immediately after OPEC tripled the price for a barrel of oil, the drop in demand caused a subsequent drop in production. Kaufmann has incorporated his ideas about the effect of demand on oil supply into a forecasting model he built for the European Central Bank and one he is currently working on for the World Bank.
 With its social and political implications, Kaufmann’s work has inevitably found its way into the policy realm. In a 2002 white paper called Oil Supply and Oil Politics: Déjà vu all over again, Kaufmann and CEES director and colleague Cutler Cleveland evaluated the economic impact of the Bush administration’s push to open the Arctic National Wildlife Refuge (ANWR) to oil exploration. Their paper provides a detailed analysis and concludes that the relatively small amount of oil available at ANWR would not increase the U.S.’s domestic oil supply in any significant way.
They also challenge a view held by many energy economists that oil price shocks, and the recessions that follow, result from our dependency on foreign oil. To reduce the possibility of price spikes, these economists have lobbied to reduce U.S. dependence on foreign oil—and, by extension, OPEC’s price controls. However, Kaufmann and Cleveland have observed that price shocks have little to do with where oil is coming from and more to do with the intrinsic volatility of the oil market. For example, the jump in oil prices that preceded the recessions of the 1950s and ’60s happened while the U.S. produced more than 80% of its own oil. Today, the U.S. imports much more, over half of the oil it consumes.
Kaufmann and Cleveland’s conclusion is a sobering one. Skyrocketing demand and flagging production leave little doubt about the future: “It’s not dependence on foreign oil per se that makes the economy vulnerable to price swings, it is the dependence on oil itself,” they conclude. Kaufmann says that time is running dangerously short to make the transition to alternative energy sources without major economic and social disruptions. “Even if we happen to make one of the largest oil discoveries we’ve ever made, with demand increasing the way it has, the peak comes in the 2030s.”
For more information about the Center for Energy and Environmental Studies,
see www.bu.edu/cees/.
— by Jeremy Miller |
