How the Economic Crisis Will Affect the Environment

Given the magnitude and scope of the current economic crisis, the world will no doubt experience a significant economic downturn -- of what degree and duration, no one can say -- profoundly affecting all aspects of U.S. and international society. Of the many areas that will be impacted by the downturn, the environment stands out in particular. It's closely tied to the tempo of resource consumption, and significant efforts to ameliorate environmental decline will prove very expensive and out of reach for already-stretched budgets. The question thus arises: Will the crisis be good or bad for the environment, especially with respect to global warming?

To put this question in perspective, it is necessary to first look at the environmental situation prior to the crisis.

Gathering Crisis

By all accounts, the steady growth in the world economy -- much of it driven by phenomenal economic expansion in China, India, and other nations -- was producing a corresponding increase in demand for energy of all forms, especially greenhouse-gas emitting fossil fuels. According to the latest pre-crisis projections by the U.S. Department of Energy (DOE), combined energy consumption by all nations of the world was expected to grow by 22 percent between 2005 and 2015, from 462 to 563 quadrillion British thermal units (BTUs). Most of this increase, almost 90 percent, was expected to come from fossil fuels -- oil, coal, and natural gas.

The result, not very surprisingly, was a dramatic projected increase in the emission of carbon dioxide (CO₂), the leading source of climate-changing greenhouse gases. Again using DOE projections, total world emissions of CO₂ were expected to increase by a frightening 22 percent between 2005 and 2015, from 28.1 to 34.3 billion metric tons. This increased rate of greenhouse-gas emissions would precipitate global climate change, resulting in persistent droughts, increased storm activity, and a significant rise in the sea level.

At the same time, however, the rising price of oil -- itself caused by the sharp increase in demand -- combined with growing awareness of the risks of global warming to create an unprecedented spurt in investment in alternative energy ventures. Many governments, energy firms, and venture capitalists have announced plans to spend vast sums on the development of climate-friendly alternative fuels and improved methods for obtaining energy from wind and solar power. In November 2007, for example, Google announced that it would invest hundreds of millions of dollars in the development of advanced renewable energy sources. These efforts, and others like them, wouldn't reverse the trend toward higher CO₂ emissions between 2005 and 2015 but could set the stage for a dramatic turnaround in the years that follow.

How will the current economic crisis affect this picture? As in so many things, there's both good news and bad news.

The Upside

The good news is that economic hard times will cause people to drive less, fly less, and otherwise consume less energy, thus lowering expectations for greenhouse-gas emissions. According to the most recent projections from the International Energy Agency (IEA) in Paris, global oil demand in 2008 will be 240,000 barrels per day less than in its earlier predictions, and 440,000 barrels per day less than in its predictions for 2009. Many experts believe, moreover, that demand will drop even further in the weeks and months ahead as the economic crisis deepens and consumers around the world cut back on their travel and energy use -- and the less oil consumed, the less CO₂ emitted.

As petroleum consumption declines, the price of oil is also likely to drop -- thereby discouraging investment in many costly and environmental hazardous energy projects.