Ravi, in Conversation

Energy is finite in nature as defined by the currently known principles of physics and thermodynamics. The process of creating energy cannot be completely efficient and involves the loss of energy in some form or the other and not only that, certain processes or certain outputs can be harmful to the environment around us. Combine this with ever-increasing need so that we keep the engines of economic growth chugging, and we have the biggest problem for human survival in front of us.

Despite the increasing number of options for energy production and dissemination, most of the world depends on proven fossil fuel sources. One reason for this is the availability and concurrent lower cost of producing such energy. But our current model of pricing energy based on supply and demand is heavily flawed since it does not take into account the environmental ramifications of each source of energy. For instance, availability of already built infrastructure and resulting economic and political costs of dismantling such facilities is what drives the adoption rate of newer technologies, rather than the amount of good it does to the world. The environmental costs of a source of energy are completely ignored by the current pricing structure. Take for instance the first generation biofuels initiatives in the United States, many of which are currently proven to be more damaging to the environment that the very fossil fuels that they want to replace. However, an infrastructure, a political mandate and a regime of subsidies is already in place and trying to alter them can be a huge challenge.

When supply and demand are the only factors determining price, of course, along with the volatility due to speculation, we have a situation where we have multiple competing technologies, some with an unfair advantage over others due to factors other than what is best for the long term. As long as fossil fuels remain cheaper than alternative sources, the world will continue with the "drill baby, drill" mantra, piling on economic costs in the form of environmental damage. Imagine a situation where the price of oil was to include a component of cost to clean up the environment. The price of nuclear energy will include the costs of getting rid of nuclear waste. All forms of energy will be pitted against each other based on their inherent worth, and demand will go for the supply that becomes cheaper.

The beauty of such an energy efficient pricing model is that is can even affect the choice of a consumer by increasing the price of the less efficient filament bulb in comparison to a compact fluorescent lamp. An organically manufactured food item can be cheaper than a food that uses growth hormones, and chemical fertilizers. In the same way, your super energy efficient car will be cheaper than your neighbour's gaz guzzler, though the cost of manufacturing your machine was higher. In some way, such a pricing mechanism is revolutionary in terms of bringing transformation in energy choices.

How will one go about implementing such a model? Assuming that energy efficiency is measurable in terms of horse power output for unit input, as long as we consider even environmental factors as input costs, and take disposal of residues as part of the product cost, we should be able to determine a "Cost to Environment" factor from a few samples from each energy production mechanism or energy consuming equipment. The easiest way will be for a global agency to collect this as a tax at source. This tax will be ultimately passed on to the consumer, and the consumer will be paying more. But, the long term effect will be that this pool of funds can fuel further research in the most promising technologies. Since all production mechanisms or consumption mechanisms are lossy, the cost in general will go up. But this ideally will push the demand to the cheapest available option, which will also be the best to the environment. For instance, our auto-makers will finally get an incentive to produce more energy efficient cars. The governments do not have to earmark new funds for research, as the model contains a feedback loop to push it towards better ends.