Hid­den costs of fos­sil fu­els

The Star Malaysia - Star2 - - ECOWATCH - By GrEGErS rEIMANN

WHAT is cost? We as­so­ciate it with the price we pay or the cash we hand over in or­der to con­sume a prod­uct or ser­vice. In most cases the selling price is of­ten di­rectly re­lated to the cost of pro­duc­ing a prod­uct. What if while con­sum­ing or pro­duc­ing the prod­uct, ex­tra costs are un­leashed on so­ci­ety, which the con­sumer has not paid for? Who bears this ex­tra cost and what is the value of such a cost?

A com­mon mis­con­cep­tion is that the real cost of fos­sil fu­els in Malaysia is the selling price plus what­ever sub­si­dies are pro­vided by the gov­ern­ment. Although this might be true for prod­ucts that do not ex­hibit other so­cial costs, the use of fos­sil fu­els is not that sim­ple. When fos­sil fu­els are burned, ei­ther for power gen­er­a­tion or to run your car, there are by- prod­ucts which can harm peo­ple or lead to pol­lu­tion.

What is the cost of such dam­age? In the case of petrol used in a car, econ­o­mists at the In­ter­na­tional Mon­e­tary Fund ( IMF) es­ti­mates that for Malaysia, this dam­age amounts to RM2.20 per litre of petrol. The fig­ure is the es­ti­mated cost to deal with the harm that the use of petrol will cause. The dam­age is pri­mar­ily linked to long- term health costs, en­vi­ron­men­tal dam­age, traf­fic con­ges­tion and ac­ci­dents.

These so­cial costs – termed as “neg­a­tive ex­ter­nal­i­ties” in eco­nom­ics – are costs or harm that are im­posed on a party which did not will­ingly con­sent to it. For exam- ple, mo­tor ve­hi­cle driv­ers are im­pos­ing ex­ter­nal­i­ties by mak­ing peo­ple breathe in toxic ex­haust fumes with­out them con­sent­ing to it. The haze is another ex­am­ple: while In­done­sia is clear­ing land with the slash and burn method, it un­leashes the haze upon it­self and its neigh­bours. It may be “cheap” to clear land by burn­ing but it im­poses vastly higher costs through dam­age to tourism, public health and busi­nesses.

To put things into per­spec­tive: One litre of RON95 petrol is RM2.05 ( price in Oc­to­ber) but even if petrol be­came free, you are still im­pos­ing a cost of RM2.20 to so­ci­ety for ev­ery litre of petrol burnt. Thus, the true price of petrol should be what you pay at the pump plus gov­ern­ment sub­si­dies, plus a cor­rec­tive tax to com­pen­sate for the dam­age you im­pose on so­ci­ety. The cal­cu­la­tion: RM2.05 + 0 sub­sidy ( for this month) + RM2.20 = RM4.25. This means the cost to fill up a 40- litre fam­ily car should be RM170 in­stead of RM82 – a 107% in­crease.

Re­search has shown that in the se­vere haze event of 1997/ 1998, the dam­age to In­done­sia was es­ti­mated at RM35­bil. The haze- in­duced loss to Malaysia dur­ing the three months from Au­gust to Oc­to­ber 1997 was es­ti­mated at RM800mil, mainly from loss in pro­duc­tiv­ity and de­cline in tourism. This may seem like a large num­ber but how does this com­pare to the pol­lu­tion dam­age caused by the use of energy in Malaysia?

An IMF study from 2013 showed that the an­nual cost to Malaysian so­ci­ety from do­mes­tic fos­sil fuel use is RM88­bil, which makes the RM800mil cost in se­vere haze years look minis­cule in com­par­i­son. A break­down of the fos­sil fuel costs re­veals that the bulk of the ex­ter­nal costs were de­rived from petroleum prod­ucts – from us driv­ing around in our diesel and petrol cars. In 2011, the to­tal so­ci­etal cost of petroleum was RM63­bil or 5.12% of GDP, which is com­pa­ra­ble to the gov­ern­ment ex­pen­di­ture for ed­u­ca­tion.

Our use of coal is another ma­jor con­trib­u­tor to hid­den energy costs. An IMF study this year ( How Large Are Global Energy Sub­si­dies) which ex­am­ined the ex­ter­nal­i­ties caused by fos­sil fuel con­sump­tion spurred on by sub­si­dies, es­ti­mated that global energy sub­si­dies ( all fos­sil fuel sub­si­dies) make up US$ 333bil ( RM1.47tril) or 0.4% of global GDP. How­ever, the to­tal cost in­clud­ing neg­a­tive ex­ter­nal­i­ties from the use of fos­sil fu­els, are US$ 5.3tril ( RM23.44tril), or 6.5% of global GDP.

For coal alone, the IMF es­ti­mated that the cost to so­ci­ety – pri­mar­ily health costs due to pol­lu­tion – is at 3.9% of global GDP. This makes up more than half of the US$ 5.3tril.

Coal is by far the most in­ten­sive pol­luter com­pared to nat­u­ral gas or other fos­sil fu­els. China is a ma­jor user of coal. A re­cent study from re­searchers at the Univer­sity of Cal­i­for­nia- Berke­ley showed that ev­ery year in China, 1.6 mil­lion peo­ple die from health com­pli­ca­tions linked to the coun­try’s pol­luted air. That is 4,400 deaths ev­ery day.

The IMF study also found that about half of the US$ 5.3tril neg­a­tive ex­ter­nal­i­ties of fos­sil fu­els is in the form of lo­cal pol­lu­tion and dam­age to lo­cal public health. Only about 25% is cost as­so­ci­ated with wors­en­ing global cli­mate change. Given that half of the ex­ter­nal­i­ties ad­versely af­fect the lo­cal liv­ing en­vi­ron­ment, there are good con­crete eco­nomic rea­sons for tak­ing ac­tion lo­cally. Act­ing on cli­mate change by re­duc­ing fos­sil fuel energy use has sig­nif­i­cant lo­cal ben­e­fits.

The haze is a vis­i­ble nui­sance and causes wide­spread dam­age for a few months dur­ing the year. How­ever, the prob­lem is tem­po­rary and acute. The dam­age from the use of fos­sil fu­els may be less vis­i­ble but is ever- present, and ev­i­dence points to long- term costs which are many times greater than that caused by the haze.

The mes­sage is clear, that there is no such thing as cheap fos­sil fu­els. The use of fos­sil fu­els is in­her­ently ex­pen­sive, due to the ex­ter­nal costs ad­versely af­fect­ing our health and caus­ing en­vi­ron­men­tal dam­age, yet this is not re­flected in the price. A cul­ture of sus­tain­abil­ity in­cor­po­rat­ing the “pol­luter pays” prin­ci­ple is ur­gently needed.

Some coun­tries, like Den­mark, are al­ready heav­ily tax­ing fos­sil fu­els and are spear­head­ing a global ini­tia­tive to re­form and re­duce fos­sil fuel sub­si­dies. The cost of in­ac­tion is sig­nif­i­cant – and grow­ing – and we are the first gen­er­a­tion which can­not say “we did not know”. In the face of solid ev­i­dence, fu­ture gen­er­a­tions will blame us for sit­ting idly by while let­ting the world slip into eco­nomic and en­vi­ron­men­tal peril. In other words, it is ex­pen­sive and im­moral not to go green.

Gregers reimann is man­ag­ing di­rec­tor of IEN Con­sul­tants, a green build­ing con­sul­tancy.

1 the real

price: the cost of dam­age to health and en­vi­ron­ment is not re­flected in the price of fos­sil fu­els. — AFP 2 A woman pro­tect­ing her­self with a mask as her home is next to a coal- fired power plant in Shi­ji­azhuang, He­bei province, China. the use of coal is cost­ing so­ci­ety some US$ 2.6bil an­nu­ally, pri­mar­ily in health costs due to pol­lu­tion. — reuters

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