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A three-part series on causes, effects, resolutions and connections
Part Two
The first part of this three-part series addressed carbon economy with recommendations on how to move the world’s economy forward in a fair and equitable manner. The second part covers current and past pandemics and how travel, transportation and trade are essential pieces of policy creation to combat negative economic impacts.
A Thought Experiment: Pandemic Risk and Cost
Imagine that the nations of the world had, for the past century or so, taxed fossil fuels in order to delay their exhaustion, constrain emissions of greenhouse gases and other pollutants, and limit ecological damage. To build a world of peace, prosperity, and sustainability, they had shared hydrocarbon revenues through a global trust fund. Imagine they had distributed a part of the revenue in equal per-capita dividends, spent another part on public goods, and invested the rest on behalf of future generations, including us.
The world of 2020 might be vastly different from the world we now know. As a thought experiment, consider one hypothetical example: How might our experience of the Coronavirus have been different under such an institutional structure?
Disease Transmission: Energy and Globalization
Travel, transportation, and trade are energy-intensive. In the US last year, transportation of people and freight accounted for 28 percent of energy use, and 91% of this energy came from petroleum products. The underpricing of fossil fuels leads to more travel and trade, longer supply chains, and more globalization than is optimal. An unintended consequence is that pathways for viral transmission expand faster and farther. Local infections more readily become regional epidemics and then global pandemics.
Low transportation costs also tend to promote large firm size by reducing diseconomies of scale, especially for transnational firms. We have seen waves of consolidation in many of our major industries, from agribusiness to electronics. One result is oligopoly, with market power and even political power concentrated in a few hands.
Compared to the competitive market ideal of Adam Smith’s “invisible hand,” oligopolies tend to produce less output and charge higher prices, leading to deadweight losses, reduced consumer welfare, and excess profits for a few. Competition that strives for excellence is good, but this is the destructive kind. As a result, we get fewer startups, such as enterprises developing energy-saving technologies.
Insofar as fossil fuel energy, along with heavy capital equipment, can substitute for human labor, the underpricing of hydrocarbons encourages the use of less labor-intensive, more energy- and capital-intensive methods of production. The result is lower demand for labor and more environmental damage. The oil and gas industry is a plain example. In short, when hydrocarbons are underpriced, a market bias favors production organized in oligopolistic industries with long supply chains and wide market areas.
Again, when hydrocarbons are chronically underpriced, we get less redundancy and resiliency in the economic system, making it more vulnerable to shocks—such as an unexpected “shelter in place” directive. A regime of hydrocarbon taxation would have yielded more localized markets, wider opportunities for small firms and new enterprises, greater demand for labor, and higher wages. Energy firms would earn normal risk-adjusted returns on their invested capital. In short? A virus might have had fewer opportunities to colonize the world.
COVID-19 has given us a new appreciation for “essential” work. Along with first responders, those who bring us or allow us to receive our daily bread, have worked through the pandemic while most of us shelter at home. Today’s food system is characterized by particularly high and rising industrial concentration, with just a few competitors taking the lion’s share of each market—seeds, fertilizer, machinery, and other farm inputs; CAFOs; food processing; storage; freight; retail sales.
It should be no surprise that meatpacking plants are coronavirus hotspots. In April 2020, Smithfield Foods’ meat processing plant in Sioux Falls, South Dakota, with 3700 employees, became the largest coronavirus hotbed in the U.S. Smithfield is owned by a trans-national company based in Hong Kong. Perhaps with appropriate hydrocarbon pricing, meats would still be processed in local abattoirs rather than in giant slaughterhouses with thousands of workers—prime breeding grounds for COVID-19.
Automobile-dependent suburban sprawl has also been promoted by the underpricing of oil products such as gasoline and asphalt (among other policies). Sprawl destroys ecosystems as it separates people from their sources of food and fiber. A continuous policy of taxing fossil fuels would have led to more clustering of human activities at modest scales, with less development pressure and less urban crowding.
This gives a whole new meaning to “social distancing”.
The final part of the three-part series focuses on energy and the food system and the resiliency of our world when it comes to carbon, climate and COVID-19.
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