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Global Warming Treaty: Economic Boom or Bust?

The apparently successful conclusion of international climate negotiations in Kyoto, Japan, this week marks a historic turning point in a decade-long effort to begin controlling emissions of man-made greenhouse gases. The environmental significance of the Kyoto protocol is clear, but its economic implications may be nearly as far-reaching.

Cutting emissions of carbon dioxide will almost certainly cause the coal industry to shrink and may require major new investments by energy-intensive industries such as chemicals or steel. But it also will create new markets - for silicon solar cells, fiberglass wind turbines, and hybrid electric cars, to mention a few - that together could create one of the largest new growth sectors of the 21st century.

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The boom may, in fact, have begun. The global wind power industry is a $2-billion-a-year business, growing at 25 percent a year. The new wind turbines have aerodynamic blades and electronic controls, and already produce power at a cost comparable to that of coal-fired plants.

At the same time, the world market for solar cells has gone from $350 million in 1988 to roughly $1 billion in 1997. Some 400,000 homes worldwide now rely on solar power. And Japanese housing companies have introduced a new generation of homes with solar cells integrated into roofs. In Indonesia, 1 million solar homes are planned in the next decade.

A new generation of hybrid-electric cars, with twice the fuel economy and half the carbon-dioxide emissions of today's vehicles, also is on the way. Toyota has a 66-mile-per-gallon passenger car on the market, and similar models are coming soon.

The economists who argue that it will be difficult or expensive to find alternatives to fossil fuels - and that we should delay the transition - are basing their conclusions on a technological pessimism that is out of place. Just as computers supplanted typewriters and slide rules, so will the advance of the new technologies make today's energy systems look primitive and uneconomical.

The emergence of these devices may cause the energy industry to undergo the same kind of transformation experienced by the computer business in the shift from mainframes to PCs in the past two decades. Micro-power, like micro-computers, will rely on sophisticated electronic controls that seamlessly link thousands of small generators and storage devices.

If energy becomes a business based on information, manufacturing, and services - rather than finding, extracting, and processing buried fuels - leadership in energy would shift from those countries that sit atop large reservoirs of hydrocarbons to those that have the innovation, infrastructure, and skills to predominate in a new high-tech industry.

The United States is in good position to compete in such industries, but, so far, our European competitors have seized the lead, dominating the renewable energy markets in the 1990s, just as California did a decade earlier.

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And they are not about to give that lead up easily. Speaking at Stanford University last summer, British Petroleum chief executive officer John Brown announced that in response to the climate problem, his company is stepping up its investment in solar power and other new energy technologies. The Royal Dutch Shell Company made a similar announcement in October.

European leadership in the new technologies is based on a cooperative partnership between industries and governments, which has provided modest tax incentives and reforms of electric utility laws, opening markets for the new devices. Countries such as Denmark, Germany, and Spain have shown that an energy revolution doesn't require an economic revolution, and that a strong economy is fully compatible with reduced dependence on fossil fuels.

Throughout economic history, the greatest financial rewards have been reaped by those who identify potentially lucrative discontinuities and exploit them. With the Kyoto protocol likely to provide a strong push to new energy technologies, an international race for those markets may soon be under way. If the US fails to spur those markets, while our competitors do, we may see billions of dollars of business and millions of jobs established elsewhere.

* Christopher Flavin is senior vice president at the Worldwatch Institute in Washington, and Seth Dunn is a staff researcher.