Part 1: The Economy and the Environment; Two Sides of the Same Coin
Guest post by Peter Gorr
It is a common misconception that what is good for the environment will be bad for the economy and vice versa. Nothing could be further from the truth. A strong economy and a healthy environment are inseparable.
We are experiencing a struggling economy with what I see as no solid strategy to correct the situation. Our economy has been moving away from manufacturing and towards services for many years. Financial services as a percent of GDP is at an all time high and higher than what is recommended. I, for one, do not feel secure with an economy that is built around managing other people’s money in ever more creative ways. Recently every household’s wealth has been negatively affected because of this. And what have we learned and how has our behavior changed as a nation?
Taking tax dollars and throwing them at the problem is not a solution. As well intentioned as this is and as appreciative as we are for infrastructure improvements, this is just a tactic to buy time while a real solution hopefully surfaces before the money runs out. Well the money has run out -- ask the unemployed if they feel the solution has been found.
A basic remedy for a downturn in an economy or, for that matter, a business seeking growth is to find a significant new demand to supply. Sounds simple but it is not. Certain criteria need to be met or we may experience another dot com-like bubble which offers a brief lift followed by an even more painful fall.
Fortunately we have an opportunity with all the right criteria sitting right on our doorstep. Unfortunately it is our assault on our environment and the imperative that we reverse the track we are on that has created this opportunity. We only lack the will and the necessary information. The opportunity is to transition our energy source from outdated, dirty, dangerous, largely foreign, and finite resources to state of the art, clean, safe, domestic, and unlimited resources. Jobs are not lost. They are transitioned and added to.
In simple terms the criteria necessary to initiate meaningful economic growth are the following:
1. A large and growing market. Energy is not only used by everyone, it is increasingly used by everyone and considered not a luxury but a necessity. There can be no stronger market than EVERYONE!
2. The current supply is inadequate or can be improved upon. Here are a few descriptive terms that can be associated with current fossil fuel and nuclear based energy sources: acid rain, air pollution, black lung, cave-in, cancer causing, clean-up, climate change, diminishing, embargo, explosion, extinction, finite, foreign, greenhouse gas, habitat destruction, hazardous waste, leak, meltdown, mountain top removal, radiation, strip mining, toxic spill, water pollution.
I’m sure many more can be listed. A supply with so many negative and undesirable attributes is ripe for replacement. There is an obvious opportunity to generate energy without most of these problems. It is rare in business to identify such an attractive opportunity for improving matters. But current energy sources have very formidable strengths. They have artificially low pricing (see item 3), a strong distribution network, and huge wealth that can be used to influence public opinion and political action. Who hasn’t heard the fictional term “clean coal” and been led to believe that it is real?
3. The new alternative needs to be available now. The good news here is that there exist many alternative energy sources without the negative features listed in item 2. New state of the art wind, solar, biomass, geothermal, and hydropower technology is available. But the bad news is that since there is not a level playing field for these technologies to compete on, they are struggling to gain meaningful market share – and that drives innovation and lower prices as well as the associated jobs they create.
Since current energy suppliers do not factor in all environmental impacts into their cost structure (in economic terms this is known as a negative externality) their pricing is lower than it should be which provides them with a huge competitive advantage. These costs do exist but are being transferred to a future time and future payers; our children and grandchildren. The idea of a “carbon tax” or “cap and trade” is an attempt at monetizing some of these negative externalities. A cap and trade mechanism was implemented to reduce sulfur dioxide emissions from power plants, a cause of acid rain. It was highly successful and demonstrated how market forces can achieve cost effective environmental protection.
The EPA has published a series of studies that detail the costs and benefits of the Clean Air Act since 1970. It is estimated that we will spend $65 Billion in 2020 to address air pollution related effects (ref. 1). How less competitive would fossil fuels be if these costs were factored in (and these are not the only ones). Regarding CO2, another common by-product of fossil fuels, the Stern Report puts the cost of no action on the mitigation of climate change at 5% to 20% of global GDP. This is unimaginable. At a minimum, with proper action, we face a cost of 1% of global GDP due to the damage already done according to this report. Each tonne (metric ton or 2,205 pounds) of CO2 we emit causes damages worth at least $85 (ref. 2). Keep in mind the US alone emits over 6 Billion tonnes of CO2 per year. Each gallon of gas emits some 20 pounds of CO2. These are some of those external costs which are being ignored by the producers to their gain and to everyone else’s loss. These costs are being or will be paid by us but unbundled from the products that are the cause. They may show up in tax bills or health care costs or in other ways. This is unfair and deceptive.
Addressing our energy need is clearly a huge environmental protection imperative and a great economic development opportunity. It’s ironic that certain political talking heads and elected officials who preach fiscal responsibility and job growth so actively oppose this. It mystifies me that conservatives reject anything related to protecting the environment as if they are immune to the perils and the costs of such a short-sighted approach. Everyone benefits from a healthy environment. It is not a liberal policy. It is a human policy.
This has been a macro economic view and opinion of the current economic and environmental situation and the basic steps needed to improve it. In upcoming articles I will describe a more micro or street level view of these principles in action. Specifically, I converted my home to solar generated electricity. What I am experiencing is a win-win-win-win scenario. I am supporting domestic job creation, my energy dollars are staying in the USA, I have increased my wealth and am protected from wildly fluctuating energy prices, and I am protecting the environment. Please join me on this journey.
1 - U.S. Environmental Protection Agency, Office of Air and Radiation, The Benefits and Costs of the Clean Air Act from 1990 to 2020, Summary Report, March 2011.
2 - Stern, Nicholas, The Stern Review of the Economics of Climate Change, 2006, HM Treasury, London.
About the author:
Peter Gorr lives in Palatine, IL and is a husband, parent, and grandparent. He is a retired business executive and holds a MBA from the University of Chicago in Marketing and Statistics. He is on the Executive Committee of the Sierra Club NW Cook County Group and an active member of Illinois Solar Energy Association.