Why the Green Economy Is Here to Stay
- Jan 13, 2017 5:00 pm GMT
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In recent decades, global economic development has increasingly been impacted by sustainability considerations. While corporations in previous eras may have polluted rivers, produced smog and run through natural resources with reckless abandon, today – whether catalyzed through government legislation, consumer demand, or a sense of social responsibility – companies are developing and growing their businesses with the environment in mind. This concept, called the “green economy,” takes the full cost of an operation – including deferred and indirect carrying costs as well as externalities – into consideration.
President Barack Obama’s administration placed a lot of emphasis on the green economy, particularly in green energy. Obama contended that the future of the U.S. economy, the health of the global the environment, and the promise of green technologies were trilaterally entangled. According to this calculus, the green economy was not a hindrance to businesses, but a way for struggling companies to continue to thrive during and after the 2008 recession.
The Department of Energy, the EPA and more all received increased funding for the development of green jobs and technologies, and new or tighter restrictions on pollutants and other environmental stressors were introduced. No doubt, politics had a role in pushing sustainable technology forward and in compelling industries to “go green.”
The Pessimist’s Case
However, with the recent changes in the global political landscape, many have questioned the capacity of the green economy to persevere.
The dynamic unfolding in US politics vis-à-vis cleantech is in many ways a microcosm for what’s going on in capitals throughout the world. With sustained economic hardship and ever-present security threats, there is an increasing appeal for inward facing policies that place greater priority on the here-and-now than the there-and-then. As such, the argument has been put forward that environmental regulations represent a yoke on the backs of businesses.
As the argument goes, governments around the world may now look to liberate their economies from that yoke and pursue business and resource exploitation strategies that pay now – even if the lifetime costs of such ventures may be burdensome.
Taking a step back, one can be forgiven if he or she interprets recent events and political appointments to suggest that we may be entering an era of rapid and significant upheaval. Indeed, it seems that nothing can be taken for granted anymore. But that doesn’t necessarily mean all the doom and gloom predictions will prove true. In fact, there’s a very strong case to be made to the contrary.
The Realist’s Case
Let me be very clear about it: all the progress made in the green economy over the last few decades is here to stay. While the changing political administrations are likely to bring some sort of change to the green economy, other factors are taking hold outside of public policy and regulation to cement the green economy as an indelible fixture of the business landscape.
What are those other factors, you ask? By and large, they break down into these 6 simple facts:
The Universality of Wind and Solar as Natural Resources
Even to the extent that the green economy relies on government support, it can continue to expect that support – not driven by a sense of universalistic do-goodery but as a matter of sound national development strategy.
It’s really quite simple: while every country in the world has local wind and solar, the same cannot be said for more conventional energy resources. What does this mean? Well, according to Jigar Shah, President of Generate Capital, it means that fossil-fuel-poor countries will continue pouring money into developing renewables.
Moreover, economic policies in fossil-rich countries will be influenced by the business interests of domestic companies looking to export their technology and know-how to those countries eager to build out clean capabilities but currently lacking the infrastructure.
Not just a matter of convergent economic interests, geopolitical power players will want to keep the green economy strong so – as its gatekeepers – they can leverage access to it as a means to more effectively exert influence.
In other words, regardless of the personal attitudes of people in power, national and international interests alike still favor continued renewable development.
The Retreat of Coal is Irreversible
The coal industry – representing the dirtiest energy source – has been in a steady decline for years. While many coal companies forced into bankruptcy have blamed green energy regulations, the truth is much more decisive.
For a time, coal was the least bad option for energy-strapped economies with few viable (affordable) alternatives. Now, that’s just no longer the case. While practically every other energy option has improved, coal has stayed just as bad as ever. As such, the demand for coal is falling. In fact, coal production reached a 35-year low in 2016, with reliance on it having dropped by a third since 2008.
Still, there’s no shortage of coal businesses in operation, and with a clear and present threat to their balance sheets, they’ve begun pushing the story that the practical collapse of once mighty coal has led to a disastrous ripple effect in the broader economy. Millions of jobs, we’re told, have been lost and a large cross section of society finds itself in economic peril as a result.
Of course, this sort of rhetoric is hyperbolic to the extreme. The fact of the matter is that there are more jobs in solar and wind than in oil, gas, and coal combined – and the jobs are a lot safer too.
In the US, it’s specifically the Middle American regions hardest hit by general economic malaise, that are the epicenter for wind and solar development. Places like, Iowa, Kansas, Nebraska, Oklahoma, Nevada, Oregon, Washington, where the working class is benefiting tremendously – and stands to benefit even more given eco-forward policy – from the green economy.
In other words, the role of Big Coal as a vital engine for economic growth or employment is mostly a myth. Going forward, it – and the smog that comes with it – will have a significantly downsized part in the global energy ecosystem.
Raw Economic Forces Buoy Renewable Investment
Long thought to be dependent on subsidies and feed-in tarrifs, the green economy is now standing on its own two feet. More encouraging still, the catalyst for this maturation of the green economy can be traced to raw economic forces.
Whereas in the past, a state that wanted to build a solar energy farm would privately award the contract – inviting all sorts of inefficiencies and improprieties – today the process is increasingly open to competitive bidding. This infusion of free market forces is driving prices lower and releasing a lot of previously untapped cleantech potential. As a result, record low per kilowatt hour prices are being reached around the world.
In fact, the International Energy Agency (IEA) predicts that solar power will be a viable alternative for all industries within the decade, on its path to becoming the world’s leading source of electricity by 2050. The IEA also predicts that the booming solar industry will attract a whopping $44 trillion in investments worldwide, from both private and public sources.
But it’s not just a bright future for the renewable energy market, it’s a bright present. Already today, advanced energy is worth more than the pharmaceutical industry. Indeed, politics play a very small part in the valuation of this market.
Consider for example the fact that Rick Perry – the next energy secretary of the United States – presided over the largest state expansion of wind power in US history while governor of Texas. Not only that, but by the time Perry left office, Texas was poised to set the fastest rate of solar growth among US states.
The point is that this boom – then and now – is guided unmistakably by business-minded calculous rather than a sense of environmental stewardship.
Consumers Want to Support Businesses that Go Green
Nearly two out of three millennials – who now hold the lion’s share of spending power – prefer to spend their money with corporations who promote social change and responsibility. Furthermore, 60% of consumers of all ages are willing to pay more for products from companies that promote sustainable business practices.
Consumers believe products from corporations with social responsibility policies are of higher quality and pursuantly, they’re willing to pay more for these products. With this giant sector of the public so hooked into the green economy, it pays for corporations to follow suit. Put simply, green values are part of the zeitgeist.
Green Energy Saves Companies Millions
Renewable energy isn’t just a key part of advancing green economy or good for relationship marketing – businesses that incorporate green technologies make it work for their bottom line.
Companies such as Wal-Mart, Dell, Cisco and PepsiCo have saved tens or hundreds of millions through renewable energy technologies. Success experienced by the world’s largest and most well-known companies demonstrates to other businesses that supporting the green economy is not only feasible and beneficial for PR, but profitable as well.
Businesses Committed to Sustainability Perform Better During Tough Times
According to the Harvard Business Review, companies committed to sustainability practices fared better during the 2008 recession than companies who did not. Those with strong commitments to environmental sustainability in particular experienced a lower cost of debt by up to 45 basis points.
Most importantly, businesses that stick to their environmental guns do not experience any meaningful declines in share prices. Businesses with low corporate social responsibility reputations, on the other hand, weathered considerable losses.
This makes a lot of sense if you think about it since a pillar of sustainability is waste reduction. In business, the less inputs a given output requires, the higher the value add. These two concepts – waste reduction and value optimization – are extremely synergetic. The more sustainable the operation, the more efficient it is. Most of the time, there’s a straight line running between efficiency and profit.
It’s true that the world can be a chaotic place, and the times now seem particularly ripe for disruption. But in all likelihood that disruption will be kind to the green economy. No matter how you approach the question, the answer is the same: when it comes to the environment, the progress made over the last few decades isn’t going anywhere.