Wednesday, March 25, 2009
Friday, March 6, 2009
Tuesday, March 3, 2009
The sigmoid function above represents how a company may invest in sustainability initiatives over time and what benefit may be received from those investments. I used cost on the y-axis, but this could just as easily have been time, but since time is money, I went with cost. Benefit encompasses any value that flows to the organization, its customers, or society. This particular sigmoid curve is applicable to a company that is fully committed to a designated level of sustainability and is not relevant to those that simply change a few light bulbs, recycle some paper, and call it a day.
As with any learning curve, there is a large amount of investment during the initial stage. This is especially true with the “greening” of an organization as there are high upfront costs in both knowledge and equipment in the initial stages. Once a well planned sustainability initiative is put into action, benefits are typically seen in the short term and accelerate as additional actions are taken. However, the marginal benefit of each sustainability investment begins to decline. Organizations will either run out of ways to be more sustainable or the cost of the initiative will be greater than the benefit (to either the organization or its customer base) derived from that action. As a wise woman once taught me in Economics 101, organizations should invest in sustainability initiatives until the marginal cost equals the marginal benefit.
Each of the three horizontal lines represents a threshold that an organization can either decide to invest up to or move beyond to obtain additional benefit. It is important to reiterate that the additional benefit does not necessarily mean additional revenue to the organization, at least in the short-run. There will be industries in which some of the thresholds do not exist (e.g. no external regulations, no set industry practices, etc.). In addition, the threshold levels may be in constant flux especially in emerging or newly regulated industries. There also may be occurrences when the Industry Standard Threshold will be below the Regulatory Threshold, however, once government regulation is created, those two lines will converge as the regulations will quickly become the "industry standard.” In fact, the ideal industry will be one in which all three thresholds converge to form one thresholds (like Voltron, who knew Optimus Prime did the introduction?).
Clearly, this graph is a simplification of the progression from a toxic waste spewing heathen to a glorious green company. However, the graph will serve organizations well in mapping out a sustainability plan and determining whether they want to take their relationship with Mother Earth to the next level.
Thursday, February 19, 2009
For the global warming alarmists to be right, all of the following three have to be true:
- The globe is warming.
- It is caused principally by human activity (not principally by natural cycles).
- It will result in disaster.
Makes sense right? It follows logically and I would not necessarily disagree with the structure of the first two caveats of the argument. As I said above, I do believe the first two are true. The scientific consensus from every major scientific body backs those two claims. I do not believe that I am an expert in everything (contrary to what my wife may say about me), so I have to defer to those "in the know" (or at least to whom Wikipedia says is "in the know"). In regards to the third part of the argument, I would rewrite it as follows:
3. It will result in a net negative effect on humanity.
I think an important underlying premise of this rewritten third caveat that net negative effect does not necessarily only incorporate "bad things" happening to humanity, but also includes missing out on "good things" for humanity. Much in the same way that financial decisions look at net present value, it is important to look at the net present value of not taking action against climate change. If we miss out on returns by not taking action (e.g. renewable energy, sustainability movements, etc.), then those accrue as "negative cash flows" to humanity.
OK, I realize I was just a little over philosophical and nerdy, so to simplify my argument, I think you can simplify the argument to take action down to one question:
Is there a higher probability that EITHER climate change will result in a net negative effect on humanity OR taking action against climate change will result in a net positive effect on humanity?
Notice the relevant question is not if global warming or climate change or the great socialist conspiracy (feel free to pick your own name as well) actually exists, but whether not acting against climate change is the best option. Further, as we are dealing with imperfect information, we have to use our best judgment (via probabilities) with the data that is available. If we take the no-action approach, then we are simply rolling the dice and hoping nothing bad happens. However, if we take action against global warming, then the probabilities point to two positive outcomes, a cleaner and (more than likely) cooler world and a good start on energy independence.If you are still not impressed, I came across this link on Twitter as I was posting this. The use of Pascal's Wager is an excellent premise (if you're into that sort of thing).
Wednesday, February 11, 2009
Only the strong will survive...
One of the main arguments of opponents of a regulated carbon market is in regards to the job loss that will occur due to either companies not being able to bear the burden of the additional cost or the flight of jobs to countries where carbon restrictions are less restrictive. It is a typical fear argument, similar to the one your mom would use when you were a kid, "Don't cross your eyes or they'll stay that way!" Sure, it was effective, but factual, not really. Yes, the carbon market is going to have some losers. It is the Darwinian forces of economics at work, additional costs will cause organizations to either adapt or die off. But does this mean that society (that's you and me) should continue to bear these externality costs so that a small amount of individuals should remain gainfully employed. It is always funny to me that most people scrutinize the government when it props up corporations with their hard earned money (just ask the financial institutions on the U.S.), but then ignore the other corporation induced costs that are difficult to quantify. One of the benefits of the carbon market is that some of these "other corporation induced costs" will now have a monetary amount attached to them so that you and I no longer have to bear those costs.
Life will find a way...
In addition to some corporations dying off, entire new industries and organizations will come to life. That is, most (actually it will more than likely be all and then some) of the jobs that are destroyed by the price of carbon will be replaced by new positions in the "green" economy or in organizations that are able to adapt to the new industry dynamics. Regulations and the inevitable expansion of the carbon markets into developing countries will prevent too many jobs from fleeing to countries with unregulated carbon. Further, as long as the cost of carbon does not exceed the cost to transport goods from outside of the U.S. (which will more than likely have a carbon price built into it), it will be cheaper for manufacturers to remain where they are. In fact, the majority of those corporations that would have moved their facilities to outside the U.S. due to a carbon price probably have already done so due to NAFTA, the China price, etc.
Ability to adapt to change...
From the establishment of trade to the continuous evolution of technology to the incorporation of labor rights, the U.S. economy has always adapted and moved forward. It is the structure of an economic market that matters, not the players within that market. As long as the market functions, there will always be jobs. Capitalism = Darwinian Evolution.
Sunday, February 1, 2009
Monday, January 26, 2009
Not to worry my friends, all is not lost (c'mon cheer up, USA! USA!USA!, there, feel better?). The current low price of oil is an OPPORTUNITY for my (and hopefully your) new world savior, renewable energy. There are those that are trumpeting the lower prices as an obstacle to the growing renewable energy movement. I agree, but only to a point. Those who are short-sighted and do not see the freight train coming through their coke-bottle sized glasses are withdrawing or decreasing investment in renewable fuels. It is well reported that hedge and venture capital funds have decreased their investments into the "green" industry sector. This is somewhat due to the lack of credit and funds, but is also partially due to a short term outlook. Some of these individuals are taking the last of their joyrides in their Hummers, but are refusing to see the green sunrise of the future (how's that for some cheesy imagery). Oil is limited, not only by the amount in the ground, but by the market forces that allow it to emerge from it. While some renewable energy is currently bounded by scale, new investments can eventually make scarcity scarce. These investments in renewable energy are being made not because of what is (the market price of oil), but what will be (limited dependence on oil). There is no better time than now (just like the Toyota commercials say) to invest in biofuels and renewable energy sources, because once the demand for energy rebounds, someone needs to be there, and why not our little green friend (no, not Gazoo), renewable energy. As scale becomes reality, and cost of production is driven down, renewable energy sources will not only be viable at a lower oil price, but may make the price of oil less of a factor in the overall U.S. economy. Is this reaching a bit? Maybe, but the opportunity is there. Let's hope that we have the will (and our government does to) for this new way. Now if we just had a president who wanted to create infrastructure...
One other thought...if you have not heard or read enough on the recession, here is another article to get you all riled up. I thought it summarized the causes of our current crisis quite nicely, while at the same time, tempered the feelings of socialization, I mean nationalization, that seem to be sweeping into Washington. Be careful what you wish for kids, you just might get it.