Thursday, October 23, 2008

Bigger, Stronger, Greener, Faster? - Obstacles to a Green Economy

We have entered a wondrous and magical time. Somehow, the 1960s have met the 1990s and there is a new global hippie capitalist movement for sustainability. We are shouting "Show me the Kumbaya!" Most governments and companies see climate change as a threat, but only a minority are getting proactive, a la Jessica Simpson (http://www.enn.com/business/article/38242). As with any great goal in history, there are obstacles (e.g. the Atlantic ocean for the Pilgrims’' religious freedom, the ingrained prejudice with the civil rights movement, my lack of facial hair in growing a sweet mustache, etc.). I thought I might discuss some of the new green economy's obstacles in the hope that my writings inspire solutions, debate, and an immediate search for something else to read.
  1. The Bush Administration - Say what you will about the Bush Administration (seriously, you say it, I don't want to offend anyone on my initial blog given the fact that if I lose one reader, I probably lose half my audience), but they have been a block to the U.S. participating in mandatory carbon reductions. While they have extended the renewable energy tax credits (never mind that it was pork on the bailout bill), their approach has been more reactive than proactive. The theory is that the next administration will be more conducive to a green economy, however, there are other pressing economic needs and in the short-term, green may be sacrificed for green (money).

  2. U.S. Infrastructure - I'm all for green energy, but I'm not sure the electricity grid feels the same way (http://www.nytimes.com/2008/08/27/business/27grid.html?_r=1&hp&oref=slogin). Further, our infrastructure was built around oil and turning around a ship that big takes a lot of time (just ask the Exxon Valdez). Whether we're talking about hydrogen, biodiesel, or electricity, the distribution network will take some time to construct. Local, regional, and state governments will play a significant part in establishing this infrastructure, but as with the federal government, incentives will be needed for proactivity to take place.

  3. Price of Oil - I love a good Catch 22. We hate high energy prices, but we need high energy prices (at least in the short term) so that we can eventually have lower energy prices through new technologies. Further complicating matters is the global economic slowdown. But because oil is scarce, it's price can rise, or in the current case, fall, according to the accompanying demand (as Lavar Burton once said, don't take my word for it, http://www.nytimes.com/2008/10/19/magazine/19oil-t.html). With a falling oil price, the incentive to develop new technologies also falls. Hopefully, OPEC will get its act together and cut production so prices to rise like everyone wants, right?

  4. Credit Crisis - I'm not sure if everyone has heard, but there seems to be some sort of credit crisis going on. The effect this may have on green investing is still being sorted out. My guess is that larger projects will be minimally affected. Venture capital and general investment funds need to still put money somewhere that there is strong potential for growth, and large always equals less risky (right AIG? Lehman, Bear? anyone?). Smaller and more risky projects will more likely have a difficult time obtaining funding, in the short term. But once liquidity is reestablished, money should flow into even these smaller projects once again and everyone will live happily ever after, just like the internet tech boom.

  5. Trendy Business Practices - Who doesn't love a good trend (e.g. bell bottoms, SUVs, mortgage backed securities)? They always look great looking back on them, don't they? Actually, sported in moderation, trends work, they stay cool and relevant. But when we get hooked on one particular item, things can get a little dicey (e.g. Disco Duck). It is encouraging that calls for various alternative energies, reduced waste, etc. have become common place. But American industry has to be careful as not to hook onto one particular solution (e.g. the coming carbon market) so other parts of the solution are ignored. Sustainability is a great goal, as long as it is kept as a goal, and not a business trend.
The above are just a few examples of the obstacles that the new and greener economy will face. I could talk about America's love of consumption, the possibility of a "green tech bubble", confusion through "over" innovation, the scarcity of water, and our everlasting gobstopper of a deficit. But the point is that the road is going to be rocky, difficult, and have many forks. It's going to be a little like one of those choose your own adventure books (do you fill your car with biodiesel or go electric, you go with electric, turn to page 46, oooh, you are eaten by the dreaded grid monster, dun, dun, dun, but I digress). Only through government and corporate leadership and technological and financial innovation can we hope to sell green tech stocks high around the year 2016, but at least be a little bit closer to actually having a green and sustainable economy.

8 comments:

The Lean, Mean Green said...

The point about energy infrastructure is very timely as I've recently been researching demand management in response to energy infrastructure needs. According to the IEA, the US alone will need to spend $1.6 trillion (that's with a 't') on energy infrastructure by 2030 to meet expected electricity demand.

That's just capital expense to build the power plants. That doesn't take into consideration the economic and environmental costs of the fuel used to power those plants.

Given this staggering price tag, it is clear a significant investment must be made in supply-side alternatives such as energy efficiency, distribution generation (solar, wind, etc.) and renewable fuels. As Dan mentions, the path to answers is unclear, but the opportunities are enormous.

Charlotte said...

When is the next post?!
I'm counting on you as my source of info on the subject (a nice alternative to the European version of the news that I usually get).
Good luck with the blog!

What I am wondering about in a more general manner on the subject is how the push/trend for cleaner, sustainable energy and lifestyle is going to resist the current recession in consumer behaviors. Will they continue buying bio products, push for cleaner energy even if more expensive?

Good luck with the blog!

seegers101 said...

The current admin has also focused funding on solutions that just don't make sense...

http://www.marketwatch.com/News/Story/Story.aspx?guid={8CD623A9-C82E-42D1-892F-1EFA43A53306}&dist=WSJfeed&siteid=WSJ

In the future maybe we can focus investment on technology that is efficient on a BTU basis, does not ADD to the carbon footprint (from start to finish) and does not require a run on the US food supply (corn hit $8 early in the year).

jquaglia said...

I thought you might find this article of particular interest and relevance.

http://money.cnn.com/2008/10/31/magazines/fortune/gunter_carboncredits.fortune/index.htm?postversion=2008110307

Dan Sell said...

Charlotte, That's a good question. I guess it depends on the marginal utility that people associate between their dollars and "green products." Of course, that is probably a moving target given the price of oil. Our friend, T-Gray, sent me this article. You have to register, but it's a good read and gives the reader a good idea of the receptiveness (and confusion) of the consumer market. http://www.mckinseyquarterly.com/Strategy/Innovation/Help_green_products_grow_2231

Johnnyboy said...

Mr. Green Jeans,

Yes I read your Blog. You sound like you got a lot out of your conference visit. Just curious about the trade off of higher fuel prices to generate funds for green technology as well as continued pressure to change our existing sources of energy; if we are already importing a lot of our oil, while lots of dollars continue to flow out of the country, how does this change the playing field for dollars allocated for green technology? Just because the price of oil rises and profits rise in a short term doesn't mean we can capture enough windfall profits to allocate towards environmental programs. Today we are facing record low consumption rates of gas at this point and time due to a variety of economic issues.

How do we create national environmental programs to combat rising energy consumption in the home, office and the car with so many other issues that need to be stabilized and a new infrastructure that complements the use of alternative energy sources, ie electrical outlets for plug in cars. The Chevy Volt started out as a project to address car energy consumption and appeal to the average auto driver. Initially, the retail price started at $20,000 and today the retail price will be around $40,000 and they still have not released the car for sale. Even with government subsidies to sell the car at a lost, it could possibly impact world oil prices temporarily, but may be quickly be offset by China and India's demand for energy.

I hope you don't take my feedback to be negative but questions of curiosity. An energy infrastructure that has been around for too long cannot be changed over night. New ideas are out there; it is just a matter of embracing change and applying new habits for effective solutions. Best wishes on continuing your endeavors. Please feel free to share additional updates to your blog.

JohnnyBoy

Johnnyboy said...

I noticed on Tuesday that two environmental issues failed to pass in California, and another in Colorado. Under the current economic pressures, I believe voters turned the issues down based on the issue of facing higher taxes. Aside from green initiatives on the ballot in California, Gov Schwartenegger wants to raise taxes to offset the $4 Billion plus state shortfall. Can a state like California support green initiatives at the state level, or does it require federal funding? It would appear that companies outside of government contracts and supervision offer choices for energy independence. As long as companies reach government objectives to becoming energy independent, it shouldn't matter about the process as long as the biproducts and objectives meet green standards.

JohnnyBoy said...

If you didn't see this weeks episode of 60 Minutes on 11/9, I encourage you to check out how one company is solving environmental challenges of CRTs found in TVs and monitors. Other products disposed of included cell phones as well as other obsolete technology.