ene Descartes hit the nail on the head over 350 years ago when he said “A man is incapable of comprehending any argument that interferes with his revenue.” The French philosopher’s statement reflects the core issue in dealing with sustainability issues today: aligning incentives.
President Obama’s speech at Georgetown University on June 25th opened a new chapter in the climate change politics. But like another French axiom states – “plus ça change, plus c’est la même chose” – the traditional policy battle lines have already been drawn. Fossil fuel industry lobbyists are on the offensive making their case that regulations will destroy jobs. State officials are urging flexibility in how the new rules are applied. Environmental groups are urging rapid adoption of the proposals. To anyone remotely acquainted with climate change politics, it all seems very familiar.
Stepping back for a moment, it’s worth remembering October 30, 2006, a big day in the climate change debate. In the UK, Economist Nicholas Stern released his Review on the Economics of Climate Change. This was the first time a major analysis had been undertaken to sort out how much climate change might cost. It was a watershed event because previously climate debates had primarily been presented in scientific terms. The debate seemed esoteric and too intellectual. For many policymakers, business leaders, and certainly most citizens, the issue just didn’t register, assuming they understood what was being discussed at all. But the Stern Report gave an economic measurement – a price signal – of the potential impact of climate change. That was something everyone could understand. The Stern Review’s overriding conclusion was that it’s wise to deal with climate change proactively, rather than wait and see and hope for the best.
Seven years later, we’re seeing more and more the results of the “wait and see” approach. Many regions around the United States are grappling with extreme climate conditions. Drought and wildfires are on the rise in the West. In Maine, the lobster fishery faces uncertainty due to warming seas. And as the one-year anniversary of Hurricane Sandy approaches, New York Mayor Michael Bloomberg has announced an initiative to build Gotham’s resilience to climate change impacts. These events have a common thread. The natural world is providing incentives – the most powerful kind – for societies to come to grips with what climate change really means for economies.
Examples of incentives shaping a sustainable future
While industry lobbyists, environmental advocates, Congress, and the Obama Administration thrust and parry, the important question to ask is this: Are businesses, local governments, and citizens being incentivized to act sustainably? The answer varies of course, but here are two examples of trends that are quietly shaping the sustainability landscape through economic incentives.
One trend is the displacement of coal by natural gas. Natural gas is quietly taking its place as the fossil fuel of choice for electricity generators. Why? There’s a lot of it and it’s cheap. Pair that with the impending retirement of a slew of coal-fired power plants, and the likely development path of power generation seems clear.Using more natural gas results in less greenhouse gas emissions – which is good for the climate. But the fact that natural gas happens to be cleaner is not the principal reason coal is being displaced. Greenhouse gas reductions in this case are simply a fortuitous by-product. It’s no wonder that the coal industry is mounting intense lobbying efforts to influence the direction of new climate proposals. With its economics eroding via a vis natural gas, new regulations or (yikes!) a carbon tax could mean serious trouble for King Coal. According to the Energy Information Administration, natural gas production will only grow in the future.
A second trend is in the automobile sector. Despite the promise of electric cars, the fact is that even with tax breaks, they’re still too expensive to make anything but a symbolic contribution to greenhouse gas reduction. Add in infrastructure costs to accommodate electric vehicles, and the overall price tag starts to soar. Despite Tesla’s impressive run, scant public enthusiasm, high relative prices, and infrastructure development costs make it unlikely that large numbers of electric cars will be flying out showroom doors anytime soon.
Now consider this: the millennial generation is driving less than their predecessors. For young people, online social networking has provided an alternative to face-to-face interaction. And while that this trend has its drawbacks from a social standpoint, the rise of communications technology has redefined the notions of mobility and access. Now add the ongoing expense of a car, the hassle of parking, washing, filling it with expensive gasoline, sitting in traffic and dealing with road rage. Millennials are asking themselves who would choose to spend thousands on a rapidly depreciating asset if there’s alternatives like ZipCar and social networks? Here again, less car use means reduced greenhouse gases, less traffic, and a better sustainability outlook. But it’s the result of economic incentives, not sustainability concerns.
Balancing the ecological books
At this point, society is along for the ride when it comes to climate change. Even if the global economy were to stop pumping greenhouse gases into the atmosphere tomorrow, we’re still locked into a significant amount of climate change. Whatever that change ends up looking like, it’s likely to be expensive if Sandy or Katrina is any indication. Resiliency and adaptation are the new watchwords in many sustainability circles.
Climate change is just one example of how the environment, in its own way, is incentivizing societies to go green. Climate, like all sustainability issues, is at its core an economic issue. To make headway, and to move towards a truly equitable and restorative economy, economic incentives must be aligned to reflect a triple-bottom line paradigm.
Approaches that account for natural capital and ecosystem services place value where it’s merited. Other measures that establish accountability for externalities, through a carbon tax for example, leverage the power of economic incentives to move consumers and markets away from unsustainable practices. These approaches are not new. They simply employ basic economic principles to drive sustainability.