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Tag: Externalities

By Walter Borden

Two recent reports challenge the conventional wisdom that decarbonization via carbon taxes or other methods in concert with divestment from fossil fuel marketers means diminished prosperity. Both reports were widely covered and come from authoritative international groups. Both the New Climate Economy Project  and a working paper from the International Monetary Fund (IMF) find that robust policy action reducing carbon emissions would have very limited negative effects on economic growth and shared prosperity. They also advance substantive arguments and analysis that such policies may indeed accelerate growth.

Notably and not without a soupçon of irony, economist and vocal climate change climate skeptic Richard Tol, argued in 2013:

In sum, there is no carbon bubble. If there were a carbon bubble, it would not be about to burst. If it would burst, the economic impact would be minimal.

Coal Stocks Lag S&P and its getting worse as momentum builds for divestment

Coal Stocks Lag S&P and its getting worse as momentum builds for divestment

So interestingly, there is agreement from distinct and opposite quarters that decreased use of fossil fuels poses limited economic risk. For example, as Paul Krugman wrote earlier this week in reference to the two reports from the New Climate Economy Project and the IMF:

This might sound too good to be true, but it isn’t. These are serious, careful analyses….

On one side, there has been dramatic progress in renewable energy technology, with the costs of solar power, in particular, plunging, down by half just since 2010. Renewables have their limitations — basically, the sun doesn’t always shine, and the wind doesn’t always blow — but if you think that an economy getting a lot of its power from wind farms and solar panels is a hippie fantasy, you’re the one out of touch with reality.

On the other side, it turns out that putting a price on carbon would have large “co-benefits” — positive effects over and above the reduction in climate risks — and that these benefits would come fairly quickly. The most important of these co-benefits, according to the IMF paper, would involve public health: burning coal causes many respiratory ailments, which drive up medical costs and reduce productivity.

And we may be in later stages of divestiture than some opine. For example, Fund Balance has created  an ETF  on the Motif Platform that tracks Coal Stock prices. It was initiated after Stanford University’s signal move to divest from coal stocks. This ETF is down 32% since inception in May 2014 vs. 5.9% return for the S&P 500 and down 77% over the past five years vs. a 109% return for the S&P.

Coal stocks have fallen even further since major Universities began divesting.

Coal stocks have fallen even further since major Universities began divesting.

What of the argument that China and India will continue to rapidly increase their respective carbon emissions even as US and EU emissions fall? We can see now that there are many health benefits and hence productivity gains from cleaner air and water. Factor in the inevitable pressure such efforts will put on these two nations to curb emissions as well as their budding sustainability movements (not to mention pollution so bad that major cities must be shuttered and entire rivers cleaned ever more frequently), and such arguments suddenly reveal their superficiality.

So, critical mass for decarbonization is ever closer as the World Council of Churches, Rockefeller Foundation, Google among many other large scale organizations join in with major universities in their divestment commitments. As Eric Schmidt said when asked about Google’s withdrawal from fossil fuel promoters/renewable energy policy antagonists, The American Legislative Council a.k.a. ALEC:

“The facts of climate change are not in question anymore. Everyone understands climate change is occurring, and the people who oppose it are really hurting our children and our grandchildren and making the world a much worse place,” Google Chairman Eric Schmidt told NPR’s Diane Rehm in explaining the decision. “And so we should not be aligned with such people — they’re just, they’re just literally lying.”

 

The Green Transition Scoreboard

The partners at Fund Balance make frequent use of THE GREEN TRANSITION SCOREBOARD® (GTS) from Ethical Markets Media in our work.  The GTS provides guidance to our thoughtlines leading up to the Rio +20 UN Earth Summit as well. The GTS provides fresh, incisive, and thorough analysis of the intersecting and diverging trends in sustainable policy and industry. As a function of our business practice, and in pursuit of our mission to utilize social, human, and financial capital in the service of a sustainable civilization, we are pleased to feature it here.

Tracking investments since 2007 in green companies and technologies globally, the GTS now totals more than $3.3 trillion.

Ethical Markets Media finds an abundance of progress in sustainable business activity in the 2012 GTS:

Asia, Europe and Latin America catching up with the USA in total non-government investments and commitments for all facets of green markets.  2011 ended with a GTS total of $3,306,051,439,680, starting from 2007.  Given the many studies indicating that investing $1 trillion annually until 2020 will accelerate the Green Transition worldwide and the over 100 research reports and articles referenced in this years’ update, the “Green Transition Scoreboard® 2012: From Expanding Cleantech Sectors to Emerging Trends in Biomimicry” definitively shows green investments are becoming the norm.

GTS is a time-based global tracking of the private financial system covering all all sectors involved with green markets. Transparency is key as delineates ethical progress in wealth building as defined by the triple bottom line of planet, people and profits.

Additional detail of the GTS:

The logo a visual symbol for inevitable human progress whose barometer rises, away from the symbols of the out-dated Fossil Fuel Era, as green investments increase over the next ten years and we enter the next economy – the age of light.

The GTS was created and realized by Hazel Henderson and Ethical Markets Media, LLC and as such it is updated and maintained by them. For investors, researchers, stakeholders, cultural creatives, GTS provides rigorous triple bottom analysis and guidance to financial data and organizations that have been screened using the strictest of social, environmental, and ethical auditing standards.

Walter Borden

WILL money saved from using clean technology simply be spent on using    more energy? Jevons paradox (or the Jevons effect) is named for economist William Stanley Jevons.  In the 1860’s, he observed that technologically driven increases in the efficiency of coal-use increased coal consumption in a wide range of industries. Counter-intuitively to some, he argued that technological improvements could not be relied upon to reduce fuel consumption. Buyers simply use the savings to buy more energy. Such rebound effects as a batch of recent research reveals, are at work in energy markets yet are often overdetermined and misunderstood. Their occurrence suggests the need for carbon taxes in order to price environmental risk in energy costs. The basic logic of such taxes was sketched out in the 1920′s by another economist, Arthur C. Pigou, as the Pigovian Tax. He argued that landowners who allow their rabbits to overbreed and spill over to neighboring land, therefore damaging  crops, have a financial responsibility for the damage. Such activity, often uncorrected by markets, is seen as a market failure. So its remedy is a tax or law to protect the rights of neighboring landowners.

Interest in both is keen among policymakers, thinktankers, bankers, and the general public as the tension between energy demand  and supply increases. Pollution, global warming, declining oil reserves, and increasing demand for energy in the neoliberalized global marketplace underlie both the interest and the tension.

To the extent that they are at work, Jevons rebound effects in a system vary based on the scale of the market considered. For example Richard York of the University of Oregon finds:

A fundamental, generally implicit, assumption of the Intergovernmental Panel on Climate Change reports and many energy analysts is that each unit of energy supplied by non-fossil-fuel sources takes the place of a unit of energy supplied by fossil-fuel sources 1, 2, 3, 4. However, owing to the complexity of economic systems and human behaviour, it is often the case that changes aimed at reducing one type of resource consumption, either through improvements in efficiency of use or by developing substitutes, do not lead to the intended outcome when net effects are considered.

Dr. York’s work appears to reveal an instantiation of the effect.  Across most nations of the world, developed and developing, he reports an average pattern, “…over the past fifty years is one where each unit of total national energy use from non-fossil-fuel sources displaced less than one-quarter of a unit of fossil-fuel energy use. When looking at electricity specifically, the displacement of each unit of electricity generated by non-fossil-fuel sources is less than one-tenth of a unit of fossil-fuel-generated electricity.”

These conclusions put a useful empirical foundation under recommendations found in Google.org’s clean energy innovation study: meaningful suppression of fossil fuel consumption requires adaptation of mainstream energy policy. Also looking at the international scale, Grist.org published a chart this week titled The mind-boggling rise in Asian coal consumption shown as Exhibit 1.

Chinese Coal Consumption vs. Developed World

Exhibit 1: Chinese Coal Consumption vs. Developed World. Source: grist.org

Coal going unconsumed in the U.S. is being burned with little scrubbing in China and India, further arguing for the need to decarbonize via international agreements. Liberalized trade (neoliberalism) needs alignment with a flow of trade that balances externalities – pollution – created by exchanges of resources and capital. This also complements York’s finding: shifts to renewables will be inconsequential if the total decarbonization rate isn’t decelerated, that is, if amounts are merely shifted from one market to another.

When Rebound Effects Are Perceived But Not Found

Then there is the contention of the paradox at work in driver behavior popularized as the ‘Prius Effect” in sources such as Conundrum and the Wall Street Journal. Their argument is that Prius owners drive more and thus erase their net carbon and energy savings for the system. However, the work of Ken Gillingham of Yale University and analysis from CO2 Scorecard show Prius owners rack up comparatively the same vehicle mileage as non-Prius owners.

This Prius Fallacy has a dual premise: Prius drivers drive more because they are paying less for gas, and/or they use their savings on carbon-intensive goods and activities.

Gillingham’s micro-dataset on personal automobiles contains information – further analyzed by Thinkprogess – which refutes premise one as the scale of the consumer. The plot in Exhibit-2 shows no significant difference in Vehicle Miles Traveled (VMT) by Prius owners vs. the rest of  California’s drivers. (For those interested in statistical details on the data and diagnostic regression Thinkprogess’ analysis is worth a good study). Prof. Matthew Kahn of  UCLA writing in the Christian Science Monitor reinforces these conclusions.

So in these cases when consumers switch from conventional cars to a fuel-efficient hybrids a meaningful reduction in gasoline consumption – up to 430 gallons per year for an owner who switches from an SUV— is also observed.

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By Walter Borden

   Green Bonds, Carbon Taxes, and Market Failures

THE gathering dangers of global warming for life necessitate that humanity collapse its dependency on fossil fuel energy (FFE).  Ecological fiduciary responsibility requires shifting balance from political restraint to action. The challenges of managing a drawdown of FFE’s in concert with economic security, while significant, are often exaggerated. Recent research and analysis show that oil and coal-fired power plants exact pollution damages larger than the economic value they add. For example, accounting for the gross external damages (GED) from coal would add ~17.8¢ per kilowatt-hour (kWh) of electricity generated.  In 2012, German utilities will obtain rooftop solar on long-term contracts for ~23¢/kWh.  Large projects will receive just 18.7¢/kWh.  This makes it very likely that solar electricity will be cheaper than that from coal by late 2013 in Germany.  And as a result of California’s clean air bill A.B. 32 it will not be far behind. It is clear that GED considerations further strengthen the economic argument for decarbonizing our economy and that the trend of lower cost cleaner energy is accelerating. This can be contrasted with growing purchase and societal costs, often going unpaid, of FFEs.

What would a program similar to the Germany’s do for market and external costs in the U.S. market? More abundant sunshine in the many areas of the US (29% in Minneapolis and up to 70% in Los Angeles) makes parity with Germany easily attainable.  Americans could buy solar energy on long-term contract fors 18.6 ¢/kWh in Minneapolis and just 15.4 ¢/kWh in Los Angeles, taking into account only current subsidies.  Factor in the federal 30% solar tax credit, and solar could be had for 14.3¢/kWh in Minneapolis and 11.8 ¢/kWh in Los Angeles.

Impediments remain to growing solar as percentage of US energy sources. For example GEDs and Energy Return on Energy Invested (EROEI) of solar modules are different. Solar cells are built in Europe with its mix of electricity generation of nuclear, wind and other sources and must be compared to building  solar cells in China, which has mostly coal-generated electricity and higher GEDs.  A more robust body of research for Life Cycle Analyses (LCA) of solar plants is needed  as they are increasingly built at scale.

Solar Array Based on the Fibonacci Sequence. Public Domain.

But, what about financing and scaling across the US? The existential   challenges of deploying renewable energy (RE) sources to address global warming can be met like those of the Great Depression, World War II, and space exploration:  21st century versions of War Bonds and Patriot Taxes integrated with coherent public-private partnerships to develop RE sources and infrastructure. Two of the world’s largest economies in Germany and California are leading the way. Yet fossil fuel marketers still dominate the debate contending that higher (FFE) prices hurt the public economy and that renewables are impractical despite the evidence to the contrary.

Ambitious politicians assure the public they can control the cost of energy and low energy prices. They argue that there is no need or, indeed, no substantial benefit from clean energy investment subsidies but support  ~12x more subsidies for FFE over RE . Meanwhile, public investment in RE projects that benefit the economy and ecology are to be found everywhere, and financial, technological, and policy innovations instantiate sustainable growth. Both Germany and California are ahead of schedule for supply from their RE investments. Yet Germany is planning to cut its subsidies via its Feed-In-Tariff (FIT) while RE plants in California come online. So more hard work to implement policy to accelerate deployment and remove market barriers lies ahead. continue reading…

By Walter Borden

Science and Sustainability

We at Fund Balance are concerned that the only mention of climate change in President Barack Obama’s 2012 State of the Union address was “The differences in this chamber may be too deep right now to pass a comprehensive plan to fight climate change.”

President Obama, State of the Union address 2012.

The U.S. National Academy of Sciences states, “The world is heating up and humans are primarily responsible. Impacts are already apparent and will increase.” Greenhouse gas (GHG) induced climate change is a clear and present threat to our civilization and way of life. Its continued politicization is dangerous. We accept the consensus of the world’s scientific community which is summarized well by the American Chemical Society:

Careful and comprehensive scientific assessments have clearly demonstrated that the Earth’s climate system is changing in response to growing atmospheric burdens of greenhouse gases (GHGs) and absorbing aerosol particles. (IPCC, 2007) Climate change is occurring, is caused largely by human activities, and poses significant risks for—and in many cases is already affecting—a broad range of human and natural systems. (NRC, 2010a) The potential threats are serious and actions are required to mitigate climate change risks and to adapt to deleterious climate change impacts that probably cannot be avoided. (NRC, 2010b, c).

We further acknowledge and accept the conclusions of our medical community. The American Medical Association (AMA) urges that we as a society confront the health issues of climate change now.

Scientific evidence shows that the world’s climate is changing and that the results have public health consequences. The AMA is working to ensure that physicians and others in health care understand the rise in climate-related illnesses and injuries so they can prepare and respond to them. The Association also is promoting environmentally responsible practices that would reduce waste and energy consumption.

We see that escalating carbon emissions are seriously damaging our oceans depleting them of oxygen and acidification. Carbon dioxide emissions caused by human activities over the last century have increased the acidity of the world’s oceans far beyond the range of natural variations, which may significantly impair the ability of marine organisms to live. We realize that rapid deforestation increasingly impedes nature’s ability to buffer carbon dioxide concentrations in our atmosphere and thus keep our air suitable for breathing.

The time is now for President Obama and Congress to heed science and pursue evidence based policy formation in addressing the real and gathering dangers of Climate Change. Putting a price on carbon is a critical first step.

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“Reality leaves a lot to the imagination.” — John Lennon

Imagination, that force which when coupled with discipline, drives the arts. Such a force is necessary to successfully protect and sustain our biosphere as it represents the best alternative to cynicism and defeatism. My work, involvement, and strong passion for the arts catalyze a lifelong love and respect for our improbable orb, the earth. A few examples of this force which are set out below as well as Beethoven’s 6th always leap to mind. Clearly many members of the artistic community share this sense of connection.

A selection of images of Andy Goldsworthy's work

My first collaborative project out of college was an effort to broadcast an image of the earth from outer space onto the Jumbotron in Times Square. At this time, the World Wide Web remained a research project in labs and universities including the one I attended. So I learned early on what an amazing treasure of earth imagery was stored at NASA, the JPL, and other labs. This project partially resulted from my studies in Kenya at the Athi River research station. Each night the research assistants would lie in the savanna watching satellites pass overhead in their equatorial orbits. Witnessing the absolutely divine beauty of our planet in Africa, from other ecosystems such as the Togiak River basin in Alaska and much of the the American West, and in the woodlands of Alabama where I roamed growing up, has made me a naturalist at heart. So, knowing that the earth was entering a crisis, I wanted people to simply see her from space everyday as they scurried about one of her busiest intersections.

My grant application to the Whitney Museum’s fellowship program to rent the Big Screen in order to broadcast the images of our planet was rejected. That hardly slowed me down. Seeing these images and thinking of what I know of astronomy and astrophysics, the shear improbability of Planet Earth has always struck me. For this reason alone, it seems we should cherish the earth and its unlikely ability to support and sustain a broad and diverse array of life forms.

Looking at our solar system, our galaxy the Milky Way and beyond, we notice one thing: most planets are rocky and uniform, lack an atmosphere, or are so stormy and gaseous as to not credibly support life. A great many are too close to their sun or too far away to sustain life. (This essay is not to say one way or the other if life as we conceive it exists out there.)

My travels to Africa, which included skin diving in the Indian Ocean, particularly heightened my sense of the earth’s lungs and plasma- its forests and oceans. In travels since to places such as Beijing, China, it grew increasingly clear that Earth was entering a serious crisis.

Surely since the first rain dances began, art has transmitted an acceptance that humanity’s dominion over the earth is limited, and that somehow every technological discovery is limited in its ability to help mankind. The Christian Bible charges mankind with stewardship over the earth, as does the Koran and numerous other religious texts.  This is not to say we do not need technology or agriculture. We do.  The very satellites I watched traverse the sky in Kenya are now used to observe earth and alert us to the rapid degradations in her life support systems.  In short, sustainable agriculture and tool-making are essential for a thriving civilization.

Artistic expression reinforces the notion that both agriculture and technology are critical for the survival of our civilization. Artists, along with farmers and technologists, have after all, strong histories of technological innovation. They have done so in provisioning means for survival and media for creating deeper connections amongst humankind. In the 21st century, we see new challenges in the how we must shape the methods of agriculture and technology. This will help us sustain our planet, which had literally a vanishingly small chance of existing.

For the sake of brevity, excuse me if I leave it to you, the reader, to think of your own examples. There are many: I will touch on just a few. I think of Shakespeare’s sonnets and

Silent Evolution, and underwater reef by Jason DeCaires Taylor

Jonathon Franzen’s recent novel Freedom. Interpretive movement, from the rain dances of the Anasazi to Igor Stravinsky’s Rite of Spring, share a seamless flow of connection to the earth through their rhythm and movement.  Film making brings appreciation of ecosystems to the fore through such works as Avatar and Godfrey Reggio’s Qatsi trilogy. One of our collaborators at Fund-Balance, Jessica Baron, has given us a great exemplar as well with the Green Song Book from her work to preserve and protect arts education via Guitars in the Classroom. Artists get it.

As someone who studied visual art formally for over a decade, I have a great many favorites from this discipline. The work of Andy Goldsworthy always captures my imagination. Another British artist Jason DeCaires Taylor’s recent Silent Evolution presents the convergence of past and present, human and ocean. I hope you will seek out the works of these artists if you are not yet familiar with them.

Another important way that imagination helps us  “remain in light” with respect to the crisis that our earth faces is cultivating empathy, the ability to imagine what it is like to be in another creature’s skin or circumstance. The arts amplify my consideration of what it’s like for someone else and their life in their time and space.

From perhaps a broader perspective, Aristotle’s prescient distinction between “oikonomia”, use value of products in the real economy, and “chrematistics” the maximization of exchange value measured by money, seems as relevant now as then. Contemporary finance and resource extraction operate irrespective of their environmental impact and hence lack empathy for natural systems they destroy. These pursuits fail to employ imagination towards finding ways to minimize such degradation and thus sustain the very systems that create capital and wealth. The arts generate value for objects and/or expressions beyond crude additions of the cost of materials. This is a deeply human mode of thinking that our civilization should factor back into our economies and ecologies. And to wit, artists have a long, hallowed, and harrowed tradition of working together with very limited resources to solve problems.

It may seem counter intuitive to some, but artists can inform business, banking, and policy making in the 21st century just as they have with Kabuki dances in Japan and in the plazas of Florence during the Renaissance. In this century, if Wall Street practiced empathy and took a long view of culture and civilization while they calculated their winning formulas while spinning their deals, abundance might occur without the depletion of the very land beneath our feet, without disregard for degradation of our air and water, and with respect for the mineral resources held deep in the earth. This in turn protects and preserves the means by which wealth happens. In sum, to protect the earth, we must protect the arts.

So I encourage you to join me in looking at the great Pacific garbage patch- a flotilla of discarded plastic in the South Pacific-estimated to be the size of Texas and the expanding dead-zones in our oceans with expansive imagination. I also encourage you to read a great essay by a great artist, Sigourney Weaver. She describes how empathy for women’s rights can preserve and reinforce a balance between ecosystems and human civilization.  She writes

“Two groundbreaking studies, one from the U.S. National Center for Atmospheric Research and one from the Futures Group, found that simply by meeting women’s existing needs for voluntary family planning, we could reduce carbon emissions by between 8 and 15 percent. That is the equivalent of stopping all deforestation today. Empowering women to make critical decisions in their own lives can help solve the biggest environmental and humanitarian challenge of our time”.

This is another recent example of an artist using empathy and imagination to point to solutions for a major problem confronting civilization.

In the early 90’s, I participated in a project in which I enlisted a choreographer and composer to create a dance piece and compose music to be performed against a backdrop of images of the dancers’ brains via PET scans. It was a challenging and expensive endeavor. The concept was to present both the internal rhythm and flow of each dancer with each viewer’s external perception. My hope was that this effort to reveal the beauty of life both within and without would reinforce the audience’s sense of its sanctity.

That one got turned down as well with no explanation, just a simple rejection notice. Perhaps that was for the best as it doubtlessly led me to consider the need for development of green technology and the far nobler pursuit of finding sustainable means with which to power it. And, in turn, we at Fund Balance who with our newest partners join in putting imagination and empathy to work in order to inspire and inform investing in sustainability.

By Walter Borden