Category Archives: ESG

The Prius Paradox Paradox: Rebound Effects Are Relative

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’s clean energy innovation study: meaningful suppression of fossil fuel consumption requires adaptation of mainstream energy policy. Also looking at the international scale, 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:

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.

Continue reading The Prius Paradox Paradox: Rebound Effects Are Relative

Green Lighting Growth: Climate Patriot Bonds and Carbon Taxes

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 Green Lighting Growth: Climate Patriot Bonds and Carbon Taxes

Sell Monsanto Short – From Ethical Imperative to Trade Thesis

by Leland Lehrman

In 2009, Fund Balance emerged from the quant hedge fund and pension world with a relatively innovative and massively underutilized investment thesis we call ESG Long Short Market Neutral.

In a nutshell, our thesis is:

Long: nature, sustainability, culture, and community.

Short: war, pollution, fraud, and corruption. *

We had determined that socially and environmentally conscious (ESG) investors were overlooking a key strategy, and getting hammered because of it.

Long bias, wrongly assumed to be a perennial moral imperative in order to support economic growth, meant that ESG investors had no options other than divestment during down markets. Divestment from good companies is always painful, so most ESG investors just take outsized losses instead. This led to largely unwarranted industry-wide skepticism about cleantech and ESG equities and funds, as they were sometimes more volatile and subject to short-selling than other companies.

Long bias is more often anti-social and anti-environmental than is widely understood.

It presumes that in general, all economic activity is good, hardly a given at the limits to growth and climate stability. One solution: the ESG short strategy, where investors can realize gains in a downmarket by selling short ESG underperformers. **

Asset allocation specialists know that market timing is necessary in order to preserve capital. Look at the literature from David Darst for example and you will see that at a minimum, moving to cash or Treasuries is recommended in order to preserve gains from equity highs. In other words, buy and hold has well-known limitations, despite the incredible ongoing reliance on it even in an age when the S&P 500 is flat (and super volatile) for the last thirteen years. With apparently unattainable industry-wide actuarial expectations of 8% returns the norm, why are more ESG investors not looking at short strategies to balance things out?

Continue reading Sell Monsanto Short – From Ethical Imperative to Trade Thesis

Position Statement: Heed Scientific Consensus, Decarbonize Economy, Pair Policy Innovations with Technological Breakthroughs

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.

Continue reading Position Statement: Heed Scientific Consensus, Decarbonize Economy, Pair Policy Innovations with Technological Breakthroughs

The True Cost of Fossil Fuel: Oil and Petrodollars

By Walter Borden

“The conservation of natural resources is the fundamental problem. Unless we solve that problem it will avail us little to solve all others.”  Theodore Roosevelt

What’s In a Petrodollar?
Fossil Fuel producing nations should extract their resources consistent with the health needs of their people, air, land, and water.  History shows us that regulation plays an essential role in this mandate. Energy marketers insist regulations are counterproductive. Implied though not often stated, nations like Russia and China can more easily form capital and drive labor demand from fossil fuel exploitation because they can act largely unencumbered by regulation. This unproven assumption ignores the escalating costs of unconstrained fossil fuel extraction to present and future generations. Should we be more concerned about poisoning our planet for future generations than leaving large amounts of debt for them? I argue yes. Does the regulation of fossil fuel extraction impede aggregate labor demand? The evidence indicates no. The earth is the source of all money so worrying about debt instead of planetary health puts the cart before the horse. A sick, weakened planet will create less value, profit, and wealth.  Concurrently, as oil supplies wane, systemic risk will form around basing currencies on fossil fuels, oil in particular. Searches for fossil fuel resources will grow into fierce and destabilizing conflicts. Increasingly scarce tracts of clean, fertile land can only deepen them.

Unregulated Nations and Quality of Air, Water, Land and Life
Russia and its oil country exemplify the realities of unregulated, petrodollar capitalism. Its oil producing areas constitute what experts describe as our planet’s worst ecological oil catastrophe. Based on reporting from the Associated Press, estimates are that roughly one Deepwater Horizon-scale leakage occurs about every two months. Outdated infrastructure, minimal and unenforced regulation allow for oil to contaminate soil, kill plant life, and damage habitats for mammals and birds. State-funded research shows 10-15 percent of Russian oil leakage enters rivers with nearly 500,000 tons flowing into the Arctic.

Source: Bureau of Labor Statistics

From Chernobyl to more recent paper mill pollution seeping into Siberia’s Lake Baikal, which holds one-fifth of the world’s supply of fresh water, Russia’s lax regulatory posture renders great swaths of territory uninhabitable and fallow. Russian oil spills are more numerous than in any other oil-producing nation. “Oil gets spilled literally every day,” said Dr. Grigory Barenboim, senior researcher at the Russian Academy of Sciences’ Institute of Water Problems. His is not alone. And by all accounts the estimate is conservative since under Russian law, leaks less than 8 tons rate as “incidents” and can thus go unreported. By contrast, the U.S., the world’s third-largest oil producer, logged 341 pipeline ruptures in 2010 — compared to Russia’s 18,000 — according to the U.S. Department of Transportation.

The republic of Komi, just south of the Arctic Circle, is the scene of Russia’s largest oil spill. Up to 40 kilometers of two local rivers were polluted, killing thousands of fish. Respiratory diseases rose by over 28 percent in the year following the leak. Komi’s officials blamed neglected infrastructure and oil companies reporting that “companies that extract hydrocarbons focus on making profits rather than how to use the resources rationally.”

Continue reading The True Cost of Fossil Fuel: Oil and Petrodollars

Michael Bloomberg: The Company, the C40 and Climate Finance

Michael Bloomberg - Mayor of New York and Chair of the C40
Mayor Bloomberg, Chair C40

C40 São Paulo Summit

Is Michael Bloomberg really getting serious about sustainability and the climate?

Is the upcoming free and now completely full ESG 2011 USA event a huddle of the region’s best sustainability practitioners? We’ll be getting the scoop from Bloomberg CEO Daniel Doctoroff, and Thomas DiNapoli, Comptroller of the State of NY, the top official of the massive $150B New York Common Retirement Fund.

Talks leading up to the C40 (top 40 cities) conference just prior to Rio+20 are starting to raise the bar on fixing the problem of urban emissions (60-80% of the total).

Mayor Bloomberg is the Chair of the C40.

Here’s his welcome message to C40 Sao Paulo attendees:

Former London Mayor Nicky Gavron: “Every single financial centre is at sea level.”

“Over the past six years, C40 Summits have brought together mayors of the world’s largest cities to share information on their respective experiences in dealing with climate change. This is our fourth Summit, the first to be hosted in the Southern Hemisphere, and my first as Chair of the C40.

For the first time in history, cities are home to more than half of the world’s population, and together account for more than 80% of the world’s greenhouse gas emissions. The Summit in São Paulo will provide us with an excellent opportunity to explore and exchange new ideas and initiatives, and to discuss new partnerships among mayors and governors that can address climate change and promote sustainability. ”

The race is on.

London’s former mayor Nicky Gavron tipped everyone’s hand with a pointed comment about the geographical location of the world’s financial centers:

“Big cities need to raise the game because they’re so responsible for such a high proportion of greenhouse gas [GHG] emissions and they’re very vulnerable to [climate change],” Gavron told Environmental Finance. Around 60% of global GHGs come from cities. “Every single financial centre is at sea level.”

Simultaneously it seems, Bloomberg’s home page just created a new top level tab, “Sustainability”, featuring some of the excellent work of Bloomberg New Energy Finance.

Having recently investigated the ESG features of a BNEF equipped Bloomberg terminal, I can tell you: it rocks.

Mayor Bloomberg also passed legislation improving the buy local profile of his NYC Administration:

Buy Local, the Mayor Says

So screamed the headline from Matt Flegenheimer’s NY Times blog:

In New York’s latest attempt to promote the purchase of locally grown food, Mayor Michael R. Bloomberg signed into law on Wednesday a bill urging city agencies to buy more often from the state’s farms and processing facilities.

Among the law’s provisions, the Mayor’s Office of Contracts Services will publish an annual report on its Web site outlining the amount and type of locally grown food each city agency has procured. The law also calls for vendors to provide the Department of Citywide Administration with information regarding the origin of their food…

Marcel Van Ooyen, executive director of GrowNYC, said connecting regional farmers to such a vast network of buyers could have a substantial impact.

“The city has an immense purchasing power,” he said. “From our perspective, it’s great.”

The mayor also signed a bill to exempt rooftop greenhouses from being counted toward buildings’ height and floor area measurements. The greenhouses will join structures like roof tanks, air-conditioning equipment and chimneys as apparatus that are not factored into buildings’ official totals, easing limitations on the construction of such structures.

In a statement, Christine C. Quinn, the City Council speaker, noted the progress of urban farming.

“Even in a city as highly developed as New York, urban farms are growing at an astounding rate,” Ms. Quinn said. “This legislation aligns itself with this trend, making it easier for New Yorkers to grow their own food.”

Mr. Bloomberg also signed three other measures, including one that will require the Department of Citywide Administration to maintain a searchable database of all city-owned and city-leased property. One goal, the mayor said, is to gather information regarding whether properties might be suitable for urban agriculture.”

I’m tempted to just say Alleluia. It’s about time.

Fund Balance will be hosting an after party with special guests E3 Bank, Watershed Capital and Leo Tilman to discuss E3’s new sustainable banking model. Interested parties please RSVP to Leland Lehrman, (518) 392-0952.

Ethics and Value: A Moral Argument for Clean Energy Subsidies

By Walter Borden

Energy and pollution salesmen extol the market value of fossil fuels underneath our land and sea based on a certain doctrine. It asserts that job creation requires prolific fossil fuel extraction, and consequently, such operations deserve taxpayer entitlements and subsidies. These operators argue further that vast sums of wealth go unformed if we do not extract and sell fossil fuels. To restrain their immediate extraction will impoverish laborers, immiserate business owners, and impede capital creation. I have addressed how renewable energy and cleantech create jobs. This post primarily concerns the morality of continuing to structure economies around climate destroying carbon emissions.

The consensus of the world’s scientists and a plurality of its policy makers is that fossil fuel dependency will extract a terrible and deadly price from future generations. Yet we are told that questions of ecology must always defer to classical economic ones. Very little mainstream thinking addresses why and how this doctrine is prerequisite for thriving labor markets.

But this doctrine in question has nonetheless been extremely influential.

Historical precedents do exist for civilizations abandoning a specific market and writing down large sums of perceived value based on moral reasoning. At the end of the Civil War the value of slaves held in the U.S. was estimated to be approximately $2 Billion USD, approximately $70 Billion in 2011 USD. Yet, at the end of the Civil War this value was entirely written down. Abolition of chattel slavery meant morality superseding profit. Recently publicized results from BEST confirm earth is warming rapidly.  Adding to the scientific consensus that global warming is man made, should we not apply similar moral reasoning to our fossil fueled society? Continue reading Ethics and Value: A Moral Argument for Clean Energy Subsidies

Mud Wrestling in the Deluge

The Context and Implications of American International Group vs. Bank of America
by Leland Lehrman

AIG vs Bank of America

Like Godzilla and King Kong in the Japanese movies, the lawsuit between AIG and Bank of America appears set in a kind of apocalyptic timeframe with cliffhanger debt ceiling negotiations happening during record heat waves, climate disruption and collapsing stock markets. Top corporate leaders, socially close and invested in the same system, nevertheless fight over the bones of a resource constrained “economy.”

Tyler Durden, the pseudonymous editor of the hotly commented and rebellious financial blog called the AIG lawsuit against Bank of America “ironic.” The fight club anti-establishment trader points out that “it is AIG which takes down the financial system for the second time after its lawsuit against BAC filed last night kills Bank of America.” As gory as the details are, they are less important than the larger themes.

The Phoenix, “penciled” in by the Economist for 2018 is slated to rise from the ashes of other currencies. Following the crash of 1987, the anonymous editors in London wrote

“Thirty years from now, Americans, Japanese, Europeans, and people in many other rich countries, and some relatively poor ones will probably be paying for their shopping with the same currency. Prices will be quoted not in dollars, yen or D-marks but in, let’s say, the phoenix. The phoenix will be favoured by companies and shoppers because it will be more convenient than today’s national currencies, which by then will seem a quaint cause of much

Economist Calls for Global Currency, 1988

disruption to economic life in the last twentieth century…Something will be, almost certainly in the course of 1988. And not long after the next currency agreement is signed it will go the same way as the last one. It will collapse. Governments are far from ready to subordinate their domestic objectives to the goal of international stability. Several more big exchange-rate upsets, a few more stockmarket crashes and probably a slump or two will be needed before politicians are willing to face squarely up to that choice. This points to a muddled sequence of emergency followed by a patch-up followed by emergency, stretching out far beyond 2018 – except for two things. As time passes, the damage caused by currency instability is gradually going to mount; and the very tends that will make it mount are making the utopia of monetary union feasible.”

There are other time-tested ways to handle currency instability using fixed exchange rates and asset backing for example. Were these “quaint” tools of Bretton Woods and earlier monetary regimes discarded in favor of inherently unstable hedging instruments known as derivatives because a period of systemic instability was useful to provide the appearance of the necessity of centralized global governance and currency?

Only a truly sovereign people can repudiate a debt yoke deceptively laid on its shoulders by a predatory financial class. Michael Lewis’ book Liar’s Poker offers example after example of the shark-like demeanor of bond traders and financial captains, endlessly feeding off pension funds around the world so arrogantly for so long that the eventual backlash they encounter is considered uppity.

So where can that sovereign people be found today? Increasingly in the street.

Continue reading Mud Wrestling in the Deluge

Evolutionary Kabuki: The Arts and the Earth

“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


The Reality and Promise of Green Jobs

By Walter Borden

California can show Washington, where climate legislation has stalled, that [by] putting a price on carbon — you can go about it in a way that is gradual….We are on the right track.   –George Schultz


The dynamics of green job creation are presented and analyzed in relation and response to a publication from the American Enterprise Institute (AEI) titled The Myth of Green Jobs. Formal critiques are referenced relating to weaknesses identified in the AEI paper’s research methodology and conclusions. This response challenges the contention that subsidies to stimulate renewable energy job creation are wasteful. Fund Balance argues that just as the fossil fuel industry required subsidy at its outset, renewable energy efforts require the same.  Benefits of public sector involvement via regulation and the seeding of innovation to help create labor pools and markets for renewable energy are described. Imperatives for our economy and society regarding addressing manmade global warming are discussed. The argument that for future generations to inherit a healthy planet and civilization so that they will not have to pay the bill for fossil fuel driven profligacy is advanced.

Stimulating Jobs in the Renewable Industry Sector

An essay published earlier this year titled the Myth of Green Jobs questions whether efforts to create “green jobs” are worth public investment.  It asserts Green Jobs replace more jobs than they create, and that subsidies for green jobs and renewable energy are misallocations of capital. A formal definition of Green Jobs is never offered. But, it seems to be any job  that A) does not involve fossil fuel and B) involves nascent and early-stage renewable energy technologies and whose state in the innovation cycle means they lack the price reductions of scale.

The National Renewable Energy Laboratory prepared a thorough technical critique of the methodology and conclusions of one of the essay’s most referenced studies: Study of the effects on employment of public aid to renewable energy sources,” written by researchers at Spain’s King Juan Carlos University. Its lead author, Gabriel Calzada Alvarez popularized the notion that for every 1 green job created in Spain 2.2 were destroyed. A notion repeated often on Fox News, whose parent company incidentally declared itself 100% Carbon Neutral in April 2011. This widely cited ratio cannot be verified based on Dr. Alvarez’s methodology in a  review of the paper by Fund Balance and elsewhere as noted above and below. However, before a further look at what is wrong with the AEI essay, a review of some of its arguments follows.

The essay states:  “A good example [of green jobs helping the economy] is the baseless assumption that there is a pool of qualified people not otherwise employed by private industry, immediately available, and willing to take newly created, government-subsidized, green jobs. Transferring skilled workers from jobs that produce value (profits) to “green jobs” created by government fiat is an inefficient way to deploy capital in a free market economy.”

The argument is made that the costs (taxes and government borrowing) of creating “green jobs” involves redeploying capital that would otherwise be used for investment or developing new products. This AEI essay asserts that these costs impose an economic opportunity loss to the free market. Its authors assume that government subsidized green jobs, paid for with deficit spending in the cases it cites, can only be temporary and never become permanent via transition to the private sector where they ultimately may be the most productive.

In reference to worker retraining and job creation, no data is provided supporting the argument that the private sector retrains workers with greater efficiency or to what extent it does so at all. In terms of how the AEI essay presents green job creation, official estimates are 188,000 in Spain, yet Alvarez and his co-authors use a figure of 50,000 for their calculations. Importantly, the study appears to restrict its analysis only to cleantech jobs. It does not incorporate jobs created as a result of energy efficiency retrofitting, conservation in new construction, or light/high-speed rail. Spanish incentives in support of Renewable Energy technologies has been in the form of Feed In Tariffs (FITs) that have reached levels up to $0.60/kWh of energy produced. This varies markedly from the typical U.S. approach of employing Producer Tax Credits (PTCs) to stimulate growth which are typically on the order of $0.02/kWh.

The AEI Essay also argues, “Green jobs merely replace jobs in other sectors and actually contribute less to economic growth.” This assumes all growth is good, something addressed later herein.  Further, comparing Spanish efforts to the United States makes little sense because the US has different incentive structures. 

Subsidies and Energy Costs

A theme of the AEI essay is that public policy is inefficient in creation of new areas of labor demand compared to private policy and sector driven efforts. It contends that since such efforts fail in Europe that the United States should not expect better results. Every generation facing deep economic crisis, and not every one does, must meet the challenge of creating jobs in the face of deficits and low GNP/GDP growth rates. History shows that the public sector can perform a definite, substantial, and positive role in such circumstances. The Works Project Administration, NASA, the lunar landing program, DARPA, and the internet exemplify such contributions. In these cases transitions of government subsidized labor to private sector employment strongly stimulated job and capital creation. And, these programs were mostly financed in times of deficit spending.

Fossil fuel extraction and distribution systems enjoy generous subsidies in the U.S. in  comparison to renewable and green subsidies according to the data in Chart One. In California, the world’s 8th largest economy, this process of using public resource and regulation to seed new markets for transfer of these technologies to the private sector has already begun. The AEI study refers to this as central planning and market-making by fiat. Former Secretary of State George P. Schultz along with Farallon Captial’s Founder Thomas Steyer make the case for public efforts to fertilize private entrepreneurship, to create jobs, and to secure economic and national security with renewable energy programs via their work on California’s proposition 32.

Chart One

The authors of the AEI essay contend that wind and solar power have raised household energy prices by 7.5 percent in Germany and Denmark resulting in the highest electricity prices in the European Union.  Are these prices artificial?  Or, do they reflect the real price of energy given that prices for fossil and fissile energy sources enjoy higher subsidy in the U.S than the E.U. Spain reached a peak of 40% in wind power this last March. How many barrels of oil weren’t imported as a result? What impact will this have on Spain’s energy costs as a function of this diminished need to purchase those quantities of oil? Certainly, on a general level, it improves their trade balance and reduces their dependence on Middle Eastern oil cartels.

The Cato Institute, a libertarian think-thank, released a study in 2005 on the subject of oil subsidies and energy costs. They report that the US spent between $30 to $60 billion a year safeguarding oil supplies in the Middle East during the 1990s even though its imports from that region totaled only about $10 billion a year over the decade. When the cost of maintaining the Strategic Petroleum Reserve and other oil protection services such as the coast guard clearing shipping lanes and providing navigational support to oil tankers are added,  actual subsidies to Big Oil are between $78 to $158 billion. So indeed, the US pays energy prices below what a purely free market would set.

Given the theme that since these initiatives have failed in the EU – making energy  more expensive there – why should we expect different outcomes in the US, the AEI essay argues. Outside of subsidies, prices for energy, in particular gasoline, do clearly appear distorted. And, in some cases to the upside with one root cause being un-regulated speculation. Since 1997 US oil consumption has dropped over a million barrels a day while refining capacity has dropped by about 1 percent. A bounty from this has been lower CO2 emissions. Why then if demand is dropping while available supply is increasing have costs gone up?  “It’s harder and harder for any reasonable observer to dismiss the role of excessive speculation in this market,” a professional Wall Street investor testified before Congress repeatedly stating that speculators are pushing prices up well beyond what supply and demand warrants.

In any event, swinging elections around rising oil prices is a cynical, short term strategy that might get a particular candidate elected, but in reality, no party will be able to control costs. Peak Oil is here, or arriving very soon, and immediate unregulated drilling in the Gulf of Mexico and ANWR will barely, if at all, brunt the impact of that physical reality on daily life and the economy. For example, drilling all the oil from the Gulf of Mexico would only add 500,000 barrels a day to the 89 million currently consumed by the US.  Drilling for more oil may create more jobs in the short term, but the AEI essay does not show how this would offset the lost green job creation or how energy prices in the US would be affected. Exxon Mobil, for its part, advertises that all the oil we need can be found in oil shale regions such as the Green River deposit.  Its claims that it could be extracted for between $20 and $30 per barrel, but it does not account for the impact on the environment or the need for a high volume of water to prepare it for market.

The true cost of gas for US citizens at the pump is the delivery price plus the taxes US citizens pay to subsidize the oil industry plus the the added volatility in price stability driven by energy speculators plus the ecological and social costs (BP spill, healthcare). Suddenly, oil is not as cheap as we all would hope, nor is its price being set by hypothecated market forces. And, much like with corn-ethanol, these taxpayers dollars are making fossil fuels artificially more competitive and keeping cleaner alternatives down. Price increases flow to a considerable extent from a lack of regulation on energy speculation.

Lastly, some would argue to remove subsidies for all, but this would confer an unequitable advantage for big oil. This industry has enjoyed massive subsidies for a century.  It is mature and well capitalized enough to innovate and create value and profit. Renewable energy merits, for the sake of fairness, our planet’s health and our legacy for future generations, the same public support during its infancy.

This means the public may be called upon to incubate renewable and cleantech with funds and subsidies until, like the internet and fossil fuel distribution systems, they generate enough profit to sustain themselves and produce prosperity.  The AEI essay cautions about public sector job creation and central planning but never addresses why non-renewable energy concerns merit subsidization, what their removal might mean for the real cost of nonrenewables, and how a lack of smart regulation can distort energy prices above price ranges that would be expected by supply and demand dynamics.

The Human Impact: Jobs and Carbon Markets

The Myth of Green Jobs presents case studies from Denmark, Germany, Italy, Spain, and the U.K. suggesting that Green jobs eliminate Brown jobs disproportionately. Regulation and publicly funded efforts to spur growth of such jobs are deemed inefficient.  Further, benefits arising from such efforts, having not materialized in just a few years time are judged inconsequential and detrimental. So, for example, a bill is currently moving through the legislature of California to require a third of the state’s electricity to come from renewable sources. Adherents to aformentioned AEI rationales argue that such policies will necessarily inhibit job creation. The AEI essay’s logic is that any subsidized labor creation, irrespective of its impact on the environment or ability to buffer our civilization’s exposure to a fossil fuel energy constrained future, is bad business with the possible exception of Brown jobs. Apparently, their view is that Brown jobs increase public prosperity more effectively.

An important counterpoint about green and renewable-based job development in Spain was made by Tracey de Morsella at

“It is crucial to understand the magnitude of the investments made in Spain throughout the last 10 years: for all the renewable energy sources (solar, wind, wave), the initial investment is upwards of 95% of the total costs, whereas maintenance and operational costs are residual. In this respect renewables are similar to nuclear power, and unlike coal or oil-based power plants, where a large portion of the costs is the fuel itself. This explains much of the enormous costs per green job: the benefits for the investing country only start to become visible many years after the investment has been made. Also, was the value of the produced energy, being the primary goal of the investment, taken into account?”

As for the U.S., California’s policy to promote rooftop solar arrays and the 12,000 to 20,000 new megawatts of renewable energy yielded at diminishing to zero fuel costs from these arrays must not matter in the AEI’s big picture. Such projects allocate capital in ways inferior to the purported free market to which the AEI argument is tailored. But one has to ask, why then are so many leaders from the private sector in California active in using public works to lay the groundwork for private labor demand? Certainly such public support was one factor in Apple’s new patent for solar powered computers and cell phones.  In Michigan, Dow chemical benefited from worker retraining programs, and now has a successful solar shingle manufacturing plant in Michigan. New Jersey, home to more Superfund toxic waste clean-up sites per capita than any other state, through a combination of a stringent legislative energy mandate by state government and a generous carbon offset program has made it the nation’s second largest producer of solar power despite its relatively low solar resource, trailing only California.

In California, Farallon Capital Managing Director Thomas Steyer works to promote promote energy efficiency by reaching out to owners of the state’s 9 billion square feet of commercial office space to educate them about energy audits and gaining access to retrofit programs. According to Steyer, “No one has sent out staff before to help them change their behavior. Saving energy, not just building new renewables, is the killer app.”

Outside of efforts in California, one of the world’s unquestioned leaders in new technology, innovations that create economic benefit will not only concern sexy new technologies. Certainly Europe and China are ahead in areas like wind turbines and solar. A great deal of job creation will also be in more protean areas: insulation, energy efficient design, and localized agriculture. At any rate, technological innovation has proven fairly resistant to monopolies, so ground can be gained quickly with the right incentives.

Therefore policy innovation and its impact on energy costs in California and New Jersey should be looked at as well over the coming months. This is why California’s Cap and Trade system promises to teach our nation so much. It will provide guidance towards a set of rules for a market-oriented system that starts to price in the generally externalized costs of Brown jobs. Initial public R&D joined with public investment (the kind of things that often must be done directly by the government inititially) will allow for a cap and trade system to price greenhouse gas emissions and let the private sector take over. Even Koch Industries acknowledges that such markets create additional pools of liquidity and quietly tap them in Europe. As cap and trade boots up in one of the world’s great economic laboratories for innovation, other US states will get a valuable case study. Some would argue that case study accrues to their economic and public health benefit.  One thing the U.S. already knows from the E.U. Carbon Credit trade – it generates cash flow for industry groups and licenses sold by governments. As licensing operations arrive into the mainstream, corporate accounting practices will finally have to adapt to the real cost and revenue functions of full-cost, socially and environmentally aware accounting. At that point, the world will be surprised and delighted to wake up in a time when coal and oil are no longer made “cheap” through an accounting sleight of hand that internalizes profits and socializes costs.

Some favor a straight carbon tax over a cap and trade system. However, international coordination may work better and easier with cap and trade as it is more politically viable now that the U.S. republicans, like Pawlenty and Graham have flip-flopped. Verification of other nations’ implementation of carbon taxes seems destined for prolonged dispute. Monitoring CO2 emissions is much more feasible. Good regulation will, as always, be necessary in order to prevent abuse and fraud.

The AEI essay also never mentions what the downside of failing to create green jobs may be. Nor does it address the fact that new industries definitionally destroy obsolete jobs. Deficit hawks, down-sizing and right-sizing investment bankers in AEI’s orbit often argue in favor of the need to eliminate jobs in order to eventually create new ones. Creative destruction is their mantra, as long as the status quo energy economy is not threatened.  No clear argument is advanced that subsidizing green job creation inhibits labor and capital formation in the mid-term.  Even if this is so, is that necessarily negative? Are they really saying that we need to ruin the planet for future generations so that we can maintain an economy that poisons our environment but provides large amounts of jobs, convenience and profit?

The Imperative of Creating Green Jobs

Any activity that stimulates labor demand is good argues the AEI paper. Activity that filters job growth in any instance is understood to be bad. Therefore, economy and the environment can be separated, and environmental regulation is an economic burden and/or some sort of luxury that stands in the way of prosperity and self-reliance. Yet, the environment is the source from which all economy flows, and it must be protected. Difficult balancing acts as to whether say, an oil rig employee or fisherman’s job matters more to the economy increasingly challenge every serious policy maker and entrepreneur. Fund Balance presupposes no easy answers.

The AEI essay asserts that environmental regulations inhibit economic growth, and those that seek to incentivize green job creation are naive. Certain efforts in this area may well be misguided. That said, it is important to also ask why the countries with the strictest environmental regulations tend to be the wealthiest, happiest and most stable (SOURCE)? We might also look at the States of the Union, where environmental protection is not correlated with poverty and unemployment, but rather with prosperity.

Take West Virginia, the heart of coal country, at the center of mountaintop removal. Consequently, it has some of our most polluted land and waterways coupled with the highest incidences of industry-related accidents and illnesses and some of the weakest, long standing environmental regulations in the US. Developers are not clamoring to build on land saturated with mercury and arsenic. Collapsing real estate values are among the top unaccounted externalities of brown industries.

Has the avoidance of environmental responsibility contributed to prosperity in West Virginia?  One cannot find a West Virginia economic boom now or in recent memory. It has the 49th lowest per-capita income in the nation and unemployment is more than a point higher than the national average. Yet, states like West Virginia have some of the loudest anti-environment voices. Many rally around the coal companies, which claim that stronger environmental regulations will cost jobs, impede their state, and hurt their people. It is difficult to find data that lots of citizens want to move there as a result of its low tax rates.

The state of Florida recently rejected Federal funds for high–speed trains, yet this state ranks among the nation’s highest in terms of unemployment and lack of healthcare access. It will be interesting to see how the other states that snapped up the funding will fare in terms of long-term job creation as a result of this economic stimulus and critical infrastructure investment.

The green job imperative and its related economics therefore must also be considered in terms of impact on public health. States with higher CO2 pollution rates quite often have higher rates of illness. How does higher exposure to brown job pollution effect the health and productivity of our populations?  The answers to these questions have material economic repercussions, consider the tobacco industry lawsuit for reference. This is another question that Fund Balance will be exploring in the coming months.

The Public Role in Economic Responses to Global Climate Crisis

Adapting economies away from non-renewable labor towards green jobs no doubt renders some jobs obsolete. Fund Balance welcomes an analytical discourse on this issue, but those opposed to renewable energy fail to do so in The Myth of Green Jobs. There are a number of issues, not all of which validate cherished assumptions of some renewable energy advocates, that must be addressed. For example, what are the environmental and public health impacts of wind turbines on birds, bats and humans? Another assumption we accept as false is that the transition from non-renewable economies to renewable ones will be painless and involve no sacrifice. The question really boils down to will it be even harder to adapt later – when the stakes are even higher – than to start now. We think the answer is yes. More aggressive and attractive approaches to limiting carbon pollution with a straight tax may not be politically feasible right now, but any and all efforts to aggressively, and at least fairly price the externalities that are impacting our economy and ecosystem are welcome and appropriate.

It remains a stretch to suggest that green jobs may be a partial cause of Spain and some other EU nations’ economic problems. At this time, there has been no scientific study or policy analysis released that proves such, or that details exactly how green jobs cause unemployment. High unemployment on its own, in countries with historically high unemployment even during good times, is not in and of itself, proof that the cause of unemployment is green jobs or investments in renewable energy from the public sector.

Benefits outside of direct job growth matter as well: significant economic and ecologic upside occurs when solar power allows businesses and homeowners to feed energy into the grid rather than just selling their excess power, as happens now. Many new homes come with solar panels fitted, but there is still room for  value creation in their installation.  Anecdotal evidence is emerging that homes fitted with solar panels are more valuable.  Such developments, combined with policy efforts listed above, are poised to give American panel-makers the scale they need to regain the market lead they have lost to their Chinese and German rivals. More importantly, value created from such solar installations are important if we are to properly value savings generated by the carbon offsets the shine through from them.

Some readers of the The Myth of Green Jobs could be forgiven for assuming that its authors would support eliminating public funds for the interstate highway system, bridges, rail system, postal/communication systems, or electric grid. Further, efforts towards renewables are said in the AEI essay to have attracted black-marketeers and corruption. It states, “experiments with renewable energy in Europe have led to job loss, higher energy prices, and corruption.” No information is given indicating that corruption in the renewable energy sector is greater relative to any other sector or industry. For reasons that will be understandable to many, AEI does not try to argue that there is no corruption in the oil industry. Nevertheless, they seem to imply that in an unconvincing sort of way.

Spending during the Great Depression to create roads, bridges, and other infrastructure increased demand for labor, equipment, and materials. Based on the historical record, there is no reason that green jobs should crowd out other types of jobs because public investments are supporting the private sector.  There is ample historical data available demonstrating that public investment in the nation’s physical economic infrastructure improves private-sector performance by raising average productivity and contributing to private-sector growth.

The question seems to be about how to establish the role of government in the creation of renewable energy, labor and markets? Thus far, supply side arguments have not helped us understand why the corporate sector, with the largest cash hoard relative to GDP on record, consistently fails in this regard. What little is left of US regulations can’t be blamed for preventing the deployment of these massive capital reserves on our nation’s crumbling infrastructure or the drag bad infrastructure creates on productivity and job growth. We know that ultimately the private sector will make the investment, but the groundwork must be laid by the public sector and implemented through sound policy.

History shows that government has to provide the incentives. When costs are imposed on others, and there is no incentive to reduce those costs, markets become distorted. This is why it’s time to eliminate Big Oil subsidies and ensure that susbsidies for renewables are targeted and limited in duration. Climate change, as Paul Krugman says “is the mother of all externalities.” It’s a global, non-discrete phenomenon and the private sector by itself is not going to deal with it. As Dr. Krugman also observes, “Left without any government intervention, we’re just going to basically par-boil the planet….”

In 2006, then President George W. Bush’s Climate Change Science Program formally declared,“clear evidence of human influences on the climate system.” There was a time that the GOP leadership was osmosing towards policy driven action on climate change and crisis. We should all hope that the recent vote in the house to repeal the science of global warming via Section 2(b)(4) of H.R.910, is more show than substance.

The overwhelming consensus on man-made global warming, referred to in the Bush administration report, emerges from climate experts and is confirmed by an independent study that surveys all climate scientists who have publicly signed declarations supporting or rejecting the consensus. They find between 97% to 98% of climate experts support the consensus (Anderegg 2010). Moreover, they examine the number of publications by each scientist as a measure of expertise in climate science. They find the average number of publications by unconvinced scientists is around half the number by scientists convinced by the evidence. Not only is there a vast difference in the number of convinced versus unconvinced scientists, there is also a considerable gap in expertise between the two groups. Hence, the more they are subject matter experts, the more convinced they are that man-made climate change is real and an issue.


In The Myth of Green Jobs the author writes, “To understand the fallacy of the government creating green jobs through subsidies and regulations, we have to refer to the writing of French economist Frédéric Bastiat.” Back in 1850, Bastiat defined a “broken window” fallacy to be where a window is destroyed jobs have been created jobs as someone has to replace the window and the materials must be bought etc. In the end, as the argument goes,  job destruction in such a case is an illusion creating jobs only by destroying many more. Perhaps this logical fallacy, rather than being applied to Green Jobs, should be applied to destroying watersheds and habitable land in order to extract natural gas and coal. The myth of Brown Jobs, as it were. This AEI essay and its assumptions bring to mind another French thinker from the 18th century, Voltaire. His character, in Candide, Dr. Pangloss describes every problem faced by an enlightened man as nothing more than a predicable outcome in this best of all possible worlds.

Several myths come to mind from reading this AEI essay:

1. Fossil fuel companies have large profit margins (the dolphins will pay for the oil spills).
2. Public funds and policy play no role in private sector innovation and job creation.
3. The planetary cost of explosive C02 pollution has no place on balance sheets.
4. In this best of all possible worlds, our civilization is impervious to the effects of an addictive resource that is both dwindling rapidly and choking the planet.

The Myth of Green Jobs is an essay that would make Dr. Pangloss proud.

© Fund Balance, 2011.

Opportunity and Obstinance: Green Jobs and the Blue Economy

George W. Bush signed the “Green Jobs Act of 2007” about 4 years ago. During that period, most of the presumed Republican candidates for the 2012 U.S. Presidential election actively supported some form of Cap and Trade or other policies aimed at taming global warming. Since then however, GOP climate leadership turned 180 degrees, while the scientific consensus strengthened and nations such as China, Germany and Brazil expanded their lead in renewable energy technology, infrastructure and environmental finance. And of course, the rapidly developing crisis has worsened.

Most Republicans argue that carbon trading markets and renewable energy programs are job killers. At the same time they have advanced a talking point for voters that Anthropogenic Global Warming (AGW) is the topic of serious, peer-reviewed debate in science, policy, and entrepreneurship. Since 2001, 32 national science academies have come together to issue joint declarations confirming anthropogenic global warming, using the word consensus and urging the nations of the world to reduce emissions of greenhouse gases, those of: The United States, the United Kingdom, Germany, Brazil Russia, China, Australia, New Zealand Kenya and so on. Rupert Murdoch rightly touts that News Corporation is carbon neutral.  As for employment, Next 10, a nonprofit research group in Palo Alto, California analyzed California’s, “core green economy”, a category they define as research and advocacy, finance and investment, energy efficiency, recycling and building. The study found the number of green companies surged 45% from 1995 to 2008. Total jobs in energy efficiency, renewable fuels, and clean tech expanded 36%. During the same period general employment in the state grew 13%. We can be sure that carbon based industries will experience job destruction as renewable industrial plant comes online. Policy-makers should focus on the required job-retraining and educational actions required to minimize the shift of employment from fossil fuel industries to renewable ones.

Newt Gingrinch, Tim Pawlenty, Sarah Palin, and Mike Huckabee at one time aligned themselves with conservative leadership voices on Climate Change and Cap and Trade, John McCain and Lindsay Graham. But they all lost their religion. Deep-pocketed corporate interests focused more on the status quo than competition and innovation can exploit the Citizens United decision and will employ a one dollar one vote election strategy. Hence the uptick in hostility towards policies aimed at protecting our food, water and energy supply from the Pollute and Promote lobby.

Green Collar Jobs: High Quality and Increasing in Quantity

All the while science (and policy makers and entrepreneurs in every other industrialized nation other than the U.S) advances to the question of not if, but when and how bad, extreme climate change is going to be for human civilization. Equally urgent is the search for effective policies and tools to mitigate the ramifications of AGW. A study published in Applied Mechanics and Materials this past February titled Simulation & Prediction of Pacific Plastic Pollution by Shaobo Zhong, Yimin Cheng, and Xilong Qu reports, “in about next 20 years, the Pacific Ocean will be unable to hold more garbage” and concludes, “To compare the effect of government increasing taxation and plastic salvaging, a conclusion is reached that the huge economic losses caused by taxes are far more than the amount of money (that would be) spent in salvaging the plastic garbage.”

Just as building Cap and Trade exchanges creates jobs, so would salvage operations to remove the garbage. Undoubtedly such activity will also generate new methods and systems that will drive the formation of more capital. Given that the Pacific is one of the world’s major sources of food, it will be done. While we solve the industrial problems of keeping plastic from getting there in the first place, the U.S. can and should benefit from the economic upside in such salvage operations and in bringing the Pacific Garbage Patch to a steady or decreasing state. Will the U.S. be competitive and benefit from this business opportunity? Not if the current, baseless hostility to the science and economic policy of global warming and pollution in general continues. Political candidates need to show leadership based on fact and lead by defying Washington corporate lobbyists and informing their constituents.

The GOP argues that carbon trading markets and renewable energy programs are job killers. In addition, while offering no evidence for such  they have also managed to create a talking point for the public around the baseless perception that AGW is the subject of serious scientific controversy. It’s a great challenge and those that meet it will reap economic rewards. Big Pollution jobs will no doubt experience the creative destruction of the market. Though, as we see in some corners of our nation and across the world, such jobs are being replaced by ones that are sustainable both in terms of the ecology and the 21st century economy. Inaction on climate change and greenhouse gas emission will kill and diminish lot of things,  such as farmlands, oceans and rivers as seems increasingly clear, viable economics opportunities as well.

Climate Science and Policy in the 21st Century: All Aboard the Ark

Does it matter if one “believes” in global warming?

An ongoing development in Kentucky will sell tickets to a  simulation of Noah’s Ark. The New York Times account contains the the quote: “I don’t believe in global warming…but I do believe we’ve got to be good stewards of everything God’s given us.” This was from the theme park’s Vice President  Mike Zovath.

So there it is. Matters supported and advanced by the overwhelming consensus of peer-reviewed science, independently reproduced by laboratories that could in many cases at best be called competitors with each other, can be disputed simply upon the basis of belief.

No serious observer of these matters that I know seeks to disprove that divine force created the wonder and beauty of evolution. And that is not the purpose of this note by any means. However saying that one does not believe in global warming is like saying one does not believe in evolution, which in turn is like saying one does not believe that the Earth orbits the Sun.

Recent polls show that less people think that global warming exists than a few years back. The implication:  voters, while not having been provided with any empirical evidence, have decided that global warming no longer is a problem .

Except it is, and in that time span, it has worsened. Now what does a Koch Brothers-funded, pollutocrat do in order to maintain and expand this perception? Continue to bang the pot via Fox News and astroturf non-profits to create the perception that Global Warming is a matter of belief.

At the UN’s Environmental summit this past fall in Cancun, The United States saw a drop in overall greenhouse gas emissions of 2.9 percent from 2007 to 2008, according to the 2010 U.S. Greenhouse Gas Inventory Report. Interestingly the downward trend is attributed to a decrease in carbon dioxide emissions associated with fuel and electricity consumption as a result of the Great Recession. The inventory also calculates carbon dioxide emissions removed from the atmosphere by carbon sinks, a process which occurs through the uptake of carbon by forests, vegetation and soils. Fossil fuel combustion is still the largest source of carbon dioxide in the U.S. and accounted for approximately 79 percent of global warming potential weighted emissions since 1990. Despite the 2008 decline, emissions were still 13.5 percent higher than they were in 1990.

Many have recently drawn parallels between the denial of evolution and manmade global warming. What is behind the continued war on science waged, mostly, by the right wing and “free” marketeers such as the Koch Brothers and the groups they fund? Naomi Oreskes and Erik Conway argue that climate science is again highlighting a conflict between laissez-faire capitalism and survival in Merchants of Doubt.

A small number of fanatics and scientists can be found that dispute the central conclusions of 21st century climate science, the results and models of which laboratories and field work across the world have independently reproduced. Yet these dissenting voices often have considerable ties to the pollution complex and their lobbyists. Stephen Jay Gould famously stated that science advances by replacement not addition. And we are taught in science class that no climatologist, evolutionary biologist,  or computational model can have a perfect answer. That’s God stuff. But that’s how science works. It advances by refining and re-defining, constantly distilling the clear from the cloudy.

No doubt, some tenets around global warming will be proven false. Cynical and foolish policy makers and their backers will exploit this via their mainstream media enablers. None of this alas, will mean global warming is not happening. And God save us from those that want to make society think it’s a hoax.

And so back to Kentucky and its job creation solution: building an ark. Gov. Steven L. Beshear said that he was elected “to create jobs,” not “to debate religion.” The Lexington Herald-Leader criticized Mr. Beshear in an editorial for a plan that it said would result in low-wage jobs and a poor image for the state. “Anyone who wants to believe in a literal interpretation of the Bible has that right,” the editorial said. “However, the way the Beshear administration handled this makes it appear Kentucky either embraces such thinking or is desperate to take advantage of those who do.”

Mr. Zovath, a retired Army lieutenant colonel counters: “We want to show how Noah would have taken care of them, taken care of waste management, taken care of water needs and food needs.” Ark Encounter is designed to be a model of environmentally sensitive development….to minimize its carbon footprint. And its sister the Creation Museum has drawn 1.2 million visitors in its first three years — proving that there is a sizable paying audience for entertainment rooted in a literal interpretation of the Bible.  The developers of Ark Encounter, who have incorporated as a profit-making company, say they expect to spend $150 million and employ 900 people. And the ark is to be built with wooden pegs and timber framing by Amish builders, Mr. Zovath said.

Newt Gingrich and Darell Issa want to erase the EPA. Former Senator Fred Thompson pointed out that Mars appears to be warming, but there are no people and CO2 there. Seemingly rational and of course not scientific. We have no more than 30 years of records of temperatures there. The right and pollution salesman like science as long as it involves building weapons and machines, but when it points to planning for a future where survival may mean changing the design of their machines, or scrapping them altogether, well then science is not so useful anymore.  It’s God’s will I suppose.

Perhaps in the end, the Ark we need to build in order to protect God’s Creation from great storms, will not be made of wood, but will be made of new ways for living and valuing human output – ways that make resources as valuable as outputs, and allocate economic rewards accordingly.

The Red State Blues: Don’t Drink the TEA

By Walter Borden

In the coming months, we will hear a lot about the Taxed Enough Already (TEA) Party’s plans for the U.S. during the 112th Congress. No doubt we shall hear how such plans signal a new, brighter era.

But do they?

The principles espoused by the Tea Party and their Republican allies already dominate policy across America in many of the red states, such as South Carolina and Nebraska. These states have for many decades now served as laboratories for TEA Party neoliberalism. They share very low tax rates on wealthy individuals and businesses, high carbon emissions, low unionization (enforced via so-called Right-to-Work statutes), privatized and under-funded public healthcare and so on.

When viewed in contrast with blue states, such as New York and Washington, what is the quality of daily life in the red states?

The American Human Development Project (HDI) illuminates some of the answers along with data from the Tax Foundation and U.S. Census Bureau. They are broken out in the charts below.Chart One

The picture that emerges from the numbers at left and below shows that blue states provide cleaner air, higher rates of education, and higher per capita income than red states. Furthermore, blue states pay more into the federal government than they get back while red states take more than they pay.

American states paying more into the U.S. Treasury (the blue states for the most part) also have higher rates of unionization combined with higher standards of living than their red tea party counterparts. In red states we find less unionization, lower rates of education and income coupled with higher rates of infant mortality and teen pregnancy. Arguments about the failure of abstinence only approaches to family planning aside, some may argue that a lower cost of living offsets some of these drawbacks for red state citizens. But given the extent of red tea party breastbeating about “economic growth,” it is an interesting irony that these red  states take more from the Treasury than they provide and afford their citizens a lower quality of life as described in Chart 1.

Chart 2 breaks out how most red states are subsidized by blue states and have much higher rates of carbon emissions, the emerging standard measure of general pollution. The not so astonishing observation we make about Charts 1 and 2 is that they would appear to suggest that the well-being and productivity of blue state citizens surpasses that of their red tea party neighbors.

Recent and ample anecdotal evidence supporting this conclusion abounds.

In Florida, a state loosely defined by a deeply conservative northern panhandle, and a progressive Southern portion, we see HDI scores just above the national average and a consumption of roughly .97 cents for each dollar of tax revenue provided. Florida’s incoming governor, Rick Scott, recently made headlines by calling for an end to public education and providing vouchers for families of up to $5280 to attend private school. Yet Florida spends $8,800 per pupil. The average cost for private schools per year is $8,549 while the median income is $24,543. Where do the families get this extra sum which amounts to more than 10% of their income? Does this not in effect, amount to a new tax?  Mr. Scott’s inability to grasp the glaring problem of federal subsidies to private enterprise (eg the bank bailout) is further demonstrated by his involvement as a CEO in the largest (medicare) fraud settlement in U.S. History according to the Department of Justice.

Texas scores just under the national average of 5.17 at 4.67 on the HDI while its near neighbor Arizona manages 5.11 and takes 19 cents per dollar more from the U.S. Treasury than it pays.  Perhaps that is why its Governor Jan Brewer (R) attracted attention from both parties recently for her statements that Arizona needs more Federal funds for Medicare. Gov. Brewer commented recently on her cuts to the state’s Health Care Cost Containment System, which have imperiled the lives of patients in need of an organ transplant. Brewer said that people branding the cuts as a real-life incarnation of death panels should be asking the federal government to send more money – a surprising position from someone who continues to oppose the The Affordable Health Care Act (AHCA) of 2010. As Think Progress points out, “AHCA would foot 100 percent of the bill for states to expand [Medicaid] until 2016 and 90 percent after 2020 for states that are able to maintain current eligibility levels in Medicaid and CHIP.”  However, the Brewer Administration recently claimed that it had been forced to cut the transplant program because the health care reform overhaul had prevented the state from being able to save cash by making it harder to qualify for Medicaid. Go figure.

Brewer – who declined to hold a special session to reinstate the funds, a refusal that leaves some patients’ lives hanging in the balance – blames Arizona’s dire financial situation. (Apparently “death panels” aren’t such a big deal when a Republican is in charge.) She argues that if people are so worried about the transplant patients, they should ask the federal government for more money. A report from the Arizona Republic gives

Chart 2

some insight about how Brewer used stimulus funds, and clearly healthcare was not a priority for her. Whither the death panels, Governor Brewer?

Even given the odd logic at work in Arizona, it’s still hard to hard to understand the need for the State to sell its Capitol buildings to a private real estate company, only to lease them back at an eventual loss to the taxpayers in the millions of dollars. Ken Silverstein introduced us to the likely results of Arizona style Tea Party Politics in the July 2010 issue of Harpers .

All of the red tea party’s empty rhetoric about austerity (for the middle and lower classes, the rich need more tax breaks) needs to be viewed in the light of the past and future.

Aristotle wrote, “It is clear then that the best partnership in a state is one which operates through the middle people.”

The conscious effort by the founders to create this middle class defined American success and stability since the founding. But now, with more than 9 in 10 American families experiencing significant economic shocks year in and out, the middle class in the U.S. – and with it our nation’s future – is seriously endangered.

“Shaky Ground” , a recent study released by the Rockefeller Foundation and authored by Jacob Hacker and Mark Schlesinger of Yale University paints a grim picture of widespread economic insecurity in the era of the Great Recession.

The study concludes, “Economic insecurity has become the rule, not the exception, for many Americans — even in good times.” This report finds that between March 2008 and September 2009, fully 93 percent of American households saw substantial decreases to their wealth or income, or increases in emergency spending, often for medical needs. It further shows that the impact of those shocks was not confined to the working class. The report found that more than half of families making between $60,000 and $100,000 who experienced employment or medical disruptions weren’t able to meet minimum economic needs.

Importantly the study asserts that the recession — which officially lasted from December 2007 until June 2009 — exacerbated some of these economic woes, but that many were in place even before that.  “Job-related concerns did increase dramatically during the recession,” Margot Brandenburg, an associate director of the Rockefeller Foundation, told The Lookout. “But other drivers of economic worry — wealth, medical needs, family-related issues — were very high before the recession, and they’ve remained high.”

This trend formed over the last three decades. In 1985, just 12 percent of Americans lived in households that saw a drop in available income of more than 25 percent from one year to the next. By 2009, it was 20 percent according to the report. Where does the shift come from?  Why is economic insecurity the new normal?  Brandenburg stated what many of us already realize: economic risk has gradually shifted away from corporations in recent years onto individuals through developments such as defined-contribution retirement and high-deductible insurance plans.

Professor Hacker, who authored  “The Great Risk Shift” in 2006,  argues that since last year’s “winner-take-all politics,” government policies have accelerated a shift that benefits the rich at the expense of the middle and working class. Brandenburg attributes growing economic insecurity to, “the hollowing out of the middle”. Increasingly, the sectors that produce the most jobs either pay high wages and require highly skilled workers, or pay low wages and require unskilled workers. By comparison, the sectors in the middle — manufacturing, technical support, and clerical work, for example – continue to evaporate. These members of the workforce find themselves replaced by cheaper foreign workers and machines.

It is difficult to see then, in light of the data and anecdotes above, how TEA Party and Right to Work states are valuable models for our nation and our civilization’s future. If workers cannot pool their risk via organized labor – much as insurers do with policy-holder liability – then the overwhelming majority of non-union workers will be at the mercy of resource-rich conglomerates and cartels when they are unfairly denied payment for services rendered.  When citizens must stand alone in defending themselves against deep-pocketed polluters they find themselves in the same position. And this soon after the great crash of 2008, it is hardly necessary to point out that banking and other corporate and industrial concerns fail miserably at policing themselves.

Society does not need another instantiation of the TEA Party’s rehashed brand of laissez faire economics. That movie was called the Gilded Age, with all the familiar Upton Sinclair and Dickensian storylines: gussied up slave labor, excruciating poverty, and multi-generational tragedy in the lower classes. Nevertheless,  3D technicolor sequels to that movie are now playing in Red and TEA party states, not surprisingly, the data again tells a tragic story.

Looking forward in 2011, we must innovate away from the proven failures of these 19th century economic models. This does not require a revolutionary rejection of capitalism but rather its further refinement.

Early 21st century capitalism is succeeding only partially or pro tanto as J.K. Galbraith would say. Balancing social responsibility and sustainable economic practice has produced great success all across the Union. Within this framework, the world’s efforts to integrate sustainability into financial and industrial systems emerges as an obvious imperative, along with the rejection of loosely regulated 19th century style economic policy.

Not surprisingly, the data suggests that municipalities that value intelligent public sector-driven resource and pollution management systems will have healthier economies and ecologies than their deregulated neighbors. TEA party policies have already run their disastrous evolutionary course. Returning to them would be a giant and unnecessary leap backwards.

In the coming months at Fund Balance, we will be presenting some of the dawning precepts of the bright green future: policies, businesses and projects that build upon the lessons of the past, not its mistakes.

Cap and Trade is Dead, Long Live Cap and Trade

With Proposition 23 in California defeated, the hard and important work on Cap and Trade in the United States can begin again. Advancing the Western Climate Initiative (WCI) will be critical in building a framework in North America for Cap and Trade policy. “A cap-and-trade system is a market-based mechanism that uses market principles to achieve emissions reduction. A core component of a greenhouse gas cap-and-trade program is that an emitter must turn in one ‘allowance’ for every metric ton of carbon dioxide equivalent (CO2) that they emit.” As so defined on the WCI website. As the Great West and Canada agree, Cap and Trade is an important first step in creating a framework for Sustainable Finance initiatives.


Well-funded efforts aimed at shaping public discourse labeling Cap and Trade an “energy tax” obscure debate amongst voters in North America.  Much of these funds come from abroad, from sources less interested in creating jobs in North America than extracting its resources. BP, for example, was generous in its contributions to the Tea Party. If it is a tax at all it is a Pollution Tax. Though it is much more a fee exercised on industries that withdraw essential resources from civilization and return them in degraded form. These resources are part of the public domain and when they are removed from the public trust and diminished, the public should be compensated.

And it is not axiomatic that green jobs and sustainable finance mean net job loss. Indeed, quite the opposite as California and China continue to demonstrate.

Major European financial institutions and policy making bodies lead in advancing Cap and Trade, as well as the broader goal of sustainable finance. Yet clearly there are coordinated European-based attempts to influence U.S. elections in favor of Pollution Rights advocates. A recent report used information from the Open database to track what it labeled Europe’s biggest polluters efforts to influence the U.S. midterm elections: “The European companies are funding almost exclusively Senate candidates who have been outspoken in their opposition to comprehensive climate policy in the US and candidates who actively deny the scientific consensus that climate change is happening and is caused by people.” This report lists BP, BASF, Bayer and Solvay as having made contributions.

Such funding is not restricted to European donations. A report by ThinkProgress, tracked donations to the U.S. Chamber of Commerce from a number of Indian and Middle Eastern oil, coal and electricity companies.

All the while much of the manufactured hysteria about Cap and Trade systems misses the real point. Market based efforts to curb pollution, combat acid rain, and offset global warming, represent merely incremental steps towards sustainable economies and finance. Limited supplies of accessible Carbon will be needed for much more than just fuel. Hence society will need to prioritize its usage and deployment.

There is also another side to the proverbial coin of foreign efforts to hinder Cap and Trade. As Thomas Friedman notes in WikiChina in writing a fictional cable from U.S. based Chinese diplomats back to Beijing: “Most of the Republicans just elected to Congress do not believe what their scientists tell them about man-made climate change. America’s politicians are mostly lawyers — not engineers or scientists like ours — so they’ll just say crazy things about science and nobody calls them on it. It’s good. It means they will not support any bill to spur clean energy innovation, which is central to our next five-year plan. And this ensures that our efforts to dominate the wind, solar, nuclear and electric car industries will not be challenged by America.”

So while China continues to dump Carbon on the US, it is quickly consolidating its lead in some of the most lucrative technology and financial markets for the coming decades. One could be forgiven in wondering if they too, might have an interest in keeping the US electorate in the dark about Cap and Trade and sustainable finance. As per our last post, George Schultz’s business thesis may have more facets than meet the eye as well.

Big Oil Fights Clean Tech in California

As we reach the end of the first decade of the 21st century, some dangerous misconceptions linger from the 20th. Two of which are that global warming is not happening and that it is not primarily a man-made phenomenon. While factors such as Solar Irradiance clearly have secondary and significant impacts, emission of heat trapping gases from human activity, coupled with wide scale deforestation of the Earth, compromise Gaia’s ability to manage such rapid change.

While that debate is settled one indication remains constant: Climate Crisis involving the rapid acceleration of Earth temperatures is real. And for the purposes of this post fighting it does not necessitate sacrificing employment in industrialized nations. In fact, an opposite case merits presentation.

Fire fighters battling oil tank fire at Union Oil refinery in Wilmington, Calif., 1951

This past summer anticipation of the political season overwhelmed common sense. Prominent Republican Senators Lindsay Graham and John McCain retreated from support for Cap and Trade legislation eyeing mid-term elections no doubt feeling pressure from Smog Lobby financiers and pollution advocates such as Koch Industries. Many politicians abandoned their support for the legislation in efforts to distance themselves from President Obama or please mainstream media king Fox News. A very informative post-mortem can be found in Ryan Lizza’s  As the World Burns in last week’s New Yorker.

Once again into the breech is California. As the innovation pacesetter, it leads in the national debate regarding policy formulation around the Climate Crisis and is poised to set pace for the rest of the country. In California many Republicans are fighting against Proposition 23, which aims to halt the State’s bold Assembly Bill 32 (A.B. 32) legislation aimed at creating a clean-tech economic factor. Meanwhile Representative Darryl Issa threatens to re-open the so-called “Climategate” hearings if the GOP regains control of the House of Representatives.

Prominent and distinguished conservatives such as George Schultz back Governor Arnold Schwarzenegger in his battle against Big Oil. Two Texas oil companies with refineries in California, along with pollution rights financiers Koch Industries, fund a campaign to halt California’s landmark laws designed to slow global warming and promote clean energy innovation. These would require refiners to install state-of-the-art emission-control tools. Opponents of Assembly Bill 32 assert that the installation of such technology would not create any jobs. Yet, the State of California reckons that green technology creates the most jobs right now in California, 10 times more than any other sector.

In addition, former Secretary Schultz begs to differ with the Smog Lobby, “Prop 23 is designed to kill by indefinite postponement California’s effort to clean up the environment…This effort is financed heavily by money from out of state. You have to conclude that the financiers are less concerned about California than they are about the fact that if we get something that is working here to clean up the air and launch a clean-tech industry, it will go national and maybe international. So the stakes are high. I hope we can win here and send a message to the whole country that it’s time to put aside partisan politics and get an energy bill out of Washington.”

Since President Obama and Congress have failed to pass a clean energy bill, California’s laws are our nation’s best hope to stimulate clean-tech in America – and the job creation it would entail.

Prop 23 proposes to suspend implementation of A.B. 32 until California achieves four consecutive quarters of unemployment below 5.5 percent. The unemployment rate is currently above 12 percent. This is misleading. A.B. 32 was designed to reduce greenhouse gases to 1990 levels by 2020 and was supported by Republicans, Democrats, businesses and environmentalists. Prop 23’s provision requiring a 5.5 percent unemployment rate is deceptive because in the last 40 years California has rarely produced an unemployment rate below 5.5 percent for four consecutive quarters, hence the real intent is to kill clean air policy in California.

To quote Dan Becker, the director of the Safe Climate Campaign, “Now that industry and their friends in Congress have blocked progress there, the hope for action moves to the states and the Environmental Protection Agency… polluter lobbyists are tight on our heels. They’ve offered Senate amendments to block the E.P.A. from using the Clean Air Act to cut power plant pollution. Since that failed, they are trying to block California from moving forward. … If the people of California see through the misrepresentations of the oil industry, it throws climate denialism off the tracks and opens the door for a return to a science-based approach to the climate. It would be a triumph for the National Academy of Sciences over the National Academy of Fraud.”

Energy chemist Nate Lewis of Cal tech states, “The real joke is thinking that if California suspends its climate laws that Mother Nature will also take a timeout….We can wait to solve this problem as long as we want…But Nature is balancing its books every day. It was a record 113 degrees in Los Angeles the other day. There are laws of politics and laws of physics. Only the latter can’t be repealed.”

To put a fine point on the fact that much debate on climate change is manufactured, one need only look at what Republican spin-meister, Frank Luntz, noted in a memo to George W. Bush in 2002.  “The scientific debate is closing [against us] but not yet closed. There is still a window of opportunity to challenge the science…Voters believe that there is no consensus about global warming within the scientific community. Should the public come to believe that the scientific issues are settled, their views about global warming will change accordingly. Therefore, you need to continue to make the lack of scientific certainty a primary issue in the debate, and defer to scientists and other experts in the field.”

But Mother Nature and the Chinese are not going to wait around for American political cycles.  Let’s close with a quote from The Governator. “And they [Big Oil] are very deceptive when they say they want to go and create more jobs in California,….Since when has [an] oil company ever been interested in jobs? Let’s be honest. If they really are interested in jobs, they would want to protect A.B. 32….”

Editors Note: Many of the quotes and uncited sources in the last half this post are adapted from Thomas Friedman’s excellent piece in the October 5th, 2010 edition of the New York Times “The Governator vs. Big Oil”.

The Gulf Oil Spill, Financial Engineering and The Law of Unintended Consequences

Burning Oil in the Gulf

The financial crisis that was precipitated in 2007 by structured finance (credit default swaps, collateralized debt obligations et al.) parallels the Deepwater Horizon spill in important ways. And indeed, the very first credit default swap was engineered to offset Exxon’s exposure to remediation, fines and legal costs resulting from the Valdez spill.

Experts and regulators from both industries acknowledge the lack of proven methodologies both for assessing the risks of derivatives and the risks of deepwater and ultra-deep water drilling platforms.

Both are examples of advanced engineering methods applied in advance of thorough testing and risk assessment.  The practitioners, policymakers, and stakeholders involved with deploying these systems either ignored or failed to understand the risk and potential economic impacts of these technologies on the world in which we live. As a consequence, their customers, constituents and the natural world have suffered greatly.

Both disasters are examples of the lax enforcement of existing regulations and the failure or unwillingness of regulators to keep up with the astonishing systemic complexity that emerges from 21st century technology, whether software or hardware. For example, Warren Buffet famously called CDO and CDS’s, or derivatives, “financial weapons of mass destruction” and sought recently to protect Berkshire Hathaway’s holdings of certain tranches of derivatives, from new regulations on how to value them, since they are indeed so hard to value. As we can see, like deep-water drilling, the practitioners  and owners of these sophisticated technical financial instruments find them incomprehensible as well.

Interestingly, the SEC’s indictment of Goldman Sachs over its derivatives strategy and the havoc it caused dominated headlines in the weeks preceding the tragedy at Deepwater Horizon.

Economy Cube - Can This Puzzle Be Solved?

Until the government enacts legislation without multiple loopholes, euphemistically referred to as compromises, the public will continue to suffer and subsidize the failures of  untested and unproven technologies when they fail. One hears frequently about how top tier investment banks and petrochemical conglomerates attract the best and brightest. At Fund Balance, we want to see this amazing pool of human capital utilized to developing a sustainable economic future.

Capital Preservation: Protecting the Ocean’s Collapsing Fisheries

Mainstream media coverage of the critical depletion of key fish populations – and the serious economic threat it represents – echoes a key refrain at Fund Balance. Time Magazine covers how climate change is warming oceans and thus reducing their ability to support life, and has a post by Fedele Bauccio addressing ways to halt overfishing.

Blue Fin Tuna

In addition the U.N. recently released new findings and recommendations for how humanity can decelerate the rapid depletion of the ocean’s biological capital.  Some key points:

  • Blue Fin Tuna populations have dropped by 83% in the past 30 years.
  • The annual 27 billion dollars in government subsidies to fishing, mostly in rich countries, is misguided since the entire value of fish caught is only 85 billion dollars.
  • As a result, fishing fleet capacity is 50 to 60 percent higher than it should be.
  • About 20 million workers will be displaced by ending these subsidies and thus retraining will be required.
  • Fish populations can rebound quickly if no-fishing zones are expanded and their limits enforced; for example, by allowing tuna to live twice as long as they currently do, they are able on average to produce twice as many eggs.

We hope that the ongoing Gulf Coast disaster heralds a new time – one where:

  • The false dichotomy between ecology and economy in the public mind is finally eliminated.
  • Government and industry realize that an environment where pollution and unchecked exploitation are controlled and tightly regulated is an environment that supports healthy economic growth.
  • People and governments vigorously address the fact that Climate Change is not the only impact of fossil fuel extraction and combustion, and that “market-based” strategies like cap and trade must be combined with other, precautionary and complementary policies.
  • The public consciousness is imprinted permanently with the understanding that drawing down capital at a rate that exceeds one’s ability to replace it is economic and biological folly at best and suicide at worst, whether of banks or fisheries.

Spirituality and Sustainability

Watercress Darter
Watercress Darter

One of our focal points at Fund Balance is extraordinary local efforts to sustain the environment. Recently a story appeared in the Birmingham News covering a Pastor’s efforts in Powderly, Alabama to save the endangered Water Cress Darter (Etheostoma nuchale).  It chronicles a story of how faith and efforts to sustain ecosystems converge.

The Pastor, 90 year-old Bishop Heron Johnson of the Faith Apostolic Church, is quoted as saying “But he has reveled in the idea of saving God’s creatures. ..It has brought excitement to the church,” Johnson said. “You are a keeper of the animals, like Noah,” a Mr. Jackson told the Pastor on Sunday at the dedication for the Seven Springs Ecoscape Garden.

Another interesting element of the story is how the process of saving the fish also revived its habitat and has generated an eco-tourism and meditation park: a beautiful example of faith and sustainability converging at the micro-economic scale.

Climate, Rainforests, Treasuries and Central Banks

There is an important synergy emerging in principle between the London Accord, the World Bank, Central Banks and the Prince of Wales’ Rainforests Project. We recently learned that the World Bank is already working with the Rainforests Project to improve financing and investment opportunities in protected, living rainforests.

We encourage the Rainforests Project and the World Bank to work closely with the London Accord to move UK and International Treasuries and Central Banks, to adopt, issue and purchase climate, environment and socially responsible index-linked bonds.

The London Accord idea, as sketched out admirably in the Environmental Finance February Issue, is to issue sovereign bonds whose coupon rate is linked to climate and ESG policies. It’s pretty simple in practice: fail to meet your climate targets and your interest rate goes up. This type of market signal would allow investors in clean technologies, carbon offset projects and other climate mitigation and adapation businesses to hedge against government inaction and inspire governments, as the article suggests, to live up to their promises. In general, it helps to create a financial playing field tilted in favor of clean, green businesses, a prospect that would be cause for global celebration.

The April 2009 G20 communique was remarkable for its emphasis on climate, green jobs and a recovery powered by sustainable principles and business practice. Its concluding point was that: “We reaffirm our commitment to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at the UN Climate Change conference in Copenhagen in December 2009.”

Because of their influence on the G20 agreement and implementation, the Bank for International Settlements and the Financial Stability Board need to get involved. We all benefit if they will just take the time to more intimately familiarize themselves with the work of the London Accord, the World Bank and the Rainforests Project on these types of issues.

Reading through the London Accord’s remarkable research, it has occurred to me that Central Banks might well have to be the first movers on this front. As the largest purchasers of government debt, it may be up to them to signal to governments that they would be interested in these types of securities.

Some are despondent after Copenhagen, concerned that the pace of change is insufficient to address looming challenges. Constructive engagement with the central banking community may well prove instrumental to persuading sovereign nations of the wisdom (costs) of failing to confront climate change, the business issue of the millenium according to those at Davos. We can’t wait for them, but neither can we afford to ignore them.

Reversing the Expansion of Dead Zones in the Gulf of Mexico and Chesapeake Bay

Fund Balance has been examining the Dead Zones occurring in coastal and estuarial zones over the last year. Their magnitude is striking. Their damage to ocean ecosystems, seafood supplies and business is severe. And they are connected to vital food supply economies in the Midwest. Nitrogenous run-off from fertilizer used in large scale agriculture binds up and removes oxygen in the Gulf.

Does it have to be one set of regional American economic interests over another? The answer is no. For example, research performed at Dauphin Island Sea Lab off the coast of Alabama develops “resource management strategies which will foster the wise stewardship of diminishing natural resources”. There are ways that such principles are being applied in the Midwest along the Mississippi river. The book, “From the Corn Belt to the Gulf” (Nassauer, Santelmann, and Scavia, eds., Resources for the Future Press), details how farmers and industrial agricultural operations could reduce the amount of nitrogen flowing into the Gulf of Mexico by 40 percent. And it is increasingly clear that by planting specific types of grasses and engineering buffers, grain production in the great American Midwest does not have to contract in order for coastal economies to thrive.

Scientists and policy-makers in the Midwest have been at the forefront on this work. The Science Museum of Minnesota has produced an excellent presentation on the Deadzone in the Gulf of Mexico.  Fund Balance is working with policy-makers and bankers on our capital markets strategy for dealing with this issue in Washington, DC.