I appreciated my environmental studies degree in undergrad precisely because it forced me to look at environmental issues from a range of disciplines: biologically, ecologically, politically, internationally, economically.
Some are more obvious (studying ecology when studying the environment? I'm shocked!)
Others are more fraught...to be an environmentalist who understands the science means I'm constrained politically. There's such a stark difference between the two political parties that I'm pretty sure I'll only ever pick the one that, you know, goes with science.
But economics? Capitalism? Whole other story.
So let's talk turkey. Environmental economics is pretty straightforward. At its core it says that environmental pollution created by human activity and usually from point sources needs to be accounted for in the market / economy. Point source? What is that you say? Picture a factory with a pipe going up in to the air or a pipe putting leftover waste into a waterway. If that factory or point source can just spew into the soil, air or water, we all pay for it eventually. And we all pay for it extremely inefficiently when it's a pound of cure versus if we had just had an ounce of prevention at the point source. (see: A Civil Action, Erin Brokovich, Dark Waters)
This is what economists call an externality.
The cost of environmental pollution - like greenhouse gas emissions or air / water waste - is often external to the marketplace.
Economists do not disagree with the existence of externalities. Indeed, economists almost universally agree that externalities should be internalized to the marketplace.
Where people tend to disagree is in the how. Corporations tend to have a lot of influence and the idea of paying anything additional brings on the heavy, heavy of lobbyists.
Don't believe me? Oh, I think you will.
(read after the jump)
Some are more obvious (studying ecology when studying the environment? I'm shocked!)
Others are more fraught...to be an environmentalist who understands the science means I'm constrained politically. There's such a stark difference between the two political parties that I'm pretty sure I'll only ever pick the one that, you know, goes with science.
But economics? Capitalism? Whole other story.
So let's talk turkey. Environmental economics is pretty straightforward. At its core it says that environmental pollution created by human activity and usually from point sources needs to be accounted for in the market / economy. Point source? What is that you say? Picture a factory with a pipe going up in to the air or a pipe putting leftover waste into a waterway. If that factory or point source can just spew into the soil, air or water, we all pay for it eventually. And we all pay for it extremely inefficiently when it's a pound of cure versus if we had just had an ounce of prevention at the point source. (see: A Civil Action, Erin Brokovich, Dark Waters)
This is what economists call an externality.
The cost of environmental pollution - like greenhouse gas emissions or air / water waste - is often external to the marketplace.
Economists do not disagree with the existence of externalities. Indeed, economists almost universally agree that externalities should be internalized to the marketplace.
Where people tend to disagree is in the how. Corporations tend to have a lot of influence and the idea of paying anything additional brings on the heavy, heavy of lobbyists.
Don't believe me? Oh, I think you will.
(read after the jump)
Speaking from experience when I used to have to read and respond to those industrial lobbyist comments as my job, they sometimes (gasp!) exaggerate.
For example, and bear with me on this sidebar because it's a nice illustration.
Picture the oil & gas sector responding to comments on an environmental regulation from the EPA. Oil & gas is pumped from the ground (obv). Especially in older oil fields, what comes out of the ground is a mixture of oil and something the industry mislabels as "produced water" (less obv). So-called "produced water" is still a lot of oil mixed with some heavy metals in a fairly nasty and corrosive cocktail. This stuff touches a waterway and it's pretty much bye-bye drinkability, recreation, etc.
But notice how I said a lot of it is oil? Did you catch that? Right. Oil is worth some dollar bills - and maybe 2020 made the news otherwise - but I can assure you for many decades oil has been worth a lot. Don't cry for them Argentina...since 2000 there's only been a handful of years where a barrel of oil is less than $40, and about half of the years - so basically a decade - it stayed above $80.
Major operators - like the ones you recognize from brands when you fill up your car's gas tank - don't really mind investing money in something called secondary containment. Basically, paying to put their oil tank on a concrete pad with a lip / curb that has the total volume able to capture the tank if it spills. Why? Because oil is worth money (duh). And if oil spills it's still worth a lot if you can recover it. The best way to ensure you can recover it and earn those dollar bills is to put your tank on a concrete pad with a curb around it so if oops-it-spills, then the oil goes nowhere and Bob's-your-uncle you sell it with only the nuisance of paperwork*.
*Note to my loveable and lovely environmentalists: I am right there with you mourning the impact of oil when it spills on ecosystems, waterways, and wildlife and things people with hearts and souls care about. But we know...corporations don't optimize for that. Unless they are that new brand of B Corps. But I digress.
OK, so major oil companies pay to put in this secondary containment. It must cost them right? Wrong. Pennies on the barrel people. Pennies. And when the barrel of oil stays at $80 per barrel for basically a decade, that's nothing.
But what do the industrial lobbyists say in their comments to the EPA? In spite of these economic realities, you would think the sky were falling. Pay? My stars, never! Pennies on the barrel...clutch-my-pearls they are being put out of business.
This from an industry where the reeeaallly responsible operators plugged holes in their tanks with golf tees (true story, I've seen some stuff). But I digress.
Where was I? Oh right. Economics.
So economists are all on board with the idea of internalizing an externality. i.e. "hey oil companies, pay pennies on the barrel to put your tanks on concrete pads with a lip / curb sufficient to cover the total volume in case of a spill...that way the American people don't pay in cleaning it up by having to manually put Dawn on wildlife and scrape sludge from soil."
Internalize the externality. Close the loop. Polluters pay, not the en masse populace because it costs way more to "cure" and is magnitudes more inefficient (not to mention more moral and ethical...)
For this reason, I've been a pretty big fan of markets and leads me to why I'm a capitalist. Sacré bleu! An environmentalist that is a capitalist? Fret not, it is not an oxymoron!
It's straight up easy to figure out why. Market-based mechanisms are the most efficient way to internalize an externality. It's why at the same time I was going through the dire straits of eco-depression, I was also extremely inspired in my environmental economics class.
The good Professor Rich Howarth (shoutout, one of my faves, a wonderful human!) walked through the brilliance of economics and how a low number of dollars on each ton of carbon emissions would have signaled and led to reductions to keep greenhouse gas emissions under 1.5 degrees Celsius. It was such an inspiring idea that I advocated for it when I didn't really understand how change happened (but don't let my failure dissuade you from this idea's merits).
Fun fact....this idea doesn't have to have the taxed money go anywhere in particular. It can literally disappear or just go into people's pockets in equal redistribution and it will drive the same reductions. It's why there's a climate caucus including Republicans. Money from a carbon tax doesn't have to be reinvested in renewables or clean energy or a just transition (although I recommend that to accelerate the change). It literally boils down to the simple principle of "charge me more? I'll buy less."
So when you charge more for pollution, and therefore less pollution happens, voila! The marketplace protects people and the planet. The "invisible hand" at its most magical.
The exact cost per ton of greenhouse gas emissions has gone up since I studied this in 2004 - no surprise since we've been full-fire-hose-spigot-on blasting our atmosphere with emissions ever since. But now do you see why I'm a market-based environmentalist? Why being a capitalist and an environmentalist is not an oxymoron?
If we want to solve the fact that we can't continue on this planet at our current rate of resource use (and, you know, conserve the planet too), then let's use the forces of the market for us, not against us.
As my good friend who does corporate development at an unnamed large company says: it's all about market signal.
What is the signal in the market saying? A lot, in fact.
The insurance industry has basically been screaming at us for quite some time. When an entire county or geography of a state goes up in flames or drowns in floods they are the part of our economy that has to wholesale pay out to make us whole. And as time has gone by, it's been harder to make us whole, and sometimes they have refused to insure certain issues and areas...even being legislated to do cover us, and in ways that consumers don't always like because they basically can't afford it. This should come as no surprise in the year where the entire West is ablaze and hurricanes are deep into the Greek alphabet. Why don't we listen more to this signal....what would it tell us?
It would say that we should disrupt the vicious cycle of rebuilding where the fires or floods come through every 3, 5, 7 years now. It says companies should consider fire, hurricane and flood patterns when building hardened infrastructure. That "100 year flood"? Those happen every several years now. Are you thinking about that before you buy land? No? Maybe you should. Economically we are going to be better off paying homeowners to leave really flood-and-fire-prone land, and go to higher / safer ground. They stay because the equity is in their homes and that is their biggest investment. But what happens when the neighborhood around them collapses to utter devaluation under the weight of the environmental issues it faces? Better we disrupt the vicious cycle of rebuilding in these vulnerable areas now.
What else is can we discern from the market signal? Capitalism is eco now. Not in some tree-hugger, Patagonia kind of way (no knocks, XOXO Patagonia). But in a hard-nosed, let's-save-millions kind of way.
One of my proudest accomplishments in corporate sustainability was enabling exactly that brand of energy procurement folk to buy renewable power at scale. They really didn't need much convincing...they had been trying to do so (and getting pushback), even though it would save the company millions. A little sustainability nudge and that company now has an RE100 commitment and should achieve 100% renewable energy procurement sometime next year.
It's for this reason that this year the BlackRock letter to CEOs was about the climate crisis...and more specifically climate risk. Money in the investor community is flocking towards companies that are handling their ESG* business.
*Environment, Social, Governance
Gone are the days where impact investing was either a large fund that promised not to invest in tobacco or firearms...or tiny fund that had a proactive principle but not a lot of oomph. ESG investment is now surpassed $1 trillion assets under management. Boards of Directors ignore this at their peril.
I noticed when renewable energy passed the critical test of levelized cost of energy, meaning wind and solar became cheaper than fossil fuels.
In this midst of this raucous and bizarre ride that is 2020, we're long past another, similar milestone. The massive forces of the market are internalizing the externalities of the climate crisis. And while it may be long overdue, it's welcome all the more.
Capitalism has gone eco.
For example, and bear with me on this sidebar because it's a nice illustration.
Picture the oil & gas sector responding to comments on an environmental regulation from the EPA. Oil & gas is pumped from the ground (obv). Especially in older oil fields, what comes out of the ground is a mixture of oil and something the industry mislabels as "produced water" (less obv). So-called "produced water" is still a lot of oil mixed with some heavy metals in a fairly nasty and corrosive cocktail. This stuff touches a waterway and it's pretty much bye-bye drinkability, recreation, etc.
But notice how I said a lot of it is oil? Did you catch that? Right. Oil is worth some dollar bills - and maybe 2020 made the news otherwise - but I can assure you for many decades oil has been worth a lot. Don't cry for them Argentina...since 2000 there's only been a handful of years where a barrel of oil is less than $40, and about half of the years - so basically a decade - it stayed above $80.
Major operators - like the ones you recognize from brands when you fill up your car's gas tank - don't really mind investing money in something called secondary containment. Basically, paying to put their oil tank on a concrete pad with a lip / curb that has the total volume able to capture the tank if it spills. Why? Because oil is worth money (duh). And if oil spills it's still worth a lot if you can recover it. The best way to ensure you can recover it and earn those dollar bills is to put your tank on a concrete pad with a curb around it so if oops-it-spills, then the oil goes nowhere and Bob's-your-uncle you sell it with only the nuisance of paperwork*.
*Note to my loveable and lovely environmentalists: I am right there with you mourning the impact of oil when it spills on ecosystems, waterways, and wildlife and things people with hearts and souls care about. But we know...corporations don't optimize for that. Unless they are that new brand of B Corps. But I digress.
OK, so major oil companies pay to put in this secondary containment. It must cost them right? Wrong. Pennies on the barrel people. Pennies. And when the barrel of oil stays at $80 per barrel for basically a decade, that's nothing.
But what do the industrial lobbyists say in their comments to the EPA? In spite of these economic realities, you would think the sky were falling. Pay? My stars, never! Pennies on the barrel...clutch-my-pearls they are being put out of business.
This from an industry where the reeeaallly responsible operators plugged holes in their tanks with golf tees (true story, I've seen some stuff). But I digress.
Where was I? Oh right. Economics.
So economists are all on board with the idea of internalizing an externality. i.e. "hey oil companies, pay pennies on the barrel to put your tanks on concrete pads with a lip / curb sufficient to cover the total volume in case of a spill...that way the American people don't pay in cleaning it up by having to manually put Dawn on wildlife and scrape sludge from soil."
Internalize the externality. Close the loop. Polluters pay, not the en masse populace because it costs way more to "cure" and is magnitudes more inefficient (not to mention more moral and ethical...)
For this reason, I've been a pretty big fan of markets and leads me to why I'm a capitalist. Sacré bleu! An environmentalist that is a capitalist? Fret not, it is not an oxymoron!
It's straight up easy to figure out why. Market-based mechanisms are the most efficient way to internalize an externality. It's why at the same time I was going through the dire straits of eco-depression, I was also extremely inspired in my environmental economics class.
The good Professor Rich Howarth (shoutout, one of my faves, a wonderful human!) walked through the brilliance of economics and how a low number of dollars on each ton of carbon emissions would have signaled and led to reductions to keep greenhouse gas emissions under 1.5 degrees Celsius. It was such an inspiring idea that I advocated for it when I didn't really understand how change happened (but don't let my failure dissuade you from this idea's merits).
Fun fact....this idea doesn't have to have the taxed money go anywhere in particular. It can literally disappear or just go into people's pockets in equal redistribution and it will drive the same reductions. It's why there's a climate caucus including Republicans. Money from a carbon tax doesn't have to be reinvested in renewables or clean energy or a just transition (although I recommend that to accelerate the change). It literally boils down to the simple principle of "charge me more? I'll buy less."
So when you charge more for pollution, and therefore less pollution happens, voila! The marketplace protects people and the planet. The "invisible hand" at its most magical.
The exact cost per ton of greenhouse gas emissions has gone up since I studied this in 2004 - no surprise since we've been full-fire-hose-spigot-on blasting our atmosphere with emissions ever since. But now do you see why I'm a market-based environmentalist? Why being a capitalist and an environmentalist is not an oxymoron?
If we want to solve the fact that we can't continue on this planet at our current rate of resource use (and, you know, conserve the planet too), then let's use the forces of the market for us, not against us.
As my good friend who does corporate development at an unnamed large company says: it's all about market signal.
What is the signal in the market saying? A lot, in fact.
The insurance industry has basically been screaming at us for quite some time. When an entire county or geography of a state goes up in flames or drowns in floods they are the part of our economy that has to wholesale pay out to make us whole. And as time has gone by, it's been harder to make us whole, and sometimes they have refused to insure certain issues and areas...even being legislated to do cover us, and in ways that consumers don't always like because they basically can't afford it. This should come as no surprise in the year where the entire West is ablaze and hurricanes are deep into the Greek alphabet. Why don't we listen more to this signal....what would it tell us?
It would say that we should disrupt the vicious cycle of rebuilding where the fires or floods come through every 3, 5, 7 years now. It says companies should consider fire, hurricane and flood patterns when building hardened infrastructure. That "100 year flood"? Those happen every several years now. Are you thinking about that before you buy land? No? Maybe you should. Economically we are going to be better off paying homeowners to leave really flood-and-fire-prone land, and go to higher / safer ground. They stay because the equity is in their homes and that is their biggest investment. But what happens when the neighborhood around them collapses to utter devaluation under the weight of the environmental issues it faces? Better we disrupt the vicious cycle of rebuilding in these vulnerable areas now.
What else is can we discern from the market signal? Capitalism is eco now. Not in some tree-hugger, Patagonia kind of way (no knocks, XOXO Patagonia). But in a hard-nosed, let's-save-millions kind of way.
One of my proudest accomplishments in corporate sustainability was enabling exactly that brand of energy procurement folk to buy renewable power at scale. They really didn't need much convincing...they had been trying to do so (and getting pushback), even though it would save the company millions. A little sustainability nudge and that company now has an RE100 commitment and should achieve 100% renewable energy procurement sometime next year.
It's for this reason that this year the BlackRock letter to CEOs was about the climate crisis...and more specifically climate risk. Money in the investor community is flocking towards companies that are handling their ESG* business.
*Environment, Social, Governance
Gone are the days where impact investing was either a large fund that promised not to invest in tobacco or firearms...or tiny fund that had a proactive principle but not a lot of oomph. ESG investment is now surpassed $1 trillion assets under management. Boards of Directors ignore this at their peril.
I noticed when renewable energy passed the critical test of levelized cost of energy, meaning wind and solar became cheaper than fossil fuels.
In this midst of this raucous and bizarre ride that is 2020, we're long past another, similar milestone. The massive forces of the market are internalizing the externalities of the climate crisis. And while it may be long overdue, it's welcome all the more.
Capitalism has gone eco.
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