The news isn’t good. There is discussion of a US recession and its impacts globally when the appropriate analogy might be depression (financial and otherwise). Energy prices (partially driven by Peak Oil and other Peaking elements) are continuing their upwards path that might only be stunted by that global recession. Food prices are escalating, across the board, while supplies are falling. The financial meltdowns are freezing credit markets. The economic situation, for many countries and communities and businesses and individuals, is driving people toward an ever greater focus on the immediate challenges rather than longer-term horizons. And, then there is that pesky little thing: Global Warming.
To navigate a course through the Perfect Storm of Peak Oil and Global Warming will require significant investment. Investment in revamped and new infrastructure (energy efficiency and renewable energy). Investment in research. Investment … And, while that investment offers tremendous opportunity for “gain” (energy savings, profit from renewable energy, societal benefits through reduced pollution, avoided costs due to Global Warming), the financial crunch and other pressures make it that much harder to set aside the resources for that capital investment.
There is an adage on energy efficiency infrastructure investments:
- Those who can afford energy efficiency can afford to be wasteful on energy.
- Those who can’t afford the costs of being wasteful on energy can’t afford the costs to become energy efficient.
Let us take the simple (and common) example of the Compact Fluorescent Lightbulb (CFL) vs the incandescent. People often mistakenly say that the CFL “costs more” when, in fact, it costs more to buy but is far less costly to own. But, upfront, that CFL might require 5-10 times as much “capital” to purchase the more efficient option. If an individual is worried about paying for the food at the grocery store, what is the likelihood that they will shell out $10 for two bulbs rather than $1.97 for four … especially since those longer term savings seem so remote. (Remote despite the advertising claims on the CFL packages … who truly believes claims on packaging even though, in this case, they are basically true (and potentially even understated).) Put this out in terms of larger individual investments ($200 more for a more efficient refrigerator, $2000 more for a more efficient heating system, $20k more for a more efficient house purchase). And, think of it in societal terms. If a school system is struggling to pay for salaries and cutting staff, will they find the resources for backfitting energy efficiency in the schools even though it would pay for itself over a five-year period?
The rigor mortis in the credit markets are a quite serious problem. There are local governments who can’t float bonds. How will they implement a major energy efficiency (and some renewable energy) program in their infrastructure in the face of non-existent credit? Oh, yeah, at the same time tax revenues are falling due to the real estate crash? Only way to do it, politically, for most of the nation/globe: loan for investment in a more efficient/less costly infrastructure that will then ‘pay for itself’. Oh, right, credit isn’t there.
And, this crunch quite clearly goes from the individual to the business to local governments to the national (and international) level.
And, that is where the ease of capital availability (at affordable rates) becomes critical. The individual, the local government, the business in a tight economic environment is far less likely to be able to carve out resources from current income for investing for future value. Thus, the need for a robust capital market. A capital market that is near frozen …
And, it is not just capital …
To undertake a sensible path forward requires capital investment and, almost certainly, putting higher prices on polluting energy sources while seeking to foster renewables and drive energy efficiency. This was politically untenable when energy was “cheap” (of course, not counting “externalities”, which understates by far the real cost of extractive energy systems.) No BtU tax in the 1990s in the United States for example.
Now, rising costs do make things like energy efficiency more attractive, but that cost factor is not enough to do what is necessary to truly change paths. We need smart regulations for energy efficiency. We need to reduce barriers to sensible decision making, to make the Energy Smart not just the easy option, but the preferred option.
In the face of a collapsing economic system … in the face of escalating energy prices … in the face of rising food prices, the “cost” of making the necessary capital investment to change the tide(s) is skyrocketing. And, we can measure that cost in terms of actual cost of capital and “political capital” required to make the effort. That cost was politically untenable in ‘the best of times.’ What will be the case in ‘the worst of times?’
This, of course, becomes a driving reason for the We campaign. To make the necessary (what might seem politically untenable) not just tenable, but desirable.
A final thought …
We call the fossil fuel industry an “extractive industy”. Sadly, that is what Wall Street and Corporate boardroom have become to too large an extent. Extractive industry for immediate benefit rather than long-term sustainability … of their business, the ‘economy’, society, and the habitability of the plant for humanity.
3 responses so far ↓
1 Jesse Jenkins // Apr 11, 2008 at 12:21 am
Excellent musings Adam. I think you’d zeroed in on two of our biggest challenges – one policy/market structure oriented, the other political.
Capitol barriers are one of the biggest barriers to adoption of renewables – which are capitol intensive but have zero fuel costs – and efficiency – which costs a lot up front, but saves a lot over time. Same goes for the premium on a hybrid or plug-in hybrid car.
High upfront costs and low operating costs are also a recipe for Jevons Paradox: efficiency gains are eroded because the low operating/utility cost encourages more use/demand than normal.
My (admittedly not fully fleshed out) thought on this would be to use a price on carbon to raise the costs of dirty energy while recycling the revenue into drastically lowering the up-front costs for renewables or efficiency. We would essentially be taking out a giant loan as a society that we’d use to fund efficiency and renewables capital costs and then repay it overtime in energy bills (which would hopefully go down or stay the same as a whole, but would have a higher per unit cost).
I’d like to flesh this out more, but my inclination is that this kind of formula would help bridge the capital barrier AND help overcome Jevons Paradox.
Now of course, we also need to figure out how to deal with the political realities of fighting for climate solutions in a time of recession. This’ll take major grassroots work, some sophisticated evolution of our messaging – Energy Smart is a great example of those efforts – and it has to happen as quickly as possible.
No small challenges, but ones we can solve, I believe.
2 Jesse Jenkins // Apr 11, 2008 at 12:42 am
Here’s a back of the envelope (and sort of extreme) example (both because of the degree of upfront premium, and the degree of efficiency gain).
Consider a pretty normal, 25 MPG car, driven over 100,000 miles over 10 years. At fuel costs of $3.50/gal, that’d cost $14,000 for gas.
Now consider a 100 MPG plug-in hybrid that costs $10,000 more than the regular car up front, driven over the same 100,000 miles over 10 years. At that premium, you’d need to somehow pay a “usage fee” of 10 cents/mile to pay off the capital.
So lets say we give the auto companies a tax credit of $10,000 every time they sell you one of those plug in hybrids (as long as they pass the savings on to you). We then charge a $10.00/gal gas tax for plug-in drivers (or for everyone, but that’s not important here, just ensuring the plug-in driver pays his or her usage fee somehow). At 100 MPG, that $10.00/gal fee gets us our 10 cents/mi usage fee. There are probably other ways to do it, but the net fuel costs at $13.50 per gallon are $13,500 over the 10 years.
That’s right, we can afford to pay $13.50/gallon and still save $500 relative to the regular car owner (paying $3.50/gal). In exchange, we could drive off the lot with a new plug-in for no extra cost.
Just one back of the envelope example… Plenty of challenges there, but makes the basic point: if we can cut our energy use, we can afford to pay a lot more per unit of energy and still make out the same on total energy costs. If we voluntarily and artificially raise energy costs to fund the up front capital costs of those efficiency gains, we can eliminate the capital barrier, not pay any more in the long term, and retain a powerful incentive against Jevons Paradox (in that usage costs remain high).
Since we’re musing today, I figured I’d throw out this half-baked idea for continued musings.
3 Jesse Jenkins // Apr 11, 2008 at 12:45 am
Here’s another way at this: what if the federal government guaranteed loans to auto dealers who would lease PHEVs if they offered them at a price point equal to or below a comparable conventional car… Then they would repay the government in the form of an annual (or quarterly, or usage-based) fee on the leesee.
If you charged $1000 a year that way, you could recoup that $10,000 capital premium for the plug-in over the 10 years of the car’s lease.
Doesn’t do as good a job of solving Jevons Paradox, but it was another thought…