Opinion

A green industrial revolution?

Gardner and Clark finish their Dust-Up today with a debate on the potential of resource scarcity to spark government programs and technological innovation. Previously, they discussed the increasing resource demands of developing nations, government policies aimed at altering consumption habits, increasing food prices and the question of whether global trends in overall supply and demand portend a coming era of scarcity.

Conservation leads to innovationBy Gary Gardner
The question today is framed as an issue of conservation versus innovation. But I don't see the two as antagonistic. In fact, it seems clear to me that conservation stimulates innovation.

For example, environmental consciousness has moved many businesses to reduce waste. In the process, these firms have discovered a pot of gold because waste typically represents untapped potential to reduce costs. DuPont redesigned its production processes and products to cut greenhouse gas emissions by 72% between 1991 and 2007, saving $3 billion in the process. DuPont is just one of many firms now pursuing a waste-reduction strategy. Once an accepted part of industrial production, waste is now viewed as a liability, stimulating innovations that are good for people, firms and the planet.

Consider the idea of businesses offering services instead of goods in today's economy. Xerox has shifted from selling copiers (goods) to leasing them (a service), which gives the company, as perpetual owner of the leased machines, a strong incentive to manufacture them to be refurbishable. This greatly extends the life of materials and reduces waste.

Car sharing is another innovative service that reduces harm to the environment. Most cars sit idle most of their lives, a huge waste of materials and money. But many Europeans and Americans avoid owning a second car (or even a first) by subscribing to a car-sharing service that provides as-needed access to a car. Users are charged by the hour and the mile, and cars are available in their neighborhoods or near public transit stops. These programs reduce parking, traffic congestion, fuel use and materials used in automobile production. They also save subscribers thousands of dollars annually by reducing or avoiding car ownership.

Take the notion of dematerializing economic activity. Netflix now offers some of its movie rentals as downloads. Such a strategy removes the need for mailers, DVDs and retail stores -- and the materials and energy these products need. As more economic activity embraces electronic delivery, environmental impact will decline.

These are just the start of a long list of innovations that include cap-and-trade carbon markets, socially responsible investment, biomimicry production, pollution taxes, microfinance, co-housing communities, public bike-sharing programs, home solar panels financed through utility savings and "commons" resource management, to name just a few. All are stimulated by the growing recognition of the need to conserve materials and energy.

But the growing list of innovations for sustainability is no reason for complacency, Greg. As I noted previously, the environmental and social challenges facing the global community are huge, and the longer the global community waits to address those challenges, the greater human suffering will be. In a full world, economies need clear environmental and social boundaries -- limits on carbon emissions, for example, or guarantees of clean drinking water -- if our civilization is to continue to evolve and prosper.

Great chatting with you this week, Greg. You have the last word.

Gary Gardner is a senior researcher at the Worldwatch Institute, where he is also co-director of the report, "2008 State of the World: Innovations for a Global Economy."


Quit it with the government mandatesBy Gregory Clark
Gary,

Will a growing scarcity of resources lead to an end of the innovation that drives the U.S. economy forward? Absolutely not. I do not fear peak oil. But what I do fear is the bunch of crackpot conservation mandates that high energy prices will spur from you and your friends. That stuff can do real harm.

Though economics is called "the dismal science," it actually is much more optimistic on such issues than the typical person. When people see the prices of oil or rice rise, they think of economic collapse. The lamentations and wailings reach biblical proportions. One lesson of economics, however, is that there are many ways to produce goods. If any material used in production (for example, oil) becomes expensive, it can be used more sparingly. But this process takes time. The initial price rises, and the initial pain, is much greater than in the long run.

In the era of low energy prices, huge swaths of sprawling, energy-hungry housing and malls have been constructed in places such as the Central Valley and the Inland Empire, the lands of drive-through Starbucks. Permanently higher gas prices (the futures markets are predicting that oil will cost $100 a barrel even six years from now) means much of this is ill-suited to current conditions. The people driving their gas-hungry SUVs to their negative-equity homes in the Inland Empire can expect nothing but more pain. But with time, even the housing stock will adapt to new realities. With greater density and the substitution of quality over quantity in housing design, energy costs can be contained.

In this way, economists like myself and conservationists like you, Gary, are on the same side. We agree that we do not need to farm every acre of potential farmland, mine every ton of coal and drill for every barrel of oil to keep the economy growing. Conservation of the natural environment can be very cheap. But before we get too light here and a chorus of "Kumbaya" breaks out, we do have one sharp difference: Economists think that if resources such as oil become more scarce, the economy will adjust on its own. We do not know what the best outcome is. We rely on the market system, a giant living algorithm, to figure that out on its own.

Gary, you think that the government should respond to the prospect of future resource scarcities by mandating all kinds of schemes that the private market will never support. In your post, you promote car sharing as an innovative way to deal with resource scarcities. But firms in the private market long ago introduced the concept of car sharing. Their names are Avis, Budget, Dollar and Hertz. Car-sharing schemes such as the ones you mention, which have been around since 1948, will likely forever be a minority interest -- otherwise, Hertz would be doing it already.

The biggest danger from high energy prices is thus not the prices themselves, but the crazed mandates they will spawn. The answer to high fossil fuel costs and global warming is cheap, clean, abundant nuclear power. But instead we are going to get giant, white-elephant subway systems such as the one proposed for L.A., half-empty ride-sharing lanes on highways when road tolls would limit congestion much more effectively, and regulations on the size of the windows in our houses.

Gregory Clark is chairman of the economics department at UC Davis. His recent book is "A Farewell to Alms: A Brief Economic History of the World."

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