SEP 04

Last week I wrote a little rant about how tired I am of America pretending that it can solve the environmental crisis by having each person make individual green decisions. Now the question becomes, if individual choice isn't going to change the environment, what will.

Well, the way I see it, there are three different ways to change the world:

1. Inform people of the problem and show them ways in which they can help to fix the problem. Then hope that they take your advice, even if it's contrary to their interest. (i.e. change your lightbulbs)
2. Inform people of the problem and then regulate industry and consumerism to promote solutions. (i.e. make old lightbulbs illegal)
3. Regard the inherent inefficiencies in the system, and promote new technologies that will become solutions (i.e. make better lightbulbs.)

So we have 1. Personal choice 2. Government regulation and 3.Technology. Those are the three forces, broadly, that can change the world. All three of them are great, but only one of them has the transformative power that we need.

Ten years ago, buying a CD was your only choice. No one knew that they had any interest in doing it any other way. Record companies made token efforts to ask people politely not to copy and share CDs. It happened, but they didn't mind. Music was a physical package, not the songs themselves.

The one thing they didn't want to have happen was for the internet to get big enough that people would sell digital files instead of physical CDs. That would be a disaster, and in 1998 they were doing everything they could to hide from it, or actively stop it. Their research and development dollars were actually being spent attempting to stifle technology. So never let someone tell you that the market loves good technology...the market only loves technology that is good for established industries.

Then a little tiny bit of illegal technology called Napster came along and made entire bodies of law obsolete. It didn't matter what the government said or what the record companies and artists asked of consumers, the internet toppled not only an industry, but a vast system of very strict laws that propped it up.

That's how technology changes things. We created a better system for distributing music. Then Apple came along and made it all even more convenient and, voila, a new, better, more efficient, more profitable industry was born.

That's why we need technology to initiate environmental change. Because coal-fired power plants aren't going to turn off because the government tells them to. Because people won't buy electricity for more just so they can feel better about themselves, especially if they (like most people in the world) are poor.

And, most especially, because industry does not invest in technology when profit margins are high. The energy industry now spends 50% less money on research and development than they did in 1990, roughly 10 times less than the average industry spends on R&D. We need to promote the growth of new technology because the energy industry has no incentive to change their high-profit, low investment situation.

We can promote new technologies in hundreds of ways, and each of us can be a part of that. We can promote it by fostering startups that might seem a little crazy, but like Napster could change the world. We can tax carbon, or put a cap on its emission. Or the government could triple its own research and development funds into clean energy, just like they did with wireless communications, creating the entire basis for the mobile phone industry. Or we could make the personal choice to buy high-tech, low-carbon power, cars, lightbulbs, and computers, creating a market for those disruptive technologies.

This might not come as much of a surprise coming from me, the founder of a green technology blog, but I believe that technology is the clearest and fastest path to a sustainable future. So let's foster it, grow it, incubate it, fund it, purchase it, subsidize it, engineer it, write about it and read about it as much as possible OK. And if you want to do that last one more often, our RSS feed is a nice little resource.

Comments (16)

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written by Ken Roberts, September 04, 2008

This is one of my big pet peeves, people who do not understand economics.

"So never let someone tell you that the free market loves good technology...the free market only loves technology that is good for established industries."

The music industry is not a free market, also known as a perfectly competitive market. It is a market governed by intellectual property restrictions set forth by the government. In essence, music labels have a monopoly on the songs of individual artists.

With the power industry, they are also protected by the government. Utility companies are almost always local monopolies, and they are both free from competition and free from the externality costs of pollution.

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Free Markets
written by Hank, September 04, 2008

So you think that the free market should include the cost of pollution. That's a fine idea, but it points out how no markets can truly take into account all of their externalities.

I've changed "free market" to "the market" to make the economists happy, since, technically, you're right. Though there is no such thing as a free market...it sounds like you're trying to define a closed system.

And if copyright and patent have no place in the free market, then you're going to have an even harder time convincing anyone to make money. I'd like to see a society like that though, I have no idea how it would work. But it's certainly not going to work for us.

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written by Clinch, September 04, 2008

There's problems with each of the three methods,

1-people, as a group, are stupid, and won't always make the greenest choices, because, A-they don't care, B-they've been misinformed (e.g. green washing).
2-The government is as stupid as people, and fall victim to the same problems (e.g. banning incandescent bulbs, when there isn't a good alternative yet [CFLs have too many problems, LEDs aren't cheap enough yet]).
3-Technological advances are unpredictable, and even if they are made, the still have to go through the problem of 1 or 2.

I think that what will happen will be a mesh of all three, it wont be perfect, but we'll get there in the end.

Personally, I think one of the big problems, is the lack of easy and simple access to unbiased, comparable, and technical information (e.g. when looking into buying new bulbs, most of the sites I saw on the bulbs only the advantages of the bulb they were promoting, and only the disadvantages of the other bulbs, so I decided to check Wikipedia, which had an unbiased answer, comparing all the properties and pros&cons of all the bulbs, but overall, was far more complex than it needed to be.
The next problem was finding out which bulbs could replace which, some sites quote 'equivalent watts', some lumens, some just the bulb fixture code, and other meaningless code-digits.

Even typing that took longer than most people would spend trying to find that information out, about bulbs, and would probably end up just sticking with incandescants, because they're not as confusing.

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The Innovators Dilemma
written by mmmmmrob, September 05, 2008

What you describe is eloquently discussed by Clayton Christensen in his book The Innovators Dilemma.

It would be great to hear more from yourselves and other experts about the politics and economics surrounding adoption of eco products. Perhaps you could even get Clayton on to guest post.

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written by Mynameisme, September 05, 2008

The way that i see it is there are only 2 ways
1. make huge government regulations
2. make the green product cheaper (unlikely many times)
A large majority of people are lazy and only care about themselves, they are only interested in what is a better product for themselves right now or what is cheaper, they live in a little bubble. The problem is that we have become too divided from nature, people sit in their houses and prevent any nature from coming in and the fact of the matter is that this is why many people probably don't care, if you don't know somebody or something and all about it then you won't care about it.

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mp3s
written by bob bobberson, September 05, 2008

if you look the mp3 was 'invented' in 1991 and it was 'useless' then because computers that had to power to decode the mp3 and listen to it at the same time were expensive and rare. (I remember using my old computer in like 1996 and it couldn't code an MP3 well enough to listen to. )

Fast Forward to 1997 and whoa its a much different story. Computers were faster AND cheaper and that lead to mass adoption. It wasn't nerdy anymore to have a computer.

The alternative energy trend (solar , wind, etc) is exactly like computers and mp3. Once the public sees that it is useful (like mp3s and the internet) AND cheap, the public will "instinctively flock like the salmon of Capistrano."

So yes, I think this is an excellent metaphor.

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written by Clinch, September 05, 2008

I think you've come up with the best option there Yournameisyou (the make them cheaper one).
If products that were unnecessarily ungreen had a green tax on them, and then that money was used to make very green product cheaper.
That way, people would have an incentive, but would still have a choice (unlike an outright ban).

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written by Bob Wallace, September 05, 2008

Ken, you're misrepresenting the music industry "market".

Intellectual rights for composers and artists have no effect on someone else composing or performing a different song and competing.

Markets can't function without ownership. Unless someone is able to own/sell their product then there is no market. And that's the problem facing musicians/composers today. Easy copying has taken ownership of their product away from them.

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The best way to fix our energy use and climate change problems is clearly through making "less expensive" solutions.

We're in the process of doing this with electricity. 'New wind' is now less expensive than is 'new coal' and much less expensive than 'new nuclear'.

The US just became the world's largest producer of wind generated electricity because of the large amount of private money flowing into wind farms.

The market discovered a good way to make a profit with wind energy and bought in.

Now we need cars that use electricity rather than expensive petroleum and we will see the market shift away from the internal combustion engine.

In the same way we will see the market determine a lot of the environmental 'fix'. For example, finding ways to manufacture a product using less energy means a less expensive product. All other things being equal, consumers will purchase products that are cheaper.

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Innovation
written by mrG, September 05, 2008

Buckminster Fuller was fond of pointing out how the flush toilet and central heating had far more positive impact on the quality of life in Britain than any political change.

There is another problem with solutions #1 and #2: Mandated habits are very often ill-informed, whereas the properties of the #3 innovation are self-evident. Take for example the massive push to bio-diesel by many municipalities for their public vehicles, and the subsequent food-price hike as suppliers discovered their corn was worth more in mass-transit bus tanks than in food-stuffs. Did the municipalities drop their bio-diesel-additive busses? No. Too much invested interest that would be too embarrassing to admit as failure. A few years later we learn bio-diesel obtained through a hydrogen-catalyst method is not only a cleaner product, but can be made from tree-cellulose, landfill refuse and pond slime, it can use existing refineries and can replace petrol 100% in most any gas-tank. The mayor's new bio-bus will run on it, and so will the mayor's own personal transport! So ... which solution do we choose?

Where policy dictates, that question cannot be asked; in scenario #3, we use a genetic algorithm that tries everything, and the most valid solution wins out, but where policies and by-laws frustrate exploration and forbid the necessary deployments, clearly a very unnatural way to carry out our business.

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Carbon energy costs should reflect reali
written by drivin98, September 05, 2008

Renewable energy sources would be implemented much more quickly if carbon energy companies had to pay for the damage their product causes. For instance, thousands of people die prematurely each year because of air pollution from transportation pollution. The Lung Association of California co-conducted a study that indicated $142 billion would be saved in health care costs in California alone from zero-emission transport. Ozone pollution from cities even affects crops grown outside of them. Coal plants pollute air and water.
These costs should be included in the price.

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written by Bob Wallace, September 05, 2008

Ken, you're misrepresenting the music industry "market".

Intellectual rights for composers and artists have no effect on someone else composing or performing a different song and competing.

Markets can't function without ownership. Unless someone is able to own/sell their product then there is no market. And that's the problem facing musicians/composers today. Easy copying has taken ownership of their product away from them.

--

The best way to fix our energy use and climate change problems is clearly through making "less expensive" solutions.

We're in the process of doing this with electricity. 'New wind' is now less expensive than is 'new coal' and much less expensive than 'new nuclear'.

The US just became the world's largest producer of wind generated electricity because of the large amount of private money flowing into wind farms.

The market discovered a good way to make a profit with wind energy and bought in.

Now we need cars that use electricity rather than expensive petroleum and we will see the market shift away from the internal combustion engine.

In the same way we will see the market determine a lot of the environmental 'fix'. For example, finding ways to manufacture a product using less energy means a less expensive product. All other things being equal, consumers will purchase products that are cheaper.

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markets
written by Jeff, September 05, 2008

Like an earlier poster, I too am so frustrated when people with no background in economics blame the "market" for "failures".
The music or more broadly entertainment market changed with new technology and that market REWARDED Apple and others over record companies and companies like SONY that made the Walkman CD players.

The subprime loans are another perfect example. The market did not FAIL it acted exactly how it was supposed to when the inflated value of garbage loans collapsed. That is the market saying demand for these bullshit loans is no zero because they are worthless and there is a shit load of them aka supply.

Energy is no different. When clean energy adds value it will overtake coal and oil. Unfourtanelty that won't happen until those finite supplies jack up demand like we have seen with gasoline. The answer is a carbon tax straight up. Not cap and delay like failed in Europe.

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written by Ken Roberts, September 05, 2008

To Bob and Hank,

The point I was making is not that we should do away with intellectual property rights. They are clearly necessary, and the only real question is on the details. The point is that intellectual property markets do not in the least fit the economic definition of a perfectly competitive market, and thus cannot be used as basis to draw broader conclusions. Clearly no industry meets that theoretical standard, but the music industry doesn't meets far less of the criteria than most other industries. I am essentially arguing that the music industry is the exception, rather than the rule.

Assumptions behind a Perfectly Competitive Market

1. Many suppliers each with an insignificant share of the market – this means that each firm is too small relative to the overall market to affect price via a change in its own supply – each individual firm is assumed to be a price taker

2. An identical output produced by each firm – in other words, the market supplies homogeneous or standardized products that are perfect substitutes for each other. Consumers perceive the products to be identical

3. Consumers have perfect information about the prices all sellers in the market charge – so if some firms decide to charge a price higher than the ruling market price, there will be a large substitution effect away from this firm

4. All firms (industry participants and new entrants) are assumed to have equal access to resources (technology, other factor inputs) and improvements in production technologies achieved by one firm can spill-over to all the other suppliers in the market

5. There are assumed to be no barriers to entry & exit of firms in long run – which means that the market is open to competition from new suppliers – this affects the long run profits made by each firm in the industry. The long run equilibrium for a perfectly competitive market occurs when the marginal firm makes normal profit only in the long term

6. No externalities in production and consumption so that there is no divergence between private and social costs and benefits

Of course neither a 'free market', nor a 'perfectly competitive' market exists in the real world. Both are theoretical models, and are only used for comparison and prediction.

So let me get to the point. The existence of the music industry is entirely dependent on government protection of its intellectual property rights, rights that are now unenforceable with the existence of the internet. Private industry cannot protect its own data, and the government cannot adequately deter theft. This does not have any parallels into brick and mortar industry.

What iTunes has essentially done is offer music industries a way to make a little money, even if it is far less than they used to get, by appealing to consumers who are either adverse to theft or who have been deterred by music industry tactics (such as RIAA lawsuits, or DRM tech).

If you want examples of technology advancements in the free market, then you should consider other industries. The electronics industry, for example, or the airline industry. There are also other examples of uncompetitive industries, such as the oil and power industries. Using the free market, there are ways to spur such uncompetitive industries into action. Texas, for example, has done a good job establishing competition for power generation.

Understanding economics is the key to designing intelligent and optimal regulations. You can never have a market free of regulation, due to foundational problems relating to basic property rights. But you can design regulations that utilize the efficiencies of the free market to the greatest extent possible.

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written by Ken Roberts, September 05, 2008

In conclusion, my position is that pollution control is best met by either a tax on pollution or a kyoto-style pollution market. Direct regulation or subsidy should be avoided. Regulation may be appropriate in the case of anti-competitive markets, such as the power industry, but the goal should be to create the most competitive environment that takes pollution costs into consideration.

Top-down decision making is inherently inefficient, especially when it involves politics, and so should be used only if other alternatives fail.

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written by Tyler Miller, September 05, 2008

Eliminate the income tax. Enact a consumer tax which is based part on cost to the consumer, and part on cost to the environment; that is, tax consumer goods which require more pollution to manufacture. The consumers, then, will have an incentive--keeping money in their wallets--to buy environmentally friendly goods.

On top of that, the manufacturers, will have an impetus toward clean production; in order that they can A. save money on production costs and B. Sell more of their goods.

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Environmental Impact Tax
written by Tyler Miller, September 05, 2008

Eliminate the income tax. Enact a consumer tax which is based part on cost to the consumer, and part on cost to the environment; that is, tax consumer goods which require more pollution to manufacture. The consumers, then, will have an incentive--keeping money in their wallets--to buy environmentally friendly goods.

On top of that, the manufacturers, will have an impetus toward clean production; in order that they can A. save money on production costs and B. Sell more of their goods at a cheaper price. Keep in mind this cheaper price will not hurt the business, because it is a result of a lower tax. Producers who pollute more, will thus be punished for doing so.

This environmental impact tax--which will be combined with the straight consumer tax (a flat 15% sales tax, for example, combined with an impact tax related to the environmental impact of 40%; though this impact tax could be as low as zero for zero-impact products)--can go straight to govt. programs funding clean energy research.

All businesses will become cleaner. All products more environmentally friendly. All people will become richer as business leads the way to a clean Earth.

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