Green vs. Green

Green vs Green

Creating a Sustainable Economy

By Suzanne Walters Gray MFA '04

Economics faculty members Marilyn Power and Jamee Moudud

Consume less, and the environment will be saved.

We hear this message all the time these days, whether it’s about using energy efficient light bulbs or reducing the carbon emissions of factories. Almost everyone agrees that minimizing our consumption of fossil fuels is the only way to stop global warming from rearranging the face of the planet.

But there’s a parallel message coming from some business and government leaders: Consume less, they say, and the economy will tank. Society is powered by fossil fuels; to change that would be hugely expensive, overburdening businesses and subjecting the country to depressed economic growth, mass unemployment, and compromised national security.

So which is it? Are a healthy environment and a robust economy mutually exclusive? Economics faculty members Marilyn Power and Jamee Moudud think not. They argue that the dichotomy between prosperity and the environment is a false one and that, with a little care, we can improve them both without compromising either.

Business and Society

Marilyn Power, who is teaching a first-year studies course on Political Economics of the Environment, says that “Capitalism definitely gives businesses incentive to pollute.” Growth is the name of the game for companies in a capitalist system: growth leads to profit, while lack of growth leads to stagnant profits and, eventually, recession. Businesses can keep profits high by reducing costs, Power says, and an easy way of reducing costs is to take short cuts. Pollution saves businesses money because it forces society and the environment to bear the cost of waste disposal, whether toxins in the river or carbon in the air.

This dynamic means that if businesses were left to their own devices, there would be little to dissuade them from degrading the environment. Luckily, there is a difference between what businesses want and what society wants, says Jamee Moudud, who focuses on the analysis of public policies in the context of capitalist development. Society has broader goals that include everything from ensuring worker safety to preventing breakouts of mad cow disease, and it acts through the state to make sure these goals are met.

The solution to global warming, then, is not to halt economic growth—which really would cause unemployment and other woes—but to create growth that is not carbon dioxide-intensive, Moudud says. Power thinks this can be achieved through regulation. “Capitalism as a system forces businesses to be flexible, so that they can react to changing markets,” she says. “If we change the playing field through regulations, businesses will adapt, and actually compete against one another to be the greenest.” She cites the Clean Air and Clean Water Acts of the 1970’s and the Montreal Protocol of the 1980’s, which limited the emission of ozone-destroying CFC’s, as examples of successful regulation. Power is cautiously optimistic about the potential of carbon trading markets to exploit the competitive nature of businesses for the greater good. In a carbon trading market, businesses are issued credits representing the amount of carbon they’re allowed to emit. If they implement green technologies and so end up with extra credits, they can sell them to companies that are exceeding their allotment. This way the level of carbon in the atmosphere stays constant (or can even be reduced), and companies have a financial incentive to go green.

Moudud cautions that regulation is just one piece of the puzzle. The state can’t just do whatever it wants, because regulations only work as long as businesses are willing to accept them. “The cost of adopting green technologies is high, and if profits drop, businesses will reduce their investments, shed labor, or move overseas,” potentially causing mass unemployment, he warns. “It is not surprising that powerful business interests in the U.S. have successfully lobbied the Bush administration to refuse to sign international agreements like the Kyoto Protocol,” which would regulate carbon emissions worldwide.

Moudud notes that effective public policy must also employ carrots—like tax advantages, favorable tariffs, or public investments—as well as sticks, so that companies can maintain their profit margins while making the shift to green technologies. “States have always facilitated the process of technological change,” he notes. And done correctly, the combination of regulation and incentives can help create a “green sector”—a whole new class of business dedicated to creating and selling carbon-neutral technologies.

Global Perspective

Economists love numbers, and for hard data about economics and global warming, Power looks to the Stern Review. This 700-page report—the first to analyze global warming from an economic perspective—was prepared by Sir Nicholas Stern for the British government in 2006. It found that rising temperatures and the resulting floods and droughts could shrink the global economy by 20 percent and displace hundreds of millions of people, especially among the world’s poorest nations. But the report is ultimately optimistic: We have the time and the knowledge to stop the increase of greenhouse gases, it concludes, but only if we act now. Doing so would cost just 1 percent of global gross domestic product, and could actually improve the world economy by creating new jobs and new markets.

But the inequality of resources, capital, and industrialization between rich and poor countries creates barriers to such cooperation, Moudud says. For example, poor countries are at a serious disadvantage when it comes to developing green technologies. Not only do they lack the social and industrial infrastructure to create them and encourage their use, but poor countries are also obligated to compete in the global marketplace, which forces environmental concerns to take a back seat to economic growth.

Moudud and Power agree that the international battle against climate change must also be a battle against poverty, and should include plans to increase the prosperity of poor nations. One approach would be to compel rich nations to share green tech-nology with poor ones. This sharing just wouldn’t happen under a free-market system, Moudud asserts. “New technology doesn’t just waft in” to poor countries, he says, “and it is not freely given, either. Such an idea is antithetical to capitalism.”

It’s clear that staving off environmental disaster will require an unprecedented level of global cooperation. Whether or not the world’s nations can overcome the structural impediments to cooperation—and do it in time to make a difference—remains to be seen. Ironically, the global nature of the problem may prove an advantage: since it hurts everyone, everyone should be motivated to solve it. “Even C.E.O.’s have to breathe the air,” says Moudud.

Beyond Economics

Power and Moudud agree that mainstream economics is insufficient to solve our environmental problems—it just doesn’t take all the relevant factors into account. A forest is worth more than the value of its lumber, and people’s happiness is based on more than how much money they make. Similarly, the problem of global warming isn’t simply about carbon levels and inputs and profits, says Power. It’s about economic justice. She admires the Stern Review in part because it embraces this larger view and asserts that there are strong moral as well as economic reasons to take action against climate change.

Power’s research examines one way of quantifying that ethical dimension: the discount rate, which is a number economists use to represent how much we’re willing to pass off current costs onto the people of the future, under the assumption that they will have the technology, knowledge, and capital to deal with them. It’s a complex subject, says Power, but it boils down to something simple: “How much are your grandchildren worth?” And that’s not just an economic decision: “It’s a moral and ethical one as well.”

For his part, Moudud thinks that public policy needs to go deeper and address the basic rules of competition in the marketplace. Instead of using the profit motive to regulate society, he imagines an economics that unites environmental concerns, human rights, and socioeconomics in a system in which people have true autonomy, free from coercion by either market forces or state bureaucracy.

Valuing the future and reversing environmental damage would be implicit in such a system. “We need autonomy from the vagaries of the environment,” he says. “You can’t create a better society if your house has just been destroyed by a hurricane.”

The idea of creating a better society may seem even more idealistic than stopping climate change. But the colossal challenge of global warming could prove to be just the impetus we need to create a more sustainable way of calculating value.

Web extra: To see what SLC is doing to reduce its carbon footprint, visit www.slc.edu/about/greening.

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