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May 28,2009 -- In Starbuck's, I was sitting next to a company executive and the company's architect. They were discussing energy options for a new plant to which the company is moving and it was hard not to overhear the conversation: The new plant had two out-of-service generators that could be refurbished and put back into use. The architect suggested that the company might find it economical to use the generators for both electricity and heat for water and for the building during the winter. This would depend on the comparative costs of self-generated energy and energy purchased from an outside provider, which they were working on. The executive mentioned that they were looking into a solar solution, for which New York State would provide a subsidy. The architect was doubtful that solar would be more economical, even with the subsidy, but said the company should look at the numbers. When the executive took a break, I took the opportunity to engage the architect.
I asked about the carbon load for a small generator versus buying energy from the grid. He pointed out that most energy from the grid comes from coal and that there is energy loss in transmission, which increases the carbon footprint of the net energy purchased. For that reason, he thought the generator would be efficient relative to waste products, especially CO2, compared with purchased power. As for solar, he wasn't sure the tax credits and other subsidies would be enough to make it cheaper to use than either purchased or generated power.
For some organizations, decisions to be green, which may increase costs, can be seen as part of the mission. A former employer of mine, the Rockefeller Brothers Fund, just announced a planned move to a LEED certified, green office. Sustainability is a big part of their mission, they have an endowment, and there's no competitive pressure on costs. So, even if costs for the new office were higher than not going green (and I don't know that they were), I'm sure they would have borne them.
But for a small business, this is just where self-interest butts up against the interest of the whole society. For a company executive, sourcing as cheaply as possible is part of what helps them stay in business, compete, and, one hopes, prosper. To ignore costs for any part of the business is to potentially create competitive disadvantage. It's very hard to spend more money even if it means not doing everything your heart would prefer.
I am among those who do recognize the potential disaster that climate change can cause and the need to act on it. The rear-guard dissent on climate change is so similar to the smoke screen (pun intended) that the tobacco industry put up in the sixties around the danger of smoking, that it's amazing that it has any credibility at all. Still, for small businesses, in particular, the choices are difficult.
It's a bit like this: Imagine a race held daily on a mesa. Every day, drivers are racing toward the rim. They are told that the race ends well before the rim. However, drivers have to go as fast as they can to win, even if it means risking overshooting and going over the edge. Any driver who holds back will certainly lose. Collectively, as all drivers get faster, there is greater danger that they will all go over the edge. That's the position small businesses are in.
I don't usually write about overtly political issues, but this one slammed me in the face this week: The overheard conversation, the notice from RBF, and a book I'm reading brought me up short, so I couldn't not write about it. It's an economic maxim that when costs to society -- like the ones imposed in the future by climate change -- are different than private costs -- the cost per kilowatt hour. for example -- private choices will run against society's interests. So, we must change the rules and government is the only social institution that can change the calculus for businesses and the rest of us to keep them and us from going over the edge of the mesa.
Which brings me to to the book: Common Wealth Economics for a Crowded Planet by Jeffrey D. Sachs lays out our stake in the issues -- climate change, the environment, population growth, and economic development -- and what we can actually do about them with a grace and clarity that is better than anything else I have read. Throughout, it is a hopeful book, showing us a way forward for ourselves, our children, and our grandchildren. But, it is also a warning about the likely consequences of failing to act. As a society, we do have good choices; we just have to move our government to act on them.
What do you think?
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