Tuesday, May 29, 2007

A follower, not a leader

Two items that are not a coincidence.

The United States has rejected the latest draft of a G8 plan for reducing greenhouse gas emissions, the blueprint for the successor to the Kyoto Accord, which was never ratified (thanks to U.S. resistance) but was nevertheless adopted as a goal (if not entirely implemented) in Europe.

Germany, backed by Britain and now Japan, has proposed cutting global greenhouse gas emissions by 50 percent by 2050. Chancellor Angela Merkel of Germany, who will be the host of the meeting in the Baltic Sea resort of Heiligendamm next month, has been pushing hard to get the Group of 8 to take significant action on climate change.

It had been a foregone conclusion that the Western European members of the Group of 8 — Germany, Italy, France and Britain — would back the reductions. But on Thursday, Prime Minister Shinzo Abe of Japan threw his lot in with the Europeans...

And thus the United States, the world's largest emitter of greenhouse gases, remains an increasingly isolated outlier among western industrialized nations. The draft will form the basis of discussions at next week's G8 summit, setting up what will likely be an uncomfortable if not embarassing several days for the United States.

While I sympathize with the arguments aginst Kyoto -- that it would harm the economy, that developing giants like India and China are exempt -- such fears always struck me as exaggerated, and in any event didn't justify our replacement policy, which was essentially "do nothing and, maybe, hope that the market takes care of it." Emissions are a problem, and the world's largest emitter has a moral and practical obligation to be a large part of the solution.

Further, issues like greenhouse emissions and oil dependency point up the limits of the market in dealing with large, long-term issues.

Free market theory relies on the efficiency of millions of people making individual decisions, collectively developing efficient systems. The whole idea is to harness economic self-interest for the public good.

But that generally works best for short-term decisions, not long-term ones. Enlightened self-interest might lead a market system to invest in green energy and energy independence, but most self-interest isn't enlightened. Thus alternative energy is not competitive as long as oil remains cheap, and few builders are willing to spend the extra 10 percent up front to build a green building, even if the efficiencies will pay for themselves in a few years. Short term, unenlightened self interest means consumers will take the option that is cheapest at the moment, disregarding both long-term and externalized costs. Car buyers only care that gas is $3 a gallon; they rarely factor in the other costs we incur as a nation and as a society in order to deliver gasoline at that price.

In such situations, the market may work -- but only at the last possible minute and at the highest cost, with maximum dislocation.

Poor political leadership could produce equally bad results, of course. And even if the leadership is competent, our political system is focused on short-term results too, so it works much like the market: putting off the problem until it absolutely has to be addressed.

But the pressure point for politicians often arrives earlier than the same one for the market at large, thanks to pressure from advocacy groups and input, public and private, from long-term thinkers. So when it comes to such big, long-term issues, competent political leadership trumps blind faith in the magic of the market, addressing problems years before they become actual crises, and at lower cost.

Which helps explain my second item, a discussion (now behind the Times Select firewall) of the prevalence and outcome of green construction techniques in Europe and the United States. Thanks to actually attempting to follow Kyoto, Europe (and European architects) are way ahead of the United States in terms of environmentally friendly design. What's more, their innovative use of materials and design mean the green buildings don't have to be self-consciously green and don't have to cost an arm and a leg -- in other words, green is mainstream instead of a "personal virtue."

After more than a decade of tightening guidelines, Europe has made green architecture an everyday reality. In Germany and the Netherlands especially, a new generation of architects has expanded the definition of sustainable design beyond solar panels and sod roofs. As Matthias Sauerbruch put it to me: ''The eco-friendly projects you saw in the 1970s, with solar panels and recycled materials: they were so self-conscious. We call this Birkenstock architecture. Now we don't need to do this anymore. The basic technology is all pretty accepted.''

In the United States, architects cannot make the same claim with equal confidence. Despite the media attention showered on ''green'' issues, the federal government has yet to establish universal efficiency standards for buildings. Yet, according to some estimates, buildings consume nearly as much energy as industry and transportation combined. And the average building in the U.S. uses roughly a third more energy than its German counterpart.

The article also notes a difference in the regulatory environment. The European rules, while strict, are flexible: they care more about the final emissions total than how it is arrived at. In the United States, by contrast, the regulations are more of a checklist: if you have a high-efficiency air conditioner, for example, that's worth so many points. It's so specific and status quo that it has the effect of discouraging innovative technologies because they're not on the list.

So what's driving change in the United States -- and doing so years behind our European counterparts -- are clients. Our system depends on individual builders being interested in green energy and emissions reduction and willing to pay to achieve it. It's piecemeal, and relies on many of the innovations pioneered by Europeans.

I believe in harnessing the power of the free market. But in cases where the basic mechanism of the market -- individual short-term self-interest -- is a hindrance rather than a help, the market needs both help and leadership.

Raising gasoline taxes would both generate money for energy projects -- research or subsidies for alternative energy, for example, or funds to build mass transit -- and help account for the intangible and externalized costs of our dependence on gasoline. Then we could let the market work, as people grappled with the new environment of costly gas. We could lessen the pain without sacrificing much of the effect by raising the tax in installments, giving people a couple of years to adjust.

Mandating reductions in greenhouse gas emissions would do the same thing, producing an altered market that gives such emissions a presence in short-term self-interest calculations. We could then let the market do the rest of the work for us.

Would this destroy our economy? I don't see how. There would be expenses, true, but some of that would be offset by the economic opportunities inherent in a switch to greener living, not to mention the global competitiveness advantages of using less energy. Older, inefficient energy consumers would have trouble. But that "creative destruction" is a central point of market economics. And technologies made viable by the altered energy market would help alleviate yet more of the pain.

Should China and India be included? Sure, eventually. But that's no reason not to act now. If they want to keep destroying their environment, poisoning their population and risking world condemnation in pursuit of cheap energy, let them. They will learn the costs soon enough, and I for one am happy to let China become dependent on oil just as we're weaning ourselves off of it. Maybe then it will be Chinese soldiers dying in quagmires in the Middle East instead of ours.

Or maybe our leadership -- and global diplomatic pressure revolving around Kyoto III or whatever it will be called -- will push them to begin going green, creating a huge market for U.S. companies that developed the green technologies we used to reduce our own consumption.

Let's agree not to commit economic suicide. But let's also agree that it is worse to do nothing at all, that going green brings economic benefits as well as costs, that as the world's biggest emitter we have an obligation to lead, that there is a significant long-term cost to ceding such leadership to others, and that we are wealthy enough as a nation to absorb a certain amount of short-term costs in pursuit of the long-term good.

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Anonymous Anonymous said...

Since the whole idea of global warming strikes me as being "exaggerated"---I guess that makes us even.


5/29/2007 7:19 PM  
Anonymous Anonymous said...

Excellent, excellent post, Sean. This is the kind of rational analysis we need to see more of in the States. I'll be looking forward to the day when long-term sustainability really enters the market.
Great point about the artificially low cost of gasoline. If the true cost were reflected at the pump, we would already be on our way to a solution. However I think that we should begin by taking tax breaks away from oil companies and switch that to the pump. By putting the dollar burden at the pump rather than hiding it by not collecting taxes, it seems to be a wash for consumers while at the same time giving a wake-up call.
- Caracarn

5/30/2007 8:15 AM  
Blogger Sean Aqui said...

Somehow I thought you'd like the post, Caracarn. :)

I agree we should remove tax breaks for oil companies, not because they should be "punished" but because such subsidies are a) economically indefensible and b) help artificially lower the price of gas.

On a general scale, I'm a big fan of full-cost accounting, the idea of accounting for externalized costs in the retail price of items. It's a great principle, though difficult to put into practice (both because of data-gathering limitations and the subjective valuation of things like clean water and foreign entanglements).

But a reliable method for doing so would drastically increase the true efficiency of the market.

5/30/2007 9:50 AM  

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