It started out as a simple, straightforward idea: Let’s start paying attention to how we manage our natural resources, with an eye to reducing the accelerating contamination of our air and water, using energy more efficiently, and understanding the long-term implications of our consumption-based behavior.
Seems pretty obvious, and who could say no to motherhood and apple pie? Still, it always takes time before new ideas settle into the public psyche and gain widespread acceptance. This is because no matter how compelling or convincing they may be at first glance, new ideas, by definition, disrupt the status quo, and people are naturally resistant to change. In order to reach a tipping point, an innovative idea must first reshuffle the deck and demonstrate how it can create benefits which exceed the cost.
At first, this is an uphill slog, because the initial investment for the research and development of new processes, products, and technologies is always front-loaded. Risk capital is needed before any returns can be realized, and those returns are always speculative in nature. However, once the proof of concept can be demonstrated, then the economy of scale kicks in, which enables the price of implementation to drop dramatically. This is what happened in the computer industry. The prototype machines were exceedingly expensive (often room-sized and staffed by people in white coats), but today’s chips are amazingly cheap. We can hold in the palm of our hands a computer that is much more powerful than what was required to put a man on the moon. In fact, the cost of processing capacity has fallen so dramatically that if the same rate of deflation were to be applied to a Ferrari, it would cost less than a dollar.
The engine that drives innovation is economic in nature. If new ideas are to be embraced by a wide range of users, then people must be both willing and able to pay for them. This is the secret to the surprisingly rapid success of the sustainable design movement. It was not that long ago that the cost of LEED certification for a typical office building was in the range of 3–4 percent of construction cost. The presumption was that for owners, the upfront cost would be repaid over the operational life of the building. This argument made sense if the original client plans to hold the investment for 20+ years, but most don’t do that. However, as the market for sustainable design matured, developers discovered that LEED certification had attained a certain cachet in the mind of prospective tenants and that it could generate a measurable premium in leasing rates, so that they could recoup their investment much sooner. In addition, the market responded with innovative materials and equipment (energy efficient glazing, sophisticated MEP controls, etc.). Today, LEED certification (or its equivalent) is essentially free and pretty much taken for granted. Building codes have been modified to essentially mandate that new structures will comply with LEED Silver or better. The cost of compliance makes investment sense; it’s not only good for the planet, it pays big dividends. In short, this is how “green makes green.”
The same phenomenon has played out in the energy markets. Coal was (and still is) the cheapest source of energy, because it is so abundant. However, its use is burdened by environmental issues, both in terms of extraction (strip mining) and contamination (air pollution and carbon dioxide emissions). A decade ago, solar power was far more expensive than coal on a cost per kilowatt basis, and so subsidies in the form of an Investment Tax Credit were necessary to support basic research. Today, solar power is cheap enough that it has penetrated the residential market, enabling many homeowners to actually sell back excess power to their suppliers.
The U.S. Department of Energy is promoting the “Sun Shot Initiative” that aims to reduce the cost of solar power even further, by 75 percent between 2010 and 2020. Ten years ago, the total installed capacity of solar panels in the U.S. was 267 megawatts; this has increased to 9,446 megawatts today. As capacity increases, the cost drops. Between 2010 and 2015, the cost per megawatt of solar energy for industrial use has been reduced by about 30 percent, from $4.75 to $3.30. Cost savings in the residential market are even more dramatic, falling from $8.00 per megawatt in 2005 to $2.20 per megawatt in 2015, a reduction of nearly 75 percent. Solar power is clean and cheap, and there is still dramatic upside potential, since it will account for only about 3 percent of power generation in the U.S. by 2020.
From an economic perspective, the picture for wind power looks quite different. Even though there are wind farms with 13,000 megawatts capacity currently under development in the U.S., this investment is being driven more by the Producers Tax Credit passed by Congress than the underlying economics. It has been estimated that construction of a wind farm with 1000 megawatts of capacity would be about the same as for a nuclear plant—$1.75 billion. Because wind farms can be actively productive only 30–40 percent of the time, they must be linked to backup power generation. When all the numbers are crunched, it turns out that wind power is not economically competitive with hydro, coal, oil, gas, solar, or nuclear fuels … at least not yet. Wind might seem “free,” but converting it to real useful energy, and then distributing that energy, is simply not cost effective.
The economics of “green makes green” can also be applied to carbon emissions. A key aspect of the Paris climate agreement is that in order to keep the average global temperature rise to less than 2 degrees Celsius, carbon dioxide must be removed from the atmosphere on a massive scale (a process called “negative emissions”). One way to achieve this would be to plant lots of trees, but that would require reforestation of an area the size of Canada or India. However, it is possible that an industrial process developed by a firm called Carbon Engineering may accomplish the same thing at far lower cost. A pilot plant to demonstrate proof of concept is already operational, and the initial projections are that the system could capture a ton of greenhouse gas for between $94 and $232. In addition, Carbon Engineering believes that it could generate additional revenue by converting the captured carbon dioxide back into fuel. Who knew that carbon emissions could become big business?
When it comes to sustainability, the bottom line really is the bottom line. While human beings are very effective at creating new problems for themselves, fortunately they are even more clever at solving them. Good ideas by themselves are rarely sufficient to change behavior. However, it is quite possible to do well by doing good. Far from being the “dismal science,” economics can provide both the framework and the incentives needed to address a wide variety of issues efficiently and effectively. And that’s how “green becomes green.”
Scott Simpson is the editor-at-large of DesignIntelligence and a Senior Fellow of the Design Futures Council.