The Color of Money
Why greening the economy is also good for business.
In direct contrast to warnings that green policies will harm the economy, researchers at CNR find that such practices will actually create jobs and generate income. Economists also show that reducing waste and pollution saves businesses money, which means higher profit margins and better, greener products for consumers.
Green is a business catchword these days. It helps stores sell organic cotton t-shirts and meat from local cows. It compels companies to launch campaigns asking customers to "use less" of their product. It fuels investment in startups that promise to make energy out of things like algae, switchgrass, and sunlight.
But since September, when the credit market squeezed shut and the stock market began to plunge, the economy has become the new catchword - and "green" can be expensive. Solar panels might shrink electric bills in a few years, but they cost a lot upfront. Organic apples are more expensive than the conventional varieties next to them in the produce aisle. Investors who have just watched the money in their bank accounts evaporate are wary of investing in risky green technologies.
Because of this, some proponents of renewable energy fear the economic crisis. Skeptics worry that aggressive global warming policies should be abandoned because they will further harm the economy.
Others, though, including an outspoken group of economists at the College of Natural Resources, have been asserting that green will actually help revitalize the economy. If they have their way, they say, the nation could emerge from the financial crisis with a new, green economy.
The latest dispatch is "Energy Efficiency, Innovation, and Job Creation in California," a report by David Roland-Holst, adjunct professor of agricultural and resource economics.
Over the past 30 years, the study found, California's energy efficiency policies have saved households $56 billion on electricity and have created 1.5 million full-time jobs and $45 billion in salaries. These jobs didn't come only from green businesses, but from people spending money they save on energy in other places. For every job lost at oil and gas companies, 50 new jobs have been created in other industries, the study reported.
If California increases its energy efficiency only 1 percent, Roland-Holst found, by 2020 the state will have 400,000 new jobs, and household income will increase by $48 billion.
"The idea that there is a trade-off between environmental goals and economic growth is a fallacy, and in California we have proven that," he says.
Roland-Holst's study is one of the first to look backward, analyzing how green policies have already benefited the economy instead of just predicting how they could help in the future. "The idea that there is a trade-off between environmental goals and economic growth is a fallacy, and in California we have proven that," he says.
The study is a sharp rebuke to those who have argued that energy efficiency costs too much, such as David W. Kreutzer, a senior policy analyst at The Heritage Foundation, who wrote in a November 5 report that restricting carbon dioxide emissions cuts energy, income, and jobs.
Michael Hanemann, the Chancellor's Professor of agricultural and resource economics and another voice in the group of Berkeley economists who make the case for a green economy, said that Kreutzer's assertions don't have to be true. Instead of reducing energy, Hanemann said, the nation must develop more energy-efficient ways to do the same things. "Increased energy efficiency, in effect, puts money in our pockets that we can spend on other things - it makes us richer, not poorer," he says.
Nevertheless, policymakers have to be convinced of the benefits of a green economy, Hanemann said. In 2006 he helped persuade California lawmakers to pass AB 32, the global warming bill. He was the lead writer of a letter signed by 43 economists, making the economic argument for halting global warming. With the late Alex Farrell, assistant professor in UC Berkeley's Energy Resources Group, he published a study contending that California would gain 83,000 jobs and $4 billion in income from curbing greenhouse gas emissions.
In August 2007 Hanemann testified before the U.S. Senate on how green technology will help the economy, but he said that policymakers in Washington, D.C. have been slower to embrace the idea.
Obama has vowed that energy independence will be a top priority, has pledged to invest $150 billion over the next decade in clean energy innovations, and has indicated his support for a cap-and-trade system that puts a price on pollution.
That might change now that Barack Obama is president, says Daniel Kammen, a professor in the energy and resources group at UC Berkeley and a senior energy and environment advisor to Obama.
Obama has vowed that energy independence will be a top priority, has pledged to invest $150 billion over the next decade in clean energy innovations, and has indicated his support for a cap-and-trade system that puts a price on pollution. Obama has said his plans will create 5 million new clean energy jobs, which Kammen's research supports.
"This amount of job growth can help insulate this area from financial woes, and will highlight the fact that energy independence is one of the key growth areas that can aid an economic recovery," Kammen says.
Creating green-collar jobs will be crucial to building the green economy, according to "Green Recovery: A Program to Create Good Jobs and Start Building a Low-Carbon Economy," a September report from the Center for American Progress and the Political Economy Research Institute at the University of Massachusetts-Amherst. In the next two years, the study said, the nation could create 2 million jobs and reduce unemployment from its current rate of 6.5 percent to 4.4 percent.
Some of those jobs - like producing wind and solar power and biofuels - would be new green-collar jobs. But the vast majority would be the same blue-collar jobs in which workers have spent their lives - like driving trucks or working in factories - that could now be transformed into green jobs.
Call them turquoise-collar jobs. Such workers would retrofit old buildings to make them more energy-efficient, to expand mass transit, and work on building a smart electric grid. Already, workers in the Rust Belt, where factories that once made kitchen appliances or car parts have gone dark, are finding new jobs in factories making solar panels or wind turbines.
In the next two years, the study said, the nation could create 2 million jobs and reduce unemployment from its current rate of 6.5 percent to 4.4 percent.
Many states and cities are courting these green companies to revitalize their economies. Colorado, for example, has convinced Vestas Wind Systems, a Denmark company, to build four wind turbine manufacturing plants in the state that will employ more than 2,500 people. The city of San Jose offered Tesla Motors, the electric car company, millions of dollars in financial incentives to relocate its factory and manufacturing jobs to San Jose.
A nother driving force of the green economy is the entrepreneurs that create green technologies or capitalize on the public's interest in environmentally friendly products. Despite the troubled economy, venture capitalists have invested $3 billion in 203 start-up companies in the first three quarters of 2008, according to the National Venture Capital Association. Five years ago they invested only $213 million in 44 companies during the same period.
Dara O'Rourke, an associate professor of labor and environmental policy, is one such entrepreneur. O'Rourke recently started GoodGuide.com, a Web site and text message service that offers environmental and health information on 65,000 household products.
The idea for GoodGuide was born one day when O'Rourke was putting sunscreen on his young daughter. He realized that the cream contained a photo-carcinogen. He began examining other things around the house and discovered that her baby shampoo also contained a carcinogen and her Dora the Explorer toy contained lead.
O'Rourke's academic research has focused on the environmental and social impacts of global supply chains. He realized that he could translate his expertise to a service that the general public could use.
Successful green businesses will have a double bottom line, measuring both their profit and their impact on the environment.
GoodGuide would not have been possible even three years ago, O'Rourke says - a sign that the green economy is now taking hold. As more companies advertise how green their products are, more consumers will question who is telling the truth.
O'Rourke acknowledged that though the economic crisis will likely force investors to postpone investing in the riskiest technologies, "green businesses that focus on conservation, efficiency, and moneysaving will thrive during the downturn." Successful green businesses, he says, will have a double bottom line, measuring both their profit and their impact on the environment.
Though many people focus on solar and wind when they think of green technology, innovation will also come from other areas. One promising source of clean energy is wood chips, said Bill Stewart, a Cooperative Extension specialist in environmental science, policy and management. After trees are cut down and carried out on a log truck, one-third of the harvest, mostly branches and twigs, is left behind. The leftovers can be used to produce electricity and heat, using relatively little money and simple technology. Wood accounts for only 2 percent of energy used in the United States, but is a promising source of energy - and profit - in the green economy, Stewart said.
In addition to start-ups, big corporations are contributing to the green economy. For years, much of corporate America has been paying lip service to the environment with green initiatives, but they were often simply public relations stunts. Not anymore, says Joel Makower, executive director of GreenBiz.com, author of Strategies for the Green Economy, and a UC Berkeley alumnus. Many companies now realize that cutting waste and selling green products that are made with fewer and less toxic materials saves money.
"That's led companies to 'green up' their products and processes far faster than any regulation could," he said. "It's no longer a matter of obeying the law, or 'doing the right thing.'"
Other companies are profiting by changing the way they produce products they have long been making, rather than by marketing new green products.
In early 2008, for example, Clorox introduced Green Works household cleaners made from 99 percent plant-based materials. The company has raised the sales projections on Green Works six times since January, Makower says.
Other companies are profiting by changing the way they produce products they have long been making, rather than by marketing new green products. Anheuser-Busch, for example has reduced the amount of aluminum in a beer can by one-third over the past decade, Makower said. "They're profiting from that, and greatly reducing the environmental impact of packaging, but they're not putting a green seal on Busch and Bud."
The students in the College of Natural Resources will be leaders in the new green economy. Over the years, they have already become more and more interested in pursuing careers in green professions, says Larry Karp, chair of the Department of Agricultural and Resource Economics.
To prepare them for these careers, the Environmental Economics and Policy major offers courses that teach about the environment, as well as economics, policy, resources, global development, math, and statistics.
These skills will be necessary, recession or not, Hanemann says. "We must recognize that the fundamental drivers of climate change and adaptation needs will long outlive any recession."