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A Bad Economy Makes For A Bad Environment

As the markets have gone down, long-held assumptions have been thrown up and into the air. Economic theories, and not just the value of our homes and our retirement accounts, are coming undone. In some cases, that may just be a good thing.

Consider the argument that climate change solutions, no matter what you may think about the science, are simply too costly. This has long been a stock argument of the political right. Indeed, it was one of the publicly stated reasons President George W. Bush chose not to ratify the Kyoto Protocol.

The logic is fairly simple. Because greenhouse gas emissions are so deeply embedded in our purchases and productivity, people have argued that a strong climate response will require a weakening of our economy. It's been presented as a choice: you can have either a stable climate, or you can have economic growth. Now -- choose.

It is true that carbon is deeply embedded in our processes of production and consumption. For this reason, steps towards decarbonizing any of the G-20 countries will be expensive. And yet, the declining economy has proven two things about the argument that one must choose between either a robust economy or a vital ecology: it is both politically persistent and demonstrably false. This is not a good sign, for our environment or our politicians.

Consider the carbon market in the UK. As shares across global economy have plummeted, so too has the price of carbon. Last summer, it cost around €31 for CO2 on the EU carbon market. That price recently fell to nearly €8. Today, it's at €11.

Why is that? Carbon markets are effective only in markets where demand is stable or rising. If demand for energy falls, as it has recently, the number of carbon credits far exceed demand. As a result, the price of carbon falls and energy companies are provided with the short-term incentive to burn dirty fossil fuels.

The result is a reduction in investment in clean technology and a rise in pollution. As Julian Glover wrote recently for The Guardian, "A collapsing carbon market makes mega-pollution cheap."

If you rely on market-based solutions to climate change, a declining economy will mean declining emission standards. Strong demand should yield gradual emission reductions in a carbon market, but even then it's no substitute for strong government policy.

Consider the current state of political action on climate policy in the U.S. Despite Preisdent Obama's proposed national cap-and-trade program, as well as his intent to provide leadership at the upcoming climate negotiations in Copenhagen, most signs indicate that action will come later than originally thought, if at all.

It seems unlikely that a national cap-and-trade program will be passed this year in the US. Cap-and-trade remains a divisive issue, and one which upsets natural party alliances. In this case, it's still not clear how the cap-and-trade lobby will overcome political opposition that has, historically, been strong, and that has only strengthened in with the economic downturn. Rep. James Sensenbrenner (R-Wis.) the ranking member on the Select Committee on Energy Independence and Global Warming, goes so far as to call the bill the "American Comprehensive Economic Suicide Act."

Consider also the rate of investment in renewable energy technology. In recent years, companies that either produce or install products like wind, solar and geothermal units have been growing at a breakneck pace. An article in the NY Times last August quoted Bridgette Oliver of ClimateMaster, the US's largest manufacturer of ground-source heat pump equipment. "Between 2005 and 2007, our revenue increased by 200 percent," she said. "Our employees increased by 176 percent."

No longer. The Business Insider recently ran a story detailing how investment in clean tech has fallen by half in the first quarter of 2009. The NY Times ran another article a few weeks ago with the headline: "Dark Days for Green Energy." Now, with the credit crunch, the installation of wind and solar units is down dramatically. As Kate Galbreth writes in the NYT article, "Factories building parts for these industries have announced a wave of layoffs in recent weeks, and trade groups are projecting 30 to 50 percent declines this year."

The lesson, it seems, is that as the economy goes, so goes the environment.

This only goes so far, of course. People consume, travel and eat less meat as their affluence declines. By this logic, the recession has actually reduced our impact on the environment. And yet, with fuel cheap and the prospect of climate regulation far away and uncertain, there has been little substantive action of late. Whatever reductions people have made in their habits due to the recession, they remain only part of the much-larger need for a transition to a low-carbon energy infrastructure.

Across the landscape of leading, if declining economies, and their climate policies and investments in renewable energy, much the opposite can be said to be true; a stable environment requires a strong economy. As much as the current recession threatens our livelihoods, so too does it threaten our environment.

As we talk about a stimulus package, we talk mostly about restoring stability to our homes, our careers and our bank accounts. But let us remember that we're talking about our environment, too. We need a strong economy to make the right investments in renewable energy technologies to make them affordable, scalable and publicly acceptable.

Contrary to conventional wisdom, the environment and our economy form one of few potentially positive policy relationships. Let us hope our politicians realize this before its too late.

by Ben Carmichael April 13, 2009




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