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Economic downturn to bring change, not collapse to green sector
The economy is in bad shape, and green businesses will definitely feel it in the months ahead. But firms that deliver great products at competitive prices will come out of this downturn as leading engines of job and GDP growth.
My prediction? Green luxury falls, green necessity rises.
While sales of $100,000 electric cars, solar yachts, and green travel packages to Fiji will go down, the importance of lowering energy costs couldn't get stronger. Thanks to the economic downturn, this week's Oprah Winfrey Show discussed the heightened importance of thrifty ideas such as unplugging appliances when they aren't in use to reduce people's monthly electricity bill. Firms that have a sound business model to provide energy audits of houses and offices and/or that perform practical efficiency upgrades with quick paybacks will have big growth opportunities ahead.
As Sarah Gardner's report on Marketplace yesterday mentions, taxation to achieve behavior change will be tougher to get passed over the next two years. But people are already changing their behavior in a more climate-friendly way. Oil consumption in the US has fallen more than 4% in 2008, with last week's demand almost 9% below the same week in 2007. Since coal and natural gas consumption are expected to rise a slower than normal ~1% and ~2.4% this year, we will probably report a significant nationwide decrease in greenhouse gas emissions for 2008.
The renewal of federal tax credits for wind through 2009 and solar through 2016 guarantees a market as long as financial markets return to some sense of normalcy. One of the problems of the past three years in both wind and solar markets has been an overheating of demand that supply has struggled to provide, leading to higher prices. In 2009, increased supply along with somewhat tempered demand may help to bring much lower prices to green electricity installers. I believe that wind and solar will begin to replace the market share of fossil fuels in electricity next year.
Cleantech companies have received big and growing capital flows over the last few years. If they put those resources to good use and provide energy at increasingly competitive prices, then they will likely continue to grow -- even if the rate may be slower than the recent 30+%. New coal, nuclear, and natural gas power plants have huge construction costs that will also struggle to get financing -- so more flexible distributed generation systems of wind and solar may end up at an advantage in a capital-constrained world. Time will tell.
Many predict consolidation in the solar sector as lower prices put downward pressure on profits next year. But even if there are fewer companies, continued innovation will guarantee them a growing role in our energy future -- especially as the marginal cost of oil production continues to rise over time.
A greener lifestyle that includes more bicycling, public transit, carpooling, and efficiency and less fossil fuel consumption will become a critical element of economic recovery. It will be a tough ride for everyone, but the green sector can come out of it stronger than it's ever been before. And, perhaps most importantly, the health of the Earth can begin to be restored for all its employed and unemployed creatures to enjoy.
One taxation structure I've heard from economists is to create a price floor. I'm not sure of the formal name of the structure, but I can describe how it would work.
When the price of gas (or whatever fossil fuel) goes up, we pay market price. When the market price goes down, we continue to pay the higher price - and the difference between the market price and what we pay is a tax.
Prices become more predictable, and people don't cross their fingers hoping they'll go back down. Knowing they won't, they plan for higher prices.
Janne,
I've thought about that. Maybe it would work.
But the political atmosphere is so anathema to taxes that I'm not sure it could get through. If taxes were chosen, I think rather that a higher tax on fuels should be considered as justified by the costs of combustion/use to our country (as measured by pollution and road maintenance, etc.) -- even a small increase could help get our nation's roads and bridges into good shape and provide the necessary revenue for public transit and bike/ped infrastructure expansion to help wean our country from foreign oil.
I think the cost of oil will keep pump prices high in terms of cost relative to GDP (I couch it in those terms because a deep recession would probably bring prices down below $2.50 per gallon -- but only because most Americans are poorer and couldn't afford it at the higher level. I don't see fuel costs falling below $2 per gallon for any extended amount of time (unless there is a serious depression) because the marginal cost of new oil production has risen above that level (so production would be cut if prices got that low, restoring a $2+ price. I think the era of inefficient SUVs & trucks for the masses is ending, though some well-off folks will still buy them because the fuel costs are so small to them. That's part of the reason GM and Chrysler are in merger talks right now -- here's hoping their strategy takes them to efficiency leadership so that climate-conscious consumers like you and I consider their products next time we need to buy or rent a car.
I would stay away from higher gas taxes as a solution. Western and Northern Europe has had them for how many decades? 4? 6? And what ground breaking technology came out of it? Nada. Yes, it influenced their driving habits massively. So did having a bazillion people packed into an area the size of a pinhead. It did help encourage them to go through a couple decades of driving a heck of a lot more diesels which while getting a better MPG polluted more (they've finally gotten around to resolving that).
Prices, even those propped up by tax money, may encourage people to curtail their driving habits. Unfortunately for ever action their is a greater or equal reaction. They may turn to from oil to something that creates it's own set of problems that are nearly just as bad.
