A Sustainable Energy Policy Looks at Externalities

I just sat down over lunch with a printed publication to which I subscribe called the “Green Money Journal.” Fantastic stuff. I loved the lead article, “From Growth Capitalism to Sustainable Capitalism,” by Joe Keefe, President and CEO of Pax World Management, which manages about $2.5 billion using an approach the company calls “sustainable investing.”

I encourage everyone to read this excellent piece, as it does such a good job in pointing out that outside of a small niche of people operating in socially responsible investing (SRI), the world makes no distinction between a dollar made from selling Coca Cola or extracting oil or burning coal and a dollar made from installing a solar panel or thermal insulation on a building. The author goes on to point out that this viewpoint had led, and continues to lead, to gross and obvious unsustainability in terms of resource depletion, climate change, and dozens of other symptoms. He concludes with the notion that this must change radically if our civilization is to survive, i.e., that SRI must replace growth investment.

Keefe mentions the concept of “internalizing the externalities,” i.e., putting a cost on products and practices that consume or destroy resources. Of course, I’ve written about this more times than I can count; it seems to be the only way to affect the marketplace for things that are ruining our planet. We burn coal to generate electricity because it’s cheap. It really isn’t cheap at all, if we consider the long-terms costs; according to a recent report from Harvard Medical School, the cost of lung disease and environmental damage is $700 billion per year in the U.S. alone – and climbing steadily, of course.

At the risk of being accused of cynicism, oversimplification, or both, we either find a way to capture these costs and pass them back to the producers and consumers of coal-based electricity (and the dozens of other environmental horrors of the 21st Century), or we really get exactly what we deserve as a society. If we don’t have the will-power to pay for what we’re really consuming, we have no right to expect to survive as a species.

Keefe’s notion that SRI should replace growth capitalism is fine, but there is no reason to expect people who worked hard to earn their money to accept smaller returns on their investments. There is, however, a reason to expect a civil and just society to build in systems that capture the true costs of what they’re doing, and pay them on the spot. It’s called “fairness.” If I walked over to your front yard and dumped my garbage on it, you’d call the police and use the legal system to force me to treat you fairly, i.e., to come back and clean up the mess. But we seem to be OK on allowing the most powerful people on Earth to dump billions of tons of pollutants into our skies, while expecting someone else to absorb the cost.

It’s not fair. And it won’t last much longer.