Green Economy

My colleagues Tom Prugh and Michael Renner have written recently about the Mondragón cooperative system in Spain–a set of worker-run, profit-sharing businesses. Here’s a video about efforts to establish similar cooperatives in Cleveland.

President Obama’s call for a jobs summit in December comes as unemployment remains high despite investments in green jobs from the 2009 stimulus package. In announcing the summit, the president declared, “We are open to any demonstrably good idea to supplement the steps we’ve already taken to put America back to work.” Mr. President, here are two recently proposed ideas for immediate job creation that deserve a hearing.

Dean Baker of the Center for Economic and Policy Research proposes that worker hours be cut–and pay maintained, using subsidies from the federal government–in order to create new job opportunities for idle workers, or at least to stem further job losses. He credits such a policy in Germany for having kept unemployment in check–it is 7.7 percent today, lower than the 8.4 percent level of 2007, before the economic downturn began. Government-facilitated job sharing would essentially spread existing work across a larger labor pool while the economy is functioning at subpar levels. By Baker’s calculations, the proposal would generate 1.3 to 2.7 million jobs, and is not hugely expensive, coming in at between $30 and $61 billion. 

Jobs Summit: Enlightened Ideas at the Top?

Another idea from overseas is the proposed Community Allowance program championed by the new economics foundation (nef) in the UK. The program addresses head-on one of the most frustrating realities about unemployment in market-dominated economies: so many workers sit idle while so many societal needs go unmet.  

The idea of the Community Allowance program is to generate immediate employment at the community level by working with existing community organizations to identify neighborhood needs–sprucing up parks, visiting elderly shut-ins, running youth programs, or developing community gardens, for example.  Such opportunities are truly “shovel-ready,” requiring little up front spadework, because local organizations simply need funding to pull simple projects from their wish list and put them into action.  These are not make-work projects, the nef would argue, because they generate real value: their “social return on investment” (SROI) is around ten times the amount invested. Community activities help to build more resilient neighborhoods, which translates into lower levels of crime, substance abuse, and other social disorders that are costly for governments to address.

Importantly, both of these creative ideas would be facilitated not by markets, but by governments that bridge the gap between societal needs and markets’ limited capacity to meet those needs. These are excellent examples of the important role government can play in helping markets to build stronger, more resilient economies and societies.  

What other ideas should the Obama administration be considering to create jobs immediately?

 If you believe it will take divine intervention to produce a climate agreement at Copenhagen next month, here’s encouraging news.

Can the world's faiths push the ball forward?

A major interreligious conference called  “Many Heavens, One Earth” was held this week at Windsor Castle, where many of the world’s faiths presented  seven-year plans for greening their activities and promoting climate stabilization. The conference was convened by the Alliance of Religions and Conservation (ARC) in partnership with the United Nations Development Programme. Thirty-one plans were presented by the major faiths, including the Baha’i Faith, Buddhism, Christianity, Daoism, Hinduism, Islam, Judaism, Shintoism, and Sikhism.

Many religions are leveraging their extensive holdings of land and buildings to show leadership in reducing their carbon and environmental footprint, as described in this article. A few highlights:  The Church of England has pledged to reduce carbon emissions by at least 42 percent by 2020, and by 80 percent by 2050–a front-loaded commitment that ought to embarrass U.S. Congressional efforts, which aim only for 17-20 percent reductions by 2020. The U.S. Catholic Coalition on Climate Change is targeting the tens of thousands of Catholic parishes, schools, hospitals, and colleges and universities in the United States to green their operations, and is working with treasurers of these institutions to green their investment portfolios.

Perhaps most notable are the commitments by Muslim leaders, which appear to signal a new and substantial engagement on environmental issues by Islamic institutions. Under the Muslim seven year plan submitted at the conference, the holy city of Medina will become a model green city. It also calls for creation of a Muslim Association for Climate Change Action (MACCA), which will represent Islamic nations and faith communities from around the world, and for a “Green Hajj” to make the traditional Islamic pilgrimage environmentally friendly within a decade. 

The involvement of faith groups is an especially encouraging development for the environment and climate. My book, Inspiring Progress: Religions’ Contributions to Sustainable Development, points out that religions represent roughly 85 percent of the world’s people, making them a potentially powerful political force on environmental issues. And the moral authority of religions is a strong influence in shaping worldviews. More concretely, according to ARC, the world’s faiths own 7 percent of habitable land, run more than half of the world’s schools, and, if they invested collectively, would constitute the third largest investment block. Thus, greening religious activities, and involving religions in pushing for environmental legislation, regulations, and norms could give an enormous boost to the effort to build sustainable societies.

In late August, my colleague Tom Prugh blogged about a non-capitalist, worker-owned corporation—the Mondragón Corporación Cooperativa (MCC) in Spain’s Basque region. For Americans who are skeptical about European ideas of how to run the economy in a more socially-conscious manner, it may be all too easy to dismiss MCC as yet another crazy idea that will never take root in American soil.

But on October 27, the United Steelworkers (USW)—North America’s largest industrial union—and Mondragón Internacional, S.A. signed an agreement to collaborate in establishing Mondragón-style manufacturing cooperatives in the United States and Canada. These cooperatives are to be governed by MCC’s model of “one worker, one vote.”

MCC has its own—highly regarded—university. Photo credit: Mahaiburuak http://www.flickr.com/photos/30633476@N04/3946745983

MCC is a federation of democratically-run enterprises that produce and sell a range of goods and services (including appliances and machinery needed to produce solar panels). Set up in 1956 in the Basque town of Mondragón, it relies on democratic methods in its organizational structure and is concerned with generating assets for the benefit of its members and their communities, rather than for shareholders. Today, MCC is the seventh largest company in Spain. It has about 100,000 cooperative members in about 250 cooperative enterprises that operate in more than forty countries. (It should be noted that MCC has acquired some companies that are run in conventional capitalist style, although the idea is to convert them to cooperatives in due time. An MCC enterprise in Poland, Fagor Mastercook, has been embroiled in controversy over low wages and anti-union tactics.)

The loss of nearly 6 million U.S. manufacturing jobs over the past decade and the stagnation of real wages across the economy during the last three decades are throwing more and more families and communities into a tailspin. Signing the agreement, USW President Leo Gerard commented: “Too often we have seen Wall Street hollow out companies by draining their cash and assets and hollowing out communities by shedding jobs and shuttering plants. We need a new business model that invests in workers and invests in communities.”

It remains to be seen how well the USW-MCC agreement can be translated into a new U.S. economic model. Even before this agreement was struck, some promising new worker co-op initiatives motivated by the Mondragón experience were started, including the Evergreen Cooperative Laundry and a solar installation service and an industrial-size hydroponics greenhouse, all located in Cleveland, Ohio. If the USW-MCC connection takes off, such initiatives may well multiply—not just in the service sector, but also in manufacturing.

My colleague Gary Gardner raised the issue of EROIs yesterday; here’s another two cents.

Everyone knows that it takes money to make money, but the same rule applies to a far more important commodity: energy. It takes energy to get energy. This idea is summed up in an increasingly important measure called the energy return on investment (EROI).

EROI reflects the fact that energy isn’t free. Even wind and sunlight, which are available for nothing, can’t be harnessed effectively without some sort of technology—whether it’s  as simple as a bit of cloth hung from a boat’s mast, or as complex as a huge hydroelectric facility, a windfarm, or a solar photovoltaic panel array. It takes energy to make the mast, the dam and its generators, the turbines, or the PV panels—sometimes vast amounts of energy. EROI is the ratio of the energy captured and made available by the hardware over its lifetime to the energy required to build, install, and maintain (and, sometimes, to decommission) the hardware.

Why is this important? Because civilization runs on the surplus energy—what’s left over after we build, install, and maintain the hardware.

For most of human history, EROIs were very low, because there were no technologies (apart from a few waterwheels, windmills, and sailing ships) capable of extracting and using the stored energy in coal, oil, natural gas, uranium, sunlight, water, or wind. Civilization ran mostly on human and animal muscle power, and most of that was used just to grow the crops that fed the people and draft animals. The surplus energy was scant.

The industrial revolution changed all that. The invention of machines that ran on coal, (and then oil), and could be used to extract more coal and oil, unleashed a torrent of surplus energy. EROIs soared. As the table to the right (copied from this post to The Oil Drum) suggests, early in the oil age—the heyday of “gusher” fields like Spindletop in Texas—it took only 1 unit of energy to extract 100 units of energy.

Those days are gone, probably forever. Oil’s EROI is declining. Coal’s EROI is still pretty good, but coal is an environmental disaster. Big hydroelectric dams also have good EROIs, but the best sites have already been tapped and the dams have serious ecological problems of their own (including, often, significant greenhouse gas emissions). And while it’s absolutely critical to transition to renewable sources of energy such as wind and solar, their EROIs are not nearly as favorable. The surpluses we’ve become accustomed to will not be available. Energy will be scarcer and more expensive. Some people think this means economic transformation, because the globalized economy that brings American consumers blueberries from Argentina and bottled water from Fiji will contract sharply when transport costs rise. And since industrial agriculture depends heavily on cheap energy, food prices will probably increase as well.

There is a host of fascinating ramifications to this possibility. For now, suffice it to say that lunch was never free, but it might become more expensive than we like.

It’s encouraging to see yet another indication of mainstream interest in giving nature its due in economic thought. My colleague Tom Prugh brought to my attention a recent story in the New York Times about the work of so-called “biophysical economists,” a small but intrepid band who, like their brethren in ecological economics (and in stark contrast to mainstream neoclassical economists) see economies as fundamentally rooted in and bounded by the limits of the natural world.   

Biophysical economists are particularly interested in the central role that energy plays in fueling economic activity. They focus on the energy return on investment (EROI): the ratio of energy inputs needed to produce energy output. In the United States in the 1930s, for example, it took the energy in 1 barrel of oil to extract 100 barrels of oil, an EROI of 100-to-1, according to the article. By 2006, this EROI had fallen to 19-to-1. 

Physical economy: What's the EROI?

The ever-shrinking petroleum EROI spells trouble for oil-based civilizations. Indeed, the history of civilizational advance is linked to the development of fuel sources with increasing EROIs, such as coal and oil. Part of the challenge for sustainable economies is that renewable energy sources, such as wind, solar, and biomass, have low or unknown EROIs. (For this reason, renewable energy advocates often also call for strong conservation and efficiency measures, to ease the pressure on renewables to provide energy at levels generated by energy-dense fossil fuels.)

Re-emphasis on the physical base of an economy is timely, given the role of finance (the non-physical economy) in causing the current recession. As a New York Times opinion piece noted earlier this year, unlike the real economy of material and energy, finance is built around a non-physical asset: debt. In excess, debt became a lever for generating prosperity out of thin air—until an external shock, the run-up in oil prices in early 2008, rattled debt holders, who suddenly preferred real (physical) assets like gold.

Sober economic management would prevent debt from being created faster than real, material wealth, according to the op-ed. To this end, ecological economist Herman Daly has proposed a 100-percent reserve requirement for banks, so that every dollar lent is backed by a dollar of saving, helping to curb the creation of excessive debt.  

The lesson? It’s vital to think in physical terms in any assessment of economic health.

Among the cacophony of voices in the debate over how to avoid full-fledged climate change and green the world economy, two mainstream protagonists are prominent: Stern and Stern. No, they are not partners in a law firm. They are Nicholas Stern—principal author of the widely discussed Stern Review of the Economics of Climate Change, released by the British government in 2006, and Todd Stern—Special Envoy for Climate Change in the Obama administration.

But the two namesakes seem to be headed in opposite directions. Having put the world on notice about the immense economic costs of climate inaction, Lord Stern acknowledged last year that his 2006 report was, if anything, too cautious. Now chairing the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, he continues to warn governments that delaying far-reaching action to reduce greenhouse gas emissions is not an option. And in an April 2009 report published jointly with the Potsdam Institute for Climate Impact Research, he laid out a strategy for greening the economy at a time of deep financial and economic crisis.

Todd Stern has impressive climate-related credentials. He served as Bill Clinton’s senior White House negotiator at the Kyoto Protocol negotiations, advised Hillary Clinton on environment and climate during her presidential campaign, and continued to work on these issues at the Center for American Progress prior to his current post.

But as the administration’s climate front man, Stern has repeatedly downplayed expectations. On climate, “yes we can” seems to have morphed into “no we can’t.” Earlier this year, he rejected calls for industrialized countries to cut their emissions by 40 percent below 1990 levels by 2020. Todd Stern not only opposed such cuts as “not feasible” for the United States, but strikingly called them “unnecessary.”

Todd Stern’s statements reflect the Obama administration’s decision to let Congress be the de facto driver of climate policy. Predictably, that has led to stalemate and back-pedaling as special-interest dynamics and the influence of money in politics take precedence over the demands of climate science. But if the United States comes to Copenhagen in December empty-handed, deadlock and mutual recriminations may result.

To be fair, similar pressures are on display in other countries. Europe has long claimed the mantle of climate leadership, but has grown reticent when it comes to committing resources for adaptation in the developing world. Following the September German federal elections, the incoming governing coalition is considering pruning the country’s generous subsidies for solar energy development, in effect slowing the transition to a low-carbon economy. India—belatedly recognizing that pointing to Western countries’ historic guilt in pushing the world to the edge of the climate abyss will not save it from the repercussions of climate chaos—is attempting to set its Copenhagen compass even as an intense internal debate unfolds among climate “stonewallers,” “progressive realists,” and “progressive internationalists.”

The “Tale of Two Sterns” plays out worldwide. But there is only one planet, and it will have the last word. Will Planet Earth be stern with us?

Cross-posted from Dateline Copenhagen.  Author: John Mulrow

Tropical storms continue to barrage the Philippines as they have done for nearly a month. Now it’sTyphoon Lupit on the way, headed yet again for the northern islands of the Philippines. TheInternational Rice Research Institute, based in Manila, has called the flooding currently underway in the country “once-in-a-lifetime.” While this is typically a rainy time for the islands, the intensity of this year’s storms is rarely seen.

Is this climate change rearing its head in the form of more intense storms, as predicted? IRRI admits that it may be unscientific to draw a direct correlation between carbon emissions and these storms right off the bat. However, the Institute has used the events, alongside India’s delayed monsoon season, and long-lasting drought conditions in Australia to draw attention to the affects all these weather events have had on rice – an extremely negative effect in all cases. Rice is by far one of the world’s most important subsistence crops, making up nearly 20% of your average human’s caloric intake (as high as 70% in Cambodia and Bangladesh). The ruined rice crops of 2009 are proving more than ever why climate insecurity equals food insecurity–which leads to political instability.

The Congressional Budget Office skirted over this fact last week when it testified to the Senate on the predicted effects of climate change on the United States’ GDP.  CBO Director Doug Elmendorf cited the fact that “most of the [US] economy involves activities that are not likely to be directly affected by changes in climate” as reason to be wary of passing climate legislation. Since the U.S. agriculture sector only makes up 3% of our GDP, effects on this industry receive little weight and the effects of climate change on other nations’ security receives even less. The costs of food insecurity and global instability simply do not make it into such hard and fast GDP calculations and contribute to the slow progress being made on a U.S. climate bill. The same could be said for a global climate deal as well.  Food security, both domestic and global, needs to be in the minds of our legislators and on the agenda in Copenhagen.

…is the edifice of economic orthodoxy beginning to chip and crumble. Or at least shift on its foundations.

Something extraordinary happened last Monday: a political scientist won the Nobel prize in economics—and not just any political scientist, but Elinor Ostrom, a University of Indiana/Bloomington scholar whose work has long focused on managing resources as commons—resources that are neither state- nor privately owned, but collectively owned and governed. This is a concept marginal to the conventional economic worldview, which has generally held that the only way to ensure sound management of forests, agricultural land, water supplies, fisheries, and so on must either be privatization or state ownership. Ostrom’s work  analyzes and showcases cooperative resource management systems that, in some cases, have functioned successfully for hundreds of years.

Ostrom’s work challenged a giant in the resource management field, Garrett Hardin, whose influential 1968 essay, “The Tragedy of the Commons,” suggested that commons resources are destined for over-exploitation, because of the skewed incentives governing their use.  An individual herdsman gains personally for every additional sheep he pastures, Hardin observed.   But the cost of this activity—degradation of the pasture—is split among all users. This incentive imbalance, in Hardin’s view, can never be overcome because of the egoistic impulse of human beings. Yet a multitude of community-based arrangements, from cooperative irrigation systems in Spain and Bali to fisheries co-ops in Maine, prove Hardin wrong. In these cases, the protagonists were real, flesh-and-blood, collaborating people who were smart enough to work out social solutions to their resource challenges. They stand in stark relief to Hardin’s fictional profit-maximizing herders, whose sole focus is to advance their own interests. These profit-maximizing cardboard cutouts are the same people who hold starring roles in the simplistic and stylized world of conventional economic theory. 

Ostrom’s win is noteworthy in itself, but it’s just the most recent in a string of related events that signal major, and welcome, changes in economics. In 2001, Columbia University economist Joseph Stiglitz won the economics Nobel mainly for his work (with others) showing that, contrary to dogma, economic actors rarely have perfect information and therefore markets are rarely efficient. Then, last month, Stiglitz and economist Amartya Sen (another Nobel winner) released a report commissioned and endorsed by French President Nicholas Sarkozy that critiques GDP as the main yardstick of economic wellbeing. Such critiques have been made for over 30 years, but they have never enjoyed such eminence before.

In short, the conventional economic thinking is beginning to evolve in directions that can only bode well for sustainability. It has taken years of dogged hammering away by visionaries not enslaved by the reigning dogma, who have looked at the world and seen it for what it is, not how theory says it should be.

Note: This entry was written by Tom Prugh and Gary Gardner, who are still figuring out how to post a piece under joint authorship.  They are also puzzled about how to upload a video.  For readers interested in seeing Elinor Ostrom give a short lecture on The Tragedy of the Commons, go to http://www.youtube.com/watch?v=ByXM47Ri1Kc

When people think about the emerging green economy, the vision is typically one of leaving behind the old dirty industries in favor of new landscapes dotted with gleaming “clean” factories. Sometimes, however, there is really no leaving behind old sites, but rather a redevelopment and conversion of them.

Suitable locations for wind farms, solar factories, and other facilities are hard to find. First, after two centuries of industrialization, the built environment leaves few untouched places. Second, conservationists worry that a new wave of factories will encroach on remaining scraps of wildlife habitat. Finally, NIMBY sentiments can stymie even the greenest of investments—witness the opposition to offshore wind turbines at Cape Cod.

It is not surprising, then, that there is increasing interest in locating wind farms and solar plants at so-called “brownfields”—abandoned and often contaminated industrial sites, landfills, and mines. Clean-up and redevelopment efforts will take considerable time and investment. But the advantage of many brownfields is that they are typically already connected to infrastructure such as roads or the power grid, and thus tied into the local, regional, and national economy.

For example, in 2006, wind turbines started operating at a former Bethlehem Steel mill at Lackawanna near Buffalo, New York. The wind farm, Steel Winds, currently generates enough electricity to power 9,000 homes, with an expansion planned.

In Newton, Iowa [PDF], the site of a former Maytag washer and dryer factory was redeveloped into a wind energy manufacturing hub. TPI Composites, a wind turbine blade manufacturer, now makes fiberglass blades there. And Trinity Structural Towers opened a plant in February 2009 to produce steel and concrete wind turbine towers.

In a twist, renewable energy projects can also provide the power needed to carry out clean-up of contaminated sites, to render them safe for alternative use. This is happening at several sites in Arizona, California, and Colorado.

This “brownfields to greensites” transformation holds major potential. Teaming up, the Environmental Protection Agency and the National Renewable Energy Laboratory have mapped close to 4,100 contaminated sites in the United States—stretching over 5.5 million acres or about 0.2 percent of the country’s total territory—that could be utilized for wind, solar, or biomass development. Fully developed, they could eventually produce as much as 950,000 megawatts, or more than the country’s total electricity consumption. Additional such sites are being identified with geothermal potential.

For communities that fell victim to deindustrialization when steel mills and other manufacturing plants shut down, the redevelopment of brownfield sites also offers some badly needed new employment. Still, it will take time before a significant portion of the lost jobs is replaced. The Lackawanna steel mill once employed thousands. The Steel Winds site currently offers 35 jobs in construction, operations, and maintenance. (The jobs building the wind turbines and components are elsewhere.) Similarly, the old Maytag factory offered incomes to some 1,800 people. TPI Composites and Trinity Structural Towers have to date created 470 jobs.

As the renewable energy sector expands, job numbers will climb. Another concern is that the new jobs aren’t necessarily always well-paying jobs. High Road or Low Road? Job Quality in the New Green Economy [PDF], a February 2009 report by Good Jobs First, points out that TPI Composites—despite generous state subsidies—pays its workers in Newton, Iowa, only an average of $13.47 per hour, far below the $19 that Maytag used to pay.  (Trinity, by contrast, is paying an average of $18 per hour.)

This does not mean that renewable job development isn’t worth pursuing. Many renewables companies offer well-paying jobs. But it does mean that local, state, and federal governments need to pair business incentives with a requirement for decent wages and overall strong labor standards. Marrying environmental and social needs can be a win-win strategy.