Sustainability Is Too Expensive

The costs of renewable energy and production processes and green building materials exceed their value to the environment. Pro or con?

Pro: Lots of Costs, Little ROI

Former Washington Redskins quarterback Sunny Jurgenson, now a sportscaster, often derides the so-called prevent defense by saying, “the prevent defense doesn’t.” Ditto for “sustainability.” It does not sustain. It spends resources that would much more likely go into market efficiency. It wastes public monies and costs jobs.

This is obvious when examining the economics of the environmentalists’ favorite “sustainable” or “renewable” energy sources, solar power and windmills. According to the Energy Information Administration’s 2011 summary, the total cost per megawatt-hour of an average of solar thermal and photovoltaic will exceed four times that of advanced combined-cycle natural gas in 2016. For combined onshore and offshore wind, the cost exceeds 2.5 times that of gas.

Spain has already demonstrated the “unsustainability” of “sustainable” distributed energy.

The government bought support there by paying everyone who placed a solar panel on his or her roof an exorbitant amount. According to Gabriel Calzada, of Spain’s King Juan Carlos University, each “green job” that was created cost approximately $800,000 per year. Soon the solar subsidies began to gnaw away at Spain’s economy, and they were drastically reduced. Spain’s unemployment now stands at 21 percent, and there is a chance the government will default on its sovereign debt. Throwing money at solar energy and windmills has real costs and economic consequences that reverberate worldwide.

People may tell pollsters they favor “sustainable” projects, but they don’t buy them. Fewer than 7,000 private individuals have purchased the Chevrolet Volt, despite state and federal subsidies that approach $10,000 per car and that are transferred to the purchaser. All “sustainability” does is reward inefficiency and promote development of politically correct technologies people do not want. As the people of Spain and the stockholders of General Motors (that would be you, reader) know, sustainable development isn’t.

Con: Value in Real Dollars and More

Many mistakenly believe that current economic circumstances make sustainability unaffordable as businesses struggle to survive. This fails to recognize the economic drivers behind environmental sustainability as well as the serious actions many leaders are taking. Successful companies continue to invest in sustainable business practices despite slow growth across the economy. They correctly view sustainability as a lens for inspecting operational efficiency, innovating better products, and capitalizing on new markets.

Companies are reporting attractive savings from efforts to reduce energy use and eliminate waste: Dollar General, U.S. Food Service, and Primedia estimate they saved $106 million, $22.3 million, and $7.5 million, respectively, during 2008 and 2009 through green programs.

Moreover, sustainability efforts spur innovation and ultimately the development of better products and services. Perhaps best known is Toyota’s Prius. Initially dismissed as an expensive compact car, Prius has risen to be a high-volume seller, a flagship for Toyota’s innovation and a low total-cost form of transportation.

Finally, the wholesale migration of how we do many things in our economy will unlock new ways to create value. The clean technology transition, at its core, is the reinvention of all major infrastructure, i.e., energy, water, transportation, and buildings. GE, a major player in all infrastructure segments, has been capitalizing on this transition, with Chief Executive Jeff Immelt declaring that “Ecomagination is a competitive force for growth across GE’s businesses,” responsible for $18 billion in revenue in 2010.

These actions work in today’s market, which still allows many production costs to be externalized by the manufacturer, including emissions, landfilling waste, and loss of biodiversity. If market rules are incrementally changed to make private enterprise internalize the full cost of production (and the recent passage of a carbon tax in Australia is yet another example of a global trend in this direction), the already compelling profit potential of sustainability will explode.

Opinions and conclusions expressed in the Debate Room do not necessarily reflect the views of Bloomberg Businessweek, Businessweek.com, or Bloomberg LP.

Reader Comments

Pat Michaels

This is what a carbon tax does:

http://www.heraldsun.com.au/news/breaking-news/julia-gillard-ratings-fall-in-nielsen-poll-ahead-of-reshuffle/story-e6frf7jx-1226219483996

It has made Gillard the most unpopular prime minister in recent Australian history. The opposition leader, Tony Abbott, leads her by 14% in the latest Nielsen poll, and he will be elected on a platform of repealing the carbon tax.

If the Australian Senate does not go along, he will call a double dissolution election and Gillard will be blamed for destroying the Labor Party for decades.

How "Sustainable"!

Fred Raimondo

Frankly, it is a mute issue. The reality of what is driving sustainability is one thing, resource availability. At its core, sustainability is about the efficient utilization of resources--resources that will increasingly become more expensive as an exploding global population demands access to products and services. The companies that get it now will be the ones that succeed in the future. If you want to see the global leaders of the future, look to the ones that have already recognized that.

Leanne Hoagland-Smith

When we view sustainability only through the lens of the environment, yes it is probably too costly. The same could be said and has been said about training.

However, when we look at the same landscape with different eyes, sustainability can increase profits. For when both people and processes are included within this area of sustainability, organizations can secure transformational change.

Logically, any business decisions should look to be sustainable, meaning they will continue without additional depletion of resources.

What has happened is this very critical business term has been confiscated by environmentalists and consequently has tainted this word for the majority of business leaders.

Leanne Hoagland-Smith

kh66

I think the word in Immelt's speech should be "ecomarketing" or how to sell tons of unproductive garbage at gold price.

ottoteller

@Pat Michaels:
So you are evaluating the benefits of sustainability on one politician's popularity poll? Now that's good science.

Sheldon Brown

What we have seen so far is a very impulsive approach to sustainability. It's the new idea, and those among us who seek only fame and glory toss resources at it and expect grandiose results from minimal research.

What we have to do is take gradual and progressive steps toward sustainability. With careful and deliberate actions, we can begin to understand and implement the elements of sustainability that truly work, and eliminate those that don't.

Grammy

Unfortunately the green sustainable agenda has been hijacked by governments, looking for the next big tax take to sustain their increasing budgets and vested interests.

Jayni

Combining high-tech with sustainability may have expensive costs, but the long-run return is promising, like transferring drainage oil into aircraft fuel is really an effective way of sustainability, especially for China. There is a big potential market.

Ken

People are now starting to connect with "whatever we consume equals more pollution to live with." This will be the leading factor in producing more sustainable energy technologies. We cannot afford not to invest in this technology now. Most people have had an awakening to this. Yes sustainable energy costs more now--but less later. I can't even imagine how expensive it will be to mantain all of the fossil-fuel-burning technology in the future; it is so much more complicated. I'm invested in green technology, so are many players as of late. Are you? It's time to care about the air quality in the future.

Mike Collignon

Well stated, Fred.

There are aquifers drying up all over the Middle East. That will drastically reduce, if not eliminate, their grain production. So, as those countries continue to grow (as does ours), competition will grow for food... and water.

Wouldn't surprise me to see a war started over food or water in this half-century.

Mike Collignon

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