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A carbon tax stimulus package |
[Finance] |
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Posted on November 28, 2008 @ 01:33:00 PM by Paul Meagher
To address the current economic crisis, governments around the world are taking some drastic measures. Many are looking for the magic "stimulus package" that will help right the economy. I previously suggested that green infrastructure spending would be a good idea and the U.S. stimulus package looks like it will include this component. How are we going to finance this green infrastructure? I would argue that now is a good time for a carbon tax to fund infrastructure building and to bring in a market mechanism that sends clear economic signals about the real cost of carbon emissions to our atmospheric commons.
There are many ways to design a carbon tax. My preference is for a carbon tax that is simple, transparent, and sends the right market signals. My proposal would involve levying varying amounts of tax on carbon from coal, oil, deisel, and gas. Revenues collected from these carbon taxes would be split in half. One half would go back to taxpayer in the form of a monthly dividend where each person gets their equal share of whatever is in the carbon tax revenue pool. If you do not shell out for much carbon, then you would stand to make some money from this deal. If you shell out alot of money for carbon, then this dividend would offset some of your carbon tax payments but would not cover the amount of carbon tax you paid in. As it should be, we are living in an atmospheric commons and you are consuming more than your fair share. The overburden we are putting on the commons would no longer be hidden.
The other half of the revenue pool collected from the carbon tax would be used to pay for green infrastructure (infrastructure fund) and market leadership in new green products and services (technology fund).
I think that if we brough in a carbon tax now to 1) pay down green infrastructure investment, and 2) to start regulating carbon emissions through market mechanisms, that this would be the "economic stimulus" that would turn the U.S economy around AND make it more sustainable.
To get out of this mess we need to embrace Joseph Schumpeter's idea of creative destruction as the key to ecomonic growth. You can't grow in the context of the status quo, you need to destroy and replace one way of doing things with a new way. A carbon tax is the butterfly that could unleash the creative destruction required to stimulate the ecomony out of recession.
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Bullet train infrastructure spending |
[Finance] |
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Posted on November 14, 2008 @ 08:00:00 AM by Paul Meagher
As the economy tetters towards a recession there are calls to increase infrastructure spending. One good form of infrastructure spending would be to create a high-speed bullet train system like California is doing:
California voters are green-lighting the nation's most ambitious high-speed rail system, approving a nearly $10 billion bond to put speeding bullet trains capable of topping 200 mph between the state's major metropolitan areas.
The measure, which passed with 52 percent support Tuesday, will fund the first phase of what is projected to be a $45 billion, 800-mile project built with state, federal, local and private money.
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Jobs in the new economy |
[Finance] |
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Posted on October 8, 2008 @ 08:40:00 AM by Paul Meagher
The economy is shifting. Jobs are being lost in some sectors of the economy and being created in other sectors of the economy. One sector of the economy where jobs are being created is in the "clean energy" sector:
Venture capital and private equity investment in [U.S.] clean energy totalled $8.6 billion in 2006, 69 percent above the 2005 level and 10 times above the 2001 level. By early 2007, these investments had helped create 146 clean energy start-up compaies with names such as Nanosolar, Celunol, SunPower, E3 Biofeuls, and Miasole, most of them working to develop and commercialize new energy technologies.
Christopher Flavin, "Building a Low-Carbon Economy", State of the World 2008, p.86.
Christopher Flavin, president of Worldwatch Institute, makes the interesting point that venture capital, private investment, and private companies contributed much more money to clean energy R&D ($8.6 billion) than the U.S. government ($600 million) in 2006.
There is still an enormous amount of growth that will occur in the clean energy sector as clean energy begins to dominate fossil-feul based energy as the primary energy source supplying homes, businesses, and transportation systems. The role of government is arguably not to become a major financier of this sector of the ecomomy but to devise a regulatory framework that strongly promotes clean energy R&D and rapid commercialization. Carbon taxes can have this effect.
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Market failure and sustainable economies |
[Finance] |
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Posted on September 23, 2008 @ 08:00:00 AM by Paul Meagher
The current difficulties in the financial markets is largely attibuted to a meltdown in the sub-prime morgage lending market in the U.S. Many of us have our theories about the root cause of this meltdown - I will add my own 2 cents worth.
Part of the reason for this meltdown is the way in which wealth is created in a modern ecomony. The pre-industrial era was a time when ownership of "natural capital" largely determined your level of wealth. With industrialization came the emergence "financial capital" as the driver of wealth. Much of that "financial capital" was squandered foolishly by banks and insurance companies just as we are now foolishly squandering much of our "natural capital" (e.g., reduced air quality, water quality, soil quality, ecosystem diversity, wildlife diversity and abundance, failing infrastructure, etc...).
The meltdown is not just happening to our financial capital but also our natural capital systems. The scale of the costs involved in fixing our current natural capital problems will ultimately dwarf the cost of subsidizing the currently failing financial capital industry. It is estimated that the world now needs to collectively invest 650 billion dollars every year to mitigate the current and anticipated effects of global climate change (1 percent of world GDP).
It is politically very tricky to try to assign costs to our current natural capital expenditures. Hurricanes, floods, permafrost thawing, rising sea levels, respitory health problems, and other modern afflictions have many causes and it is trickly to know how much blame to assign to our failure to mitigate the effects on our natural capital.
Nevertheless, the 2006 Stern Review concludes that "inaction on climate change could damplen global economic output by anywhere from 5 to 20 percent every year over the course of this century".
There is some good news, however. In this turmoil, financial capital is being increasingly called upon to finance the conservation and restoration of our natural capital:
- Citigroup: 50 billion to address climate change over the next decade.
- Goldman Sachs: 1.5 billion in renewable energy in 2006.
- Global investment in new energy at $71 billoon in 2006, up 43 percent from previous year.
- The "cleantech" sector is third largest investment sector for venture capital in U.S.
The other good news is that the shift to a sustainable economy is not likely to happen without some uncomfortable market corrections such as we are seeing now. The financial capital system that led to the subprime morgage mess needs to re-examine its foundations. The time has come, I think, for financial capital systems to invest intelligently in U.S. natural capital in order to achieve a sustainable U.S. economy.
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Phase transition to a green economy |
[Finance] |
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Posted on August 19, 2008 @ 07:30:00 AM by Paul Meagher
In a recent blog, I talked about the concept of an energy cycle. At the time, I wanted to draw attention to an analogous concept by Stuart Kaufmann's called "autocatalytic sets". I didn't have time to expand upon this concept so left it out. Fortunately, I've noticed that Stuart Kaufmann has recently published a paper in Scientific American that saves me the effort of explaining some of his thinking. It is called The Evolving Web of Future Wealth (May 9, 2008). Here is a passage in that article that I found particularly interesting:
The web of complements to a good forms a mutually self-reinforcing and cross-reinforcing subnetwork that enhances its own economic growth. For example, with the car came its complements, among them gasoline, paved roads, motels, fast food restaurants and suburbia. In turn suburbia gave rise to an enormous number of consumers of automobiles, gasoline, paved roads and so on. We might call such mutual cross-enhancement "collectively autocatalytic," in that each component helps create the economic environment and market for the others and all mutually benefit. In economic terms, we might call them collective webs of mutually positive "externalities" between complementary technologies. Such collectively autocatalytic webs of complements can drive enormous wealth production, provide a very large investment incentive and massively promote the evolution of future wealth possibilities.
What I have gotten out of this article so far is what I was looking for; namely, the idea that the shift from a fossil-fuel based economy to a green-economy might involve a phase transition rather than an incremental adjustment. According to a "Buttons And Thread" model, you start with a cluster of green businesses denoted by buttons, and as you increase the links between the buttons, denoted by threads, you will reach a phase transition region at a ratio of 1 thread to every two buttons, or a 0.5 ratio. In practical terms, what this might mean is that U.S. policy and investment should be directed at "linking up" green businesses in a strategic way in order to create wealth and hasten a "phase transition" to the green economy in under 10 years as Al Gore aggressively suggests we should aim for.
It is important to note that the "Buttons And Thread" model is easily formalized using random graph theory and that the concept of a "phase transition" in this model denotes the idea that the connectivity ratio changes rapidly from 0.5 to 1.0 once you surpass a threshold ratio of threads to buttons of 0.5. Whereas before the 0.5 ratio you could lift up a button and only pick up a couple of other thread-connected buttons, after the 0.5 point you can increasingly lift a cluster of buttons connected to the button you are trying to pick up. The change between sparse connectivity and dense connectivity is not an incremental change, but rather has the mathematical character of a phase transition.
A useful vocabulary that includes "collectively autocatalytic", "autocalytic sets", "catalytic closure", "reaction networks" and more has been developed by Stuart Kaufmann in his books:
- At Home in the Universe: The Search for the Laws of Self-Organization and Complexity (Oxford University Press, 1996)
- Reinventing the Sacred: A New View of Science, Reason, and Religion (Basic Books, New York; May 2008)
I'm currently reading the first book while on vacation. I've had it for awhile but decided to read it once I noticed he had published a new book. Stuart Kaufmann is a wonderful writer and thinker.
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Investing in Energy Cycles |
[Finance] |
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Posted on August 16, 2008 @ 08:00:00 AM by Paul Meagher
I found Jon Freise's concept of investing in "energy cycles" interesting:
I feel that the best strategy is to find and invest in "energy cycles". An energy cycle might be a coal mine, an electrified rail line carrying coal, and a coal plant (just as an example). Another would be a wind farm region, electrical transmission lines, and a steel foundry that recycles old SUVs into wind tower bases. Basically, we need intact systems for turning energy sources into real goods/services. As long as a energy cycle can stay intact, it will keep generating wealth, which will bring in parts, fuel, etc.
One reason why investors might be particularly interested in green investment proposals is because the "energy cycles" that green products and/or services participate in has a higher likelihood of remaining intact in the light of, say, increased scarcity of oil. The peak oil debate tries to anticipate the economic impacts of oil scarcity.
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Entrepreneurs and Ecopreneurs |
[Finance] |
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Posted on August 8, 2008 @ 08:08:00 AM by Paul Meagher
Is there any difference between your typical entrepreneur and a green entrepreneur?
John Ivanko uses the term "ecopreneur" and suggests that there are the following significant differences between entrepreneurs and ecopreneurs:
| Entrepreneur |
Ecopreneur |
- Values Money
- Return on Investment (ROI) oriented
- Free trade
- Following regulations
- Stakeholders = stockholders
- Technology will triump
- Super-size me
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- Values Life
- Return on Environment (ROE) oriented
- Fair trade
- Setting (voluntary) standards beyond regulations
- Stakeholders = everyone and everything
- Technology is a tool
- Human-scale, micro-size, small-mart
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So where does a green entrepreneur fit into this scheme? The term "green entrepreneur" is less about the motivations for being green and more about the fact that the entrepreneur is working on a business that has green attributes. The motivations could be your typical entrepreneur motivations or they could be the ecopreneur motivations listed above.
Investors might want to consider the entrepreneur versus ecopreneur distinction when talking to green entrepreneurs because what motivates green entrepreneurs could be very different depending on whether they tend towards the traditional entrepreneurial set of motivations or ecopreneurial motivations.
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Green accounting |
[Finance] |
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Posted on August 1, 2008 @ 01:29:00 PM by Paul Meagher
Wordspy defines Green Accounting as:
n. A system in which economic measurements take into account the effects of production and consumption on the environment.
My own concept of green accounting is a bit more practical insofar as I see it as a future sub-specialty of the accounting profession that equips people with the concepts, math, science, simulation, and financial skills to account for the "external" costs of producing a product or service. External costs are the ecosystem costs that are usually not accounted for in the costs of producing a good or service. A good starting point would be to know how to account for the amount of green house gases, water, and waste are required to produce, distribute, and consume any particular good or service. We now have an emerging global awareness where these particular environmental costs are becoming increasingly important to account for and the concepts and software to do that accounting are starting to build into a discipline that might be called "Green Accounting".
I don't really view "Green Accounting" as something that should be done by economists from a 100 mile high perspective and in broad strokes. I think it should be something that all companies should start to think about at an operational level and consequently "Green Accounting" might be a specialized type of accountant companies would hire to, for example, do some green accounting to figure out how many offsets the company should consider buying; or else "Green Accounting" is just another type of skill that all accountants need to become familiar with in order to be deemed a professional in that field. The future probably includes both scenarios.
Consider the problem of hosting an event like the Olympics and trying to assess the costs of hosting the event in terms of the green house gases emitted, the freshwater resource impacts, and the amount of waste produced? What type of professional should be called in to a full accounting of the "external" costs of hosting the Olympics, in addition to other costs and benefits?
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