The Green Economy

A bit about me!

I studied Zoology at University, much to the amusement of my friends; the reasons for this area of study were twofold, firstly I had a fantastic biology teacher at school and secondly because I had a genuine interest in the environment and how humans and other animals co-habit the planet.

Since leaving university I have worked primarily in finance, which has bought a distinct sense of economic perspective to my thinking and this is based loosely on, amongst other things, the three ideas below.

  • Supply and Demand drive the price of any consumer item.
  • If multiple products are available that fulfil the same need and are of the same quality, the consumer will 9/10 times choose the cheaper alternative.
  • As a new commercial manufacturer there are barriers to entry in terms of competitors and higher production costs until economies of scale can be taken advantage of.

So how does a degree in Animal Science and a finance qualification shape my view of the Green Economy? I have attempted to articulate my thoughts below, making the simple assumption that Cleantech vs traditional power sources is an analogy for the wider greener Economy. I apologise now for this oversimplification.

Would I pay more (especially in these austerity driven times) for electricity that comes out of my plug socket, just because it was sourced from ‘Cleantech’ rather than from Didcot coal power station? The electricity is fundamentally identical – I can’t see it – yet from either source, I would have the power to be able to make a cup of tea in the morning.

Wallet sadly over heart

My heart says yes, I would do the responsible thing, unfortunately my rather lightweight wallet appears to be less excited, and therein lies the problem – the proposition only becomes practical and workable if the price of electricity derived from Cleantech is equal or lower than the price of electricity derived from coal.

Fortunately that is only half the story, there are other artificially created and natural factors at work helping Cleantech put up a fight. For one, OPEC, those financial geniuses who live in countries sat upon the black stuff, can restrict flow at any moment. Single handedly they can drive the price of oil up, or bring it down by controlling supply. Rather cleverly by restricting supply they are driving the price up, and even I who has only been driving for 10 years or so has seen the petrol price almost double since I first got behind the wheel.

Why is this clever? because of our complete dependence on them – we have to pay, we have no choice.

Our dependance on oil – a finite source

This brings up two points; firstly our dependence on a finite source, as the world economy continues to grow, oil will be used up quicker and quicker further driving up prices (supply / demand) that unfortunately will be reflected in your normal utility bills.

In addition our dependence is quite worrying simply due to the unrest in the Middle East, the process of weaning ourselves off this staple to our daily lives has to begin at some point, so why not now? Why not make this a gradual process as opposed to enforced cold turkey?

Thus far I have touched upon why I feel the price of fuel can only go up, but what about the other side of the coin, reducing the price of electricity sourced from ‘Cleantech’. Well as seen with solar panels, not only has the technology improved driving efficiency up, but also the price of solar PV has decreased, halving over the last two years, bringing it down closer to the tipping point where a kWh of electricity produced from Cleantech is equal or less than from more traditional methods.

The UK government is also having a part of play, as are other governments around the world. At the time of writing the Feed-in Tariff  for domestic solar PV is still 43.3pence for every kWh of electricity produced. This certainly makes any of the Cleantech technologies applicable for the subsidies a very attractive proposition, however does the government acting as an artificial market maker actually help? The argument is certainly there for giving newer technologies the leg up in the same way the Nuclear, Coal, Oil plants had their helping hand back when they were new and exciting technologies. However when everyone else is pulling in their belts, even the Government now accepts that this subsidy is too generous and will decrease significantly from April 2012. On the plus side this is helping drive limited economies of scale throughout Cleantech industries, which will continue to bring the prices down in the long term.

The Deal maker – putting a value on environmental consciousness

The final point in the equation is environmental consciousness, and the value people assign to that. Obviously it is impossible to assign a monetary value to a feeling, and in also the size of feeling is different for everyone, but this could be the tipping point that could swing the balance.

If the feeling became more embedded in society, this environmental consciousness could be the real difference maker. I for one am a big believer in green technologies; I really do believe they are the future. We cannot keep going on in the same way that we currently do, our current economic activity consumes more biomass than the Earth can generate on a sustainable basis. Things have to change.

I have a feeling the process will be slow, but all the while the price of electricity derived from traditional power stations is rising, while the price of electricity derived from cleantech is decreasing, so the difference is decreasing on a daily basis. When the difference will become small enough for the social consciousness to be able to sufficiently bridge the gap – unfortunately I can’t predict. However we are getting there. Companies are becoming more focused on sustainability, and the companies that are getting it right are making strides forwards compared to their direct competitors that are failing to embrace it. This illustrates to me that it is becoming intertwined into our everyday lives. Children nowadays all know about global warming and are being educated on it from a very young age.

We are in a very exciting time, where we have the potential technologies to change the world we live in for the better, however until this tipping point is reached the economies of scale on these technologies will not be reached. When it finally does, the flood gates will open and nothing will stop it!

Author: James Alcock