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Neil Hawkins from Dow Chemical argued that governments need to set minimum building code energy efficiency standards. “It’s hard for private companies to invest without minimum energy efficiency standards,” he said. The first are regulatory standards (which are voluntary so far) such as the EnergyStar appliance standards set by the Department of Energy.
Harper pointed out that governments are generally the largest landowners, vehicle fleet operators, and employers, so their procurement priorities could have a big effect on the deployment of energy efficiency technologies. With regard to supplying consumers with more energy consumption information, Harper noted that many studies found that consumers reduced their consumption by 10 to 20 percent. They also reduced their bills by shifting energy use to non-peak periods, such as washing clothes and dishes late at night. Werner asserted, “Every dollar that governments spend on energy efficiency is two dollars saved from energy production.
Basically, the panel strongly suggested that pushing sustainability in the form of increased energy efficiency depends on government mandates and regulations. The fact that energy costs money to businesses and consumers is not powerful enough to drive energy efficiency. But is that true? While regulations have no doubt played some small role, it is a fact that in the United States GDP per dollar of unit of energy used has fallen by nearly 50 percent [PDF] since the early 1970s. Perhaps the price system does still drive energy efficiency innovation.
In addition, an authoritative report in 1980 from the National Academy of Sciences projected that the U.S. by 2010 would need to produce 130 quads of energy (A quad is a quadrillion British Thermal units (BTUs) which is equal to the amount of energy in 45 million tons of coal, or 1 trillion cubic feet of natural gas, or 170 million barrels of crude oil.). Yet the economy has more than doubled from $6 trillion in real dollars in 1980 to $13 trillion today and Americans used only 98 quads of energy last year, up from 80 quads in 1980. Apparently markets are capable of encouraging consumers and businesses to economize on energy consumption without the “help” of regulations and legislation.
Finally, I dropped by the session launching the new Natural Capital Declaration in which 37 financial companies agreed to consider the effect of their investments on natural capital and biodiversity. Natural capital is basically defined as those aspects of the environment that are unowned. At the launch William Bulmer from the International Finance Corporation noted that the services provided by natural capital are “too often underpriced” and “treated as a free good” and “therefore are not properly managed.” Why might that be? Basically, resources in open access commons do not become valued until they become scarce. And even then, they will be abused until someone can claim ownership and exclude others from overusing them. Recall Adam Smith’s famous diamond/water paradox. Why are diamonds which nobody needs far more valuable pound for pound than water which everyone needs? Smith did not resolve the paradox, but the solution turns on relative scarcity. The rarity of diamonds makes them expensive, whereas the ubiquity of water makes it cheap.
One of the chief problems with natural capital is that governments get in the way of people enclosing open access commons, i.e. creating private property. Once that happens, however, resources that are becoming increasingly scarce relative to demand can be properly valued and conserved in the marketplace. The Natural Capital Declaration states that “governments must act to create a framework regulating and incentivizing the private sector.” Although the participants in the launch of the Declaration conspicuously avoided saying so, at the first approximation the framework governments should establish to help conserve and protect natural capital would be private property rights.
Tomorrow, I will be back at the Corporate Sustainability Forum perhaps listening in to panels discussing topics such as Aligning Business Practice with the Human Right to Water and Sanitation, Green Gold - Financing the Green Economy, and a Framework for Action: Social Enterprise & Impact Investing.
Reason Science Correspondent Ronald Bailey will be posting daily dispatches about the goings-on at Rio +20 Earth Summit, the People’s Summit, and the Corporate Sustainability Forum for the next week.