In 2007 I first posted my research forecasting a multi-trillion dollar green economic revolution. By 2014, this projection has been realized with a global economy delivering price-competitive sustainable solutions like rooftop solar, LED lighting and organic food. So, why are we not celebrating?
The sobering reality is that this economic success appears to be too little and too late in terms of the latest scientific findings. The scientific community projects that the pace of man-made greenhouse gas emissions, now defined as a carbon surge, is pushing the world into irreversible human and economic damage. If our world and economy now stand on the cusp of irreversible climate change damage, then the question of the 21st century is whether there still remains a path toward a sustainable solution.
Price competitiveness is driving the green economic revolution
The growing price competitiveness of the green economy is driving consumer adoption of more sustainable products. LED price competitiveness is driving consumers to shift from incandescent lighting technology. Rooftop solar is a growth industry in California because it can now deliver systems producing electricity for as low as 8 cents per kilowatt-hour (compared to a 12-cent national average price of grid-supplied residential electricity). Consumers have adopted concentrated cold-water laundry detergents because they deliver clean clothes at a lower cost with reduced environmental impacts.
Evidence is growing that consumers are intuitively inputting the costs of unsustainable goods and services. The rapid sales growth of healthy convenience food is one example. Today moms and the millennial generation intuitively incorporate externality costs like obesity and diabetes into their price comparisons between healthier and less healthy food choices.
Truly, the economics of going green have won market share and is on a growth trajectory.
But will the green economic revolution be too little, too late?
For all the success of the green economic revolution, the just-released 2014 IPCC forecast is a sobering reality check. Their findings are that human emissions “will lead to high to very high risk of severe, widespread and irreversible impacts globally” by the end of the 21st century. Examples of irreversible impacts can include the melting of the West Antarctic Ice Sheet, raising sea levels by 10 to 13 feet, or the extinction of half of our planet’s species.
Traditional economics is not encouraging on whether the marketplace of suppliers and consumers will respond in time to prevent irreversible impacts. Traditional economics assumes that consumers are fully informed and they make rational decisions. A relatively new economic discipline called behavioral economics disputes these traditional economic assumptions. Behavioral economics recognizes that consumers are often not fully informed and that consumers hold personal and cultural biases that influence their decision-making. Behavioral economics recognizes that Facebook postings by friends, mass advertising, rule-of-thumb thinking and inertia influence consumer decision-making.
Traditional economics would suggest that the green economic revolution should rapidly accelerate in scale with the growing cost consequences of irreversible climate impacts. Behavioral economics would suggest otherwise. Behavioral economics recognizes the incentives that businesses heavily invested in the carbon economy have to maintain status quo. Behavioral economics accepts that heavy (and often negative) TV advertising and biased journalism, now called content marketing, will influence consumers to continue unsustainable behaviors.
Cultural norm and unsustainable consumption
Cultural norms are the behaviors, beliefs and values that align decision-making. Behavioral economics recognizes the need for the adoption of a cultural norm to significantly retard or stop consumer consumption of unsustainable products.
The issue of smoking provides an example of changes in cultural norms that reshaped the economics of an industry creating irreversible damage. In 1928, 13 years after the R.J. Reynolds Co. launched the first mass-marketed cigarette, the health community identified smoking as a health risk. Yet by 1965 almost half of all high school students smoked cigarettes. It was not until 1995 that California became the first state to ban smoking. Even today, with the well-known link to cancer and respiratory diseases, Americans consume almost 300 billion cigarettes annually.
This same type of delayed and incomplete response by consumers and political leaders was experienced in the adoption of seat belts and in the removal of lead from gasoline. The behavioral economics for products that create significant human health externality costs are unfortunately defined by a path of strong push-back from vested interests, consumer short-term decision-making and very slow government regulatory action with a significant minority of consumers still maintaining obviously unsustainable consumption behavior.
In pursuit of a green cultural norm
Sustainability is not a cultural norm with consumers. The human health and economic pain of potentially irreversible climate change is not as real to consumers as balancing a weekly budget or the pleasure of unsustainable consumption. The market reality is that if the price of a green product is 5 to 10 percent more than a non-green product, then the consumer is most likely to buy the non-green product.
Quarterly financial reporting is the cultural norm that drives U.S. CEO decision-making. The reality is that two-thirds of corporate CEOs recognize they are not doing enough to address climate change. But their performance metric is still the quarterly earnings result. In business, what is measured is what gets done.
The reality is that issues of climate change and sustainability are not impacting elections. Voters are voting their pocketbooks as they have always done.
There is evidence this is changing. The millennial generation is attempting to implement lifestyles that balance a sustainable future, consumption and saving. Moms concerned with the wellness of their loved ones are including the health impacts of foods or household chemicals into their cost analysis.
Achieving a cultural norm around sustainability will be an inflection point for the green economic revolution. As long as consumers view consumption of sustainable goods and services as a niche purchase — driven by comparative cost — then the green economic revolution will only represent 5 to 20 percent of the global economy. This is revolutionary growth compared to 2007. But it is not enough to stop irreversible climate impacts.
The history of economics on products like cigarettes and seat belts, and the use of lead in gasoline, is that sustainable behavior does, eventually, become a cultural norm. The green economy will continue to grow, and it will generate exciting business opportunities. What remains a question is whether the growth of the green economy will be too little and too late to prevent irreversible damage to human and environmental health.
Image credit: Flickr/Tax Credits
Bill Roth is an economist and the Founder of Earth 2017. He coaches business owners and leaders on proven best practices in pricing, marketing and operations that make money and create a positive difference. His book, The Secret Green Sauce, profiles business case studies of pioneering best practices that are proven to win customers and grow product revenues. Follow him on Twitter: @earth2017