Paul Hawken on the State of the Markets

SI forums_header_shortSustainable Industries continues to impress me.  Yesterday’s SI Economic Forum featured Paul Hawken, well-known author (Ecology of Commerce, Natural Capitalism, Blessed Unrest) and sustainability guru (the mind behind Wiser Earth and a variety of other startups).  And while Mr. Hawken is a big draw, the discussion panel that followed also included some real movers and shakers with some fascinating insights into the green business world, including Lisa Michelle Galley, Founder of Galley Eco Capital, Matt Cheney, CEO of Renewable Ventures, Peter Rumsey, Founder of Rumsey Engineers, and Phil Michael Williams, VP of Technical Systems and Sustainability at WebcorAt the previous Sustainable Industries Economic Forum in San Francisco, Ray Anderson delivered a dynamite talk about climbing “Mount Sustainability.”  It would follow that this forum feature Mr. Hawken, whose pivotal book Ecology of Commerce was the impetus for Ray Anderson’s famous “spear in the chest” moment.

Mr. Hawken started by saying that sustainability is scientific in its definition, not some fluffy term.  In its sphere, we live sustainably.  Outside of it, we doom ourselves.  How that comes about is a subject of great exploration, difference of opinion and unknown, but the basics are the basics.

Mr. Hawken recently went to the northern-most ice research station in Greenland (with the Prince of Denmark, who has shown a keen interest in climate change).  It’s 500 miles to the closest human artifact.  Three tents and a privy and a hole.  The hole leads to an ice cave, with a drilling apparatus drilling straight down into the ice.  They use coconut oil as a lubricant, so when the sea water floats up, it’s a milky pina colada mush.  Hawken described it as eerie.

Getting to the ice core gets down to evidential science, not observational studies with loosely correlated events.  It’s hard science, correlating parts per million (ppm) of greenhouse gases to historical climate events.  Historically, when atmospheric levels of greenhouse gasses reached 400 ppm, it was a different world.  Oceans were 80 feet higher.  Crocodiles were lounging around the Aleutian Islands.  We’re at 390 ppm right now.

And of course, times are different…there are a lot of other variables at play.  But we just don’t know when regimes shift, and when that tipping point will come.  The bottom line remains, however…Hawken’s underlying theme that we were playing with fire. To get us back to 350 ppm of greenhouse gas in our atmosphere–which most of the scientific community agrees is the level we must reach before we can mitigate climate change, and is the inspiration for the advocacy group 350.0rg–Hawken suggested that not only do we need all the clean tech innovations we can get, the reality is that we needed to cut, cut, cut.

To those that argue the efficient market hypothesis, based on Adam Smith’s theory that the ‘invisible hand’ of the markets will right our course and get us on a path to clean energy, Hawken responded that not only has this not occurred, but that the theories of the free market are even arguable at best.  “Markets prove most of the people wrong, most of the time,” he said.  Otherwise, they wouldn’t function.  It’s a bit like Vegas.

A perfect example, said Hawken, is the stock of existing buildings in the U.S.  Our lowest hanging fruit for greenhouse gas emission reduction is to retrofit our existing building stock. It’s the quickest ROI, it’s the simplest solution for rapid emission reduction, and it would create thousands of new jobs very quickly.  Wouldn’t the market push us in that direction?  No, according to Hawken.  It is a function of how those retrofits are financed and who bears the upfront costs.  As most U.S. homeowners only stay in their homes for seven years, these retrofits do not get done, and do not provide enough economic incentives to building owners.  Another problem Hawken did not mention, but is perhaps just as significant, is the breakdown in where the buck stops for rented buildings.  Tenants, not landlords, pay utilities more often than not.  What financial incentive is there for landlords to do retrofits?

Hawken urged us to work in this arena in the near future, pushing forth legislation, education, and civic action that would help catalyze the revolution in retrofitting that we so desperately need.

In closing, Hawken said, “We’re here because we want our childrens’ childrens’ children to look back and thank us for this time and our efforts that we push forward.  No one has been here before.  There is no blueprint for where we’re at.  The only way we’re going to push through and make it across this threshold is to come together in ways that we’ve never come together before.  Business as unusual.  Open up.  Let everyone see your vulnerabilities.  Don’t let your lawyers parse everything.  Show the human side of business.”

Scott Cooney is the author of Build a Green Small Business:  Profitable Ways to Become an Ecopreneur (McGraw-Hill)

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Scott Cooney, Principal of and author of Build a Green Small Business: Profitable Ways to Become an Ecopreneur (McGraw-Hill, November 2008), is also a serial ecopreneur who has started and grown several green businesses and consulted several other green startups. He co-founded the ReDirect Guide, a green business directory, in Salt Lake City, UT. He greened his home in Salt Lake City, including xeriscaping, an organic orchard, extra natural fiber insulation, a 1.8kW solar PV array, on-demand hot water, energy star appliances, and natural paints. He is a vegetarian, an avid cyclist, ultimate frisbee player, and surfer, and currently lives in the sunny Mission district of San Francisco. Scott is working on his second book, a look at microeconomics in the green sector.In June 2010, Scott launched, a sustainability consulting firm dedicated to providing solutions to common business problems by leveraging the power of the triple bottom line. Focused exclusively on small business, GBO's mission is to facilitate the creation and success of small, green businesses.

6 responses

  1. “To those that argue the efficient market hypothesis, based on Adam Smith’s theory that the ‘invisible hand’ of the markets will right our course and get us on a path to clean energy, Hawken responded that not only has this not occurred, but that the theories of the free market are even arguable at best.”

    It’s rare to see quite so much economic nonsense and ignorance on display in just one sentence outside a Noam Chomsky book.

    The EMH is not based on Smith’s invisible hand: and Smith didn’t argue that markets were an invisible hand anyway. What he actually said was that people are led to employ their capital close to home rather than abroad “as if led by an invisible hand”. And the EMH does’t refer to any of this at all: it simply says that in a market prices will reflect the information available about what prices should be. That really is it: it’s not about markets being efficient in allocation, not about their being efficient in distribution, it’s purely about their efficiency in processing information.

    Which is why Hawken’s point is silly as well: we all know when markets do not work well in processing information (indeed in distribution or allocation): when there are externalities. That is, things which are outside the information purview of the markets. In this example, the costs of CO2 pollution are not encapsulated in market prices and thus they don’t influence them. Which is why we’re all running around thinking cap and trade or carbon tax so that they do: and thus market prices will be affected.

    Jeebus, if people are going to write about the economics of climate change you’d think they’d try and bone up a little on economics, wouldn’t you?

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