PROPOSITION – Van Jones, author, “The Green Collar Economy”

OPPOSITION – Andrew Morriss, University of Illinois College of LawPROPOSITION: The private sector—not the government—can and must be the main driver in creating green jobs. The scale of the transition to cleaner, lower-carbon energy sources is simply too large for public-sector resources and programmes to tackle alone. Only a tidal wave of private investment, innovation, invention and entrepreneurship can get the job done.

But that wave will never rise unless the government becomes a constructive partner in the effort. Therefore, it is perfectly sensible for national governments to aspire to create policies that produce green jobs.

After all, John Doerr, a leading light of Silicon Valley who knows a thing or two about innovation and technology, having placed early bets on Sun Microsystems and a little company called Google, has gone so far as to call clean energy “the largest economic opportunity of the 21st century”.

The benefits of moving toward clean energy are potentially sweeping: helping to restore infrastructure, rebuild neighbourhoods, retool factories and ignite innovation. Additionally, energy security, climate stabilisation, pollution reduction and expanded economic opportunity are all legitimate aims for policymakers to pursue.

Critics of green jobs recoil at the notion that governments might somehow tamper with the natural energy market to promote renewables. They sniff and generate a host of objections to market-distorting mandates and wasteful subsidies. But energy markets are already the product of policy, mainly those that support incumbent energy sources like coal, oil and nuclear power. These incumbent technologies benefit from subsidies, regulatory structures that shut out distributed generation of renewable power and pricing schemes that undervalue the economic contributions of energy efficiency.

The critics conveniently ignore the truth that all forms of energy are heavily regulated and often subsidised. This is because energy is the lifeblood of the economy. The precise mix of energy sources being developed and deployed within a country is never the result of pure market forces, but always a result of both private and public choices. It reflects a mix of innovation and investment on the one side, and of regulation, taxation and subsidy on the other.

Because we place no value on our atmosphere, the market acting alone cannot achieve the public interest in a stable climate and human health. Therefore, the question is not whether we will pursue policies to shape energy markets, but what sort of energy markets we want to achieve. It is sensible for governments to enact policies that will maximise the use of clean, renewable and low-carbon energy sources within and beyond their borders.

Public policies are now necessary to correct existing market failures and put clean energy on an even playing field with fossil fuels; to establish the market certainty that businesses need to make long-term investment decisions; and to provide stable, long-term support for clean-energy research, development and deployment, just as they have done in the past for the medical, aeronautical and information technology sectors.

Public investment is also required to bring the ageing electrical and transportation infrastructure that powers our industries and facilitates commerce into the 21st century, and to ramp up workforce and manufacturing infrastructure to meet the enormous new demands for goods and services that will result from new clean-energy markets.

Furthermore, governments will need to go beyond a simple cap-and-trade system for global warming pollution. Renewable energy standards and codes for energy efficiency will help build markets. Green banks and new financing tools will use public underwriting to help unleash private capital. And public investments in infrastructure will create a platform for innovative businesses to thrive and hire more workers.

In this context, policy is not a restraint on trade. It is a driver of innovation.

Fortunately, this approach has a proud and successful history. We can look to the history of the United States for good examples of what is possible. From the Tennessee Valley Authority and rural electrification, to the interstate highway system, to the telecom revolution, new investments in transformative infrastructure have consistently opened up access and opportunity, and brought more people into the middle class. The internet didn’t just create jobs for software engineers; it created work installing fibre optic cable. It created new office jobs in information technology and new career ladders into skilled professions.

Given this aspect of American history, it is ironic that the United States is falling behind in the global race for clean energy. Doubly so, given that the United States invented many of the key technologies that will power future growth, from solar panels, to advanced lithium ion batteries, to the modern wind turbine.

America’s economic competitors in Asia and Europe see the opportunity and are driving hard to secure competitive advantage. China by some estimates invested $400 billion of public and private capital in clean energy just last year.

Given the global competition to dominate clean energy production, one need not believe that green jobs are a panacea to believe that pursuing them is smart and sensible.

After all, practically everything that is good for energy independence or the environment will create a job—a green job. Solar panels don’t put themselves up. Wind turbines don’t manufacture themselves. Homes don’t retrofit or upgrade themselves. The smart grid won’t install itself, nor will bullet trains lay their own tracks. In many places, trees don’t even plant themselves any more.

To argue against green jobs is to argue for government inaction or abdication on some of the biggest challenges of our time. That is not acceptable.

Great and mighty labours are required of humanity in the new century. To mitigate climate chaos and avoid economy-wrecking energy shortages, workers must repower, rewire and retrofit whole nations. As men and women step forward to achieve these ends and accomplish these tasks, their hard-hats—in many cases—will be green.

OPPOSITION:  Governments should not try to choose technological winners and losers and so they should not promote “green” (or “red” or “purple”) jobs. Instead, we should leave that to the marketplace. Here’s why.

No clear definition of “green”

While the phrase “green jobs” evokes organic farmers and wind turbine repairmen, there is no clear, common definition of what a “green” job is. Without one, special-interest lobbying will transform even well-intentioned programmes. Consider corn-based ethanol, a technology with no redeeming features. Corn-based ethanol is bad for the environment, placing unsustainable demands on water supplies and increasing harmful farming practices. It is bad for people, raising corn prices for some of the world’s poorest people. It provides little, if any, environmental benefit, with a net energy gain often close to or even below zero (the exact amount depends on the weather during the growing season, among other things). Yet corn-based ethanol has received billions in taxpayer support and continues to be favoured in so-called “green” energy legislation.

The ethanol problem is no accident. Such programmes draw special interests as picnics draw ants. Beneficiaries of federal largesse, such as Archers Daniels Midland, lobby to divert public money for their benefit while Iowa corn interests ensure that presidential candidates pledge fealty to ethanol before the Iowa caucuses. This support comes at a high price for ordinary Americans: a Cato Institute study found that every dollar of ADM’s ethanol profits costs taxpayers $30. Despite these problems, federal policy has promoted ethanol as a “green” technology for years. Many environmentalists now disclaim corn-based ethanol but, because it has been promoted as an example of the federal government’s ability to pick green technology, they bear the burden of showing why their current proposals will not yield the same results. Before we can be sure that a “green” jobs proposal is going to improve environmental quality, we need to know how those promoting it plan to avoid the problem of politics diverting public resources into corporate welfare.

There are also deep disagreements over definitions that need to be settled in order to have a rational allocation of public resources. For example, is nuclear power “green”? If you care about greenhouse gas emissions, it is one of the best technologies available for power generation. If you worry about the long-term disposal of radioactive waste, it isn’t. Which concern is more important? Who decides? Green jobs proponents are all over the map on this. The Obama administration is currently promoting certain nuclear subsidies as a “green” investment; the US Conference of Mayors counts existing nuclear facilities as “green” but not new ones; most environmental groups do not consider nuclear power “green” at all. These questions are not just theoretical. Proponents want to allocate billions in public resources based on someone’s categorisation of some things as “green” and some as not. The most basic principles of transparency in government, a theme in Barack Obama’s campaign for president, require that we settle such issues before we turn over the keys to the Treasury.

Proponents haven’t done their homework

Physicians follow a principle of “First, do no harm”. Governments would do well to follow the same. Before governments act on the scale that green jobs proponents propose, we need evidence that the action at least won’t hurt the economy. I’d give an “F” mark to all of the major studies supporting green jobs programmes if a student turned them in for an undergraduate economics class. They do not conform to the basic principles of policy analysis.

First, virtually none of the analyses supporting green jobs programmes make calculations of net jobs. Shifting power generation from coal to solar undoubtedly boosts employment in solar energy but it also reduces employment in coal industries. Since solar power is more costly than coal power, the increase in energy prices wipes out jobs in other industries. If their employment effects are a reason to support these programmes, we need to know that the expenditures will actually create more new jobs than they destroy.

Second, most proponents use a technique called input-output analysis. This technique requires three assumptions: (1) constant factor prices; (2) constant coefficients production; and (3) a jobs multiplier greater than one. Neither of the first two applies to disruptive technological changes like shifting the mix of energy production and radically changing energy prices. There is almost no evidence to support the third and many reasons to doubt its validity. I have written at length elsewhere about these methodological flaws, but the point is essentially “garbage in, garbage out”. We cannot trust the estimates of the benefits because they were done incorrectly. Just as you would not make an investment based on the calculations of an accountant who cannot add, we should not spend billions of dollars based on economic predictions from forecasters who do not know their craft or practise it with sleights of hand.

Let the market decide

We know how to improve energy efficiency, develop new technologies and create new jobs: unleash entrepreneurs and take advantage of markets to solve what the Nobel Prize winning economist Friedrich Hayek called “the knowledge problem”. Put simply, Hayek’s point, on this issue, is that we do not know enough to plan on the grand scale green jobs that proponents propose.

Consider energy. In 1870, coal heated people’s homes, natural gas provided light, electricity had little practical application and gasoline was a waste product from kerosene refining. The great energy policy debates of that era were concerned with whether the world would run short of coal. No one in 1870 would have predicted that coal would become almost entirely an industrial fuel in plentiful supply, that natural gas would be used primarily to generate electricity and provide residential heat, that electricity would be in widespread use in homes and industry, or that gasoline would become an expensive commodity. We know as little about our energy future as our predecessors did about theirs and so we must put a premium on strategies that can adapt to new information, circumstances and ideas. That is what entrepreneurs do best. We should let them do it.

GUEST (Robert Stavin)

In the January 12th 2009 issue of The New Yorker, Elizabeth Kolbert wrote an article called “Greening the Ghetto: Can a Remedy Serve for Both Global Warming and Poverty?“  The following passage appeared in the article:

When I presented [Van] Jones’s arguments to Robert Stavins, a professor of business and government at Harvard who studies the economics of environmental regulation, he offered the following analogy: “Let’s say I want to have a dinner party. It’s important that I cook dinner, and I’d also like to take a shower before the guests arrive. You might think, well, it would be really efficient for me to cook dinner in the shower. But it turns out that if I try that I’m not going to get very clean and it’s not going to be a very good dinner. And that is an illustration of the fact that it is not always best to try to address two challenges with what in the policy world we call a single policy instrument.

That brief quote generated a considerable amount of commentary on the internet, much of it negative and some of it downright hostile. This surprised me, because I didn’t consider the proposition to be controversial, and I had chosen my words carefully, simply stating that “it is not always best to try to address two challenges with … a single policy instrument”. Two activities, each with a sensible purpose, can be very effective if done separately, but sometimes combining them means that one does a poor job with one, the other, or even both.

In the policy world, such dual-purpose policy instruments are sometimes a good, even great idea (gasoline/petrol taxes are an example), but other times, they are not. Whether trying to kill two birds with one stone makes sense depends upon the proximity of the birds, the weapon being used and the accuracy of the stoner. In the real world of important policy challenges, such as environmental degradation and economic recession, these are empirical questions and need to be examined case by case, which was my point in the brief quote above.

In 1990, when the US Congress sought to cut sulphur dioxide (SO₂) emissions from coal-fired power plants by 50% to reduce acid rain, Senator Robert Byrd (West Virginia) argued against the proposal for a national cap-and-trade system, because it would displace Appalachian coal-mining jobs through reduced demand for high-sulphur coal. He recommended instead a national requirement for all plants to install scrubbers, which would have increased costs nationally by $1 billion per year in perpetuity.

Fortunately, the late Senator Ted Kennedy (Massachusetts) recognised that these two problems (acid rain and displaced miners) called for two separate policy instruments. Simultaneous with the passage of the Clean Air Act amendments of 1990, which established the path-breaking SO₂ allowance trading programme, Congress passed a job training and compensation initiative for Appalachian coal miners, at a one-time cost of $250 million. Acid rain was cut by 50%, $1 billion per year in perpetuity was saved for the economy, and sensible and meaningful aid was provided to the displaced miners. Two different policies were used to address two different purposes. Sometimes that is the wisest course.

What about two current challenges: concern about the environment, in particular global climate change, on the one hand, and the need to revitalise economies, on the other hand? Can “green jobs” be the answer to both?

Will economic stimulus packages, properly designed, lead to job creation in the short term? Yes, but to some degree this will be by moving forward in time the date of job creation, as opposed to creating additional jobs in the long run. Of course, at a time of recession and high unemployment, that can be a sensible thing to do. So, by expanding economic activity, an economic stimulus package can surely create jobs, green or otherwise, in the short term.

But will a stimulus package, such as subsidies for renewable energy, create net jobs from the change in the nature of economic activity? The key question here is whether the encouraged economic activities in green sectors are more labour-intensive than the discouraged economic activities in other sectors, such as with a shift to renewables from fossil fuels.

This is considerably less clear, but there are cases where it is likely to be valid. Solar rooftop installation, for example, is labour-intensive. And the greatest consistency between economic stimulus and greening the economy is within the energy-efficiency realm, in particular, activities such as the weatherisation of homes and businesses (President Obama’s cash-for-caulkers initiative comes to mind). Such projects are highly labour-intensive, can be done relatively quickly and will save energy. (Note, however, that the US Department of Energy is having considerable trouble spending the stimulus money fast enough.) And, importantly, they will reduce the long-term cost of meeting climate objectives.

But some other areas, such as new green infrastructure, will happen much more slowly, partly because of NIMBY (“not in my backyard”) problems, and so are much less consistent with the purpose of economic stimulus. An example of the challenge is presented by the current interest in expanding and improving the US electricity grid.

A more interlinked and better grid is needed for increased reliance on renewable energy sources, which will be needed to address climate change. First, greater use of renewable resources will require an expanded grid just to transmit electricity from wind-power sources in the Great Plains, for example, to cities with high demand for power. And, second, this will also require the use of a so-called “smart grid”, so that greater reliance on intermittent sources of electricity, such as from wind farms, can be balanced with cuts in consumer demand when power is scarce.

But the timing of grid expansion, important for the use of renewables and achieving climate goals, is not coincident with the appropriate timing of the economic stimulus. As was reported in an article last year in the New York Times (“Hurdles (Not Financial Ones) Await Electric Grid Update,” January 7th 2009, p. A11), the CEO of the American Transmission Company, which operates in four midwestern states, said that the firm’s most recent major project, a 200-mile transmission line from Minnesota to Wisconsin, took two years to build, but eight years prior to that to win the necessary permits.

Likewise, an article by Peter Behr in Climate Wire (“Green Power Express line gets derailed by patchwork grid rules”, February 12th 2009, p. 1) focused on the dilemma facing ITC Holdings, the nation’s largest independent electric transmission company, which has been seeking permission from the Federal Energy Regulatory Commission to build a line to bring wind power from the Great Plains to the Midwest and East. The company’s chairman and CEO, Joseph Welch, indicated that a greater hurdle than the necessary money or “even the ever-present citizen opposition to new transmission projects” is a set of rules for interstate transmission lines that effectively prohibits projects that are not immediately required to maintain the grid’s reliability. A project intended to provide future green power does not meet the test.

These are just two examples of the unpleasant reality of the pace of investment and change in this important category of green infrastructure frequently talked about in the context of quick economic stimulus. Surely, economic recovery, increased reliance on renewable sources of energy and a smarter, interconnected grid are all important. But that does not mean they are best addressed with a single policy instrument: the economic stimulus package.

So, the strongest support for green job creation is with regard to economic expansion, as opposed to changes in the economy (which is why China is able to “green its economy” as it rapidly expands). Of course, the key economic question remains whether even more jobs would be created with a different sort of expansion. In any event, while we seek to expand economic activity through economic stimulus, it can make sense to try to reduce any tendency to lock in new capital stock that would make it more difficult and costly to achieve long-term environmental goals. But that is very different from claiming that all substitution of green activities for brown activities creates jobs in the long term.

As governments use economic stimulus to expand economic activity, they can and should tilt the expansion in a green direction. But rather than a “broad-brush green painting of the stimulus”, this may call for some careful, selective, and well thought through “green tinting”.

Addressing the worst economic recession in generations calls for the most effective economic stimulus that can be devised, not some stimulus that is diminished in effectiveness through excessive bells and whistles meant to address a myriad of other (legitimate) social concerns. And, likewise, getting serious about global climate change will require the enactment and implementation of meaningful, dedicated climate policies. These are two serious but different policy problems, and they call for two serious, carefully crafted policy responses.

OPENING STATEMENT

Steffes Electric Thermal Storage makes devices that store excess off-peak renewable electricity very simply, as heat, by heating up electric coils surrounded by ceramic bricks in a sealed container. The ceramic bricks are thermal sinks. They soak up the heat slowly, and when triggered to, can release that heat, just as slowly, providing low-cost heating.

Excess electricity generated can be stored at any time, like at night from excess wind power, and then released at any time it’s needed; on demand, in the form of heat.

Because it is useful for businesses and homeowners, it is distributed energy storage. 

Replace oil heating
Homeowners in states like Maine, that mostly use oil for heating, could become virtually energy independent with electric thermal heat storage in conjunction with wind energy to compete directly with oil.

With residential wind turbines
In all of the windy Plains states from the Dakotas to Wyoming and Oklahoma, rural homeowners could store their own excess wind power, which is typically generated at night, in electric thermal storage in their home. Then, when needed, that captured heat can be released to warm the home all day. Whether the night wind comes from a utility, or their yard, wind is the perfect partner. It blows when we don’t need it, and the windy states need to use more energy for heating.

With utility-scale wind on the grid
Distributed storage is also good for utility-scale wind farms. This pairing of distributed thermal storage meets a need for stability on both sides: on the one side, the homeowner wants some guarantee of a low electricity rate before adding electric thermal storage – and on the other side utilities generating wind power want some guarantee that there are entities ready to use its energy when its generated (which for wind is when people are sleeping).

With energy-saver incentives
Many utilities already give out or provide discounts on energy-saving devices to encourage energy conservation, to help meet their Renewable Energy Standards (RES) that require them to add more renewable energy. As they add more renewable energy, they need to add more renewable energy storage.

With more wind power on the grid
Distributed storage (in homes) for off-peak electricity might be more cost-effective and easier to implement than centralized storage. Rebates like those for fluorescent light bulbs, could incentivize  homeowners to add electric thermal storage.

With Renewable Energy Standards
In each state with RES requirements that utilities add more renewable generation; homeowners could be also encouraged with incentives to use distributed thermal electricity storage to help use excess wind energy at night.

At the Wall Street Journal’s recent ECO:nomics conference, the “only CEO-level event focused on the relationship between the environment and the bottom line,” the CEOs of some major energy companies expressed their impatience at the US’ slow and unclear movement to take action on climate change and clean energy.

Royal Dutch Shell chief executive Peter Voser said that the industry needs “certainty on the carbon price, certainty on legislation.” Shell is a member of the US Climate Action Partnership.

American Electric Power chairman Michael Morris, regarding climate change and clean energy legislation, said, “We need this done. America needs to lead the world [in clean technologies].”

And FPL Group chief executive Lew Hay reiterated, “We need some certainty about the economics.”

These top CEOs are getting impatient, and there is no question why. The bottom line is, if the US is going to lead the global economy (or even be a significant player in it), it needs to get cracking on clean energy legislation.

In a similar manner, the question the Center for American Progress (CAP) recently decided to pose is this: “Is the US already out of the clean energy race?”. They have just released a report on this topic.

In a wonderful & quick video and an introduction to their report, VP for Energy Policy Kate Gordon and others get into the details of the matter. They show us where the US stands today and what it needs to do to stay or get into the global clean energy revolution.

The CAP states that the US is 2^nd worldwide in clean energy sales, but that when you compare our total sales to our Gross Domestic Product (GDP) we are only about 19^th. Germany, Spain and China, other large clean energy leaders, on the other hand, are 3^rd, 4^th and 6^th, respectively.

The Center for American Progress reiterates what we’ve seen and have said many times by now: “clean energy will be one of the world’s biggest industries, totaling as much as $2.3 trillion” by 2020.

Other countries (i.e. Spain and China) have made huge strides forward in the last year and are continuing to do so in order to capitalize on that, whereas the US is essentially sitting on the sidelines.

As the CAP puts it, the US has this simple choice: “come to the table and feast on the enormous economic opportunity that comes with reducing global warming pollution or be an item on the menu as our economic competitors forge ahead to build prosperity.”

The US is currently far below other world leaders on installed renewable energy per capita (see Figure 1 of the CAP article) and clean tech inventions or patents (see Figure 2).

The CAP chronicles how some successful US start-ups have moved to more proactive countries like China to continue their development and how the US could lose many more of the businesses and economic benefits of the future if it doesn’t get its head in the game (or get into the game).

The bottom line is, as much as clean energy and clean tech may be about preventing catastrophic climate change, they are also about economic growth and the economic future of the world.

As the CAP writes, “China, Germany, and Spain are early winners in the next great technological and industrial revolution. Many other countries such as Denmark, Japan, and South Korea that we do not discuss in this report are also forging ahead with ambitious clean energy economic strategies. The United States, which has yet to fully embrace a truly sustainable growth strategy for the low-carbon future, is not.”

The CAP and others say that the prime things we need in order to compete with these world leaders is a cap and a price on carbon.

The energy giants of the US are asking for these things as well.

Will the US get into the game before it is too late?

A clean-tech start-up generates lots of excitement and a little electricity

“WE BELIEVE that we can have the same kind of impact on energy that the mobile phone had on communications.” So says K.R. Sridhar, the boss of Bloom Energy, which on February 24th unveiled what it claims is a revolutionary fuel cell. Thanks to such grandiose pronouncements and a vigorous public-relations blitz, the “Bloom Box”, as the company’s product has been dubbed, has attracted plenty of headlines. But there are good reasons for scepticism.

That Bloom is now being promoted so loudly is hardly surprising. The firm, which has kept its work secret for the past eight years, has attracted a hefty $400m from venture capitalists, including some who bet on the Segway, a high-tech scooter that promised but failed to change the world. A successful initial public offering or a sale to a strategic investor would allow Bloom’s backers to reap a return on their investment. It would also give a fillip to the clean-tech sector, at which Silicon Valley’s moneymen have thrown billions of dollars in the hope of hitting a Google-like payday.

Mr Sridhar paints a glowing picture of the potential of Bloom’s technology, which uses a series of discs, made from zirconium oxide and coated in special inks, to induce a chemical reaction that turns natural gas, among other fuels, into electricity. This is more efficient, and therefore greener, than burning gas to generate electricity in a power plant and then transmitting it through the grid. The firm has produced some 100-kilowatt units for corporate customers, costing $700,000-800,000. But in five to ten years, Mr Sridhar says, it will be able to make smaller Bloom Boxes, designed to power single homes, for less than $3,000.

That claim has raised eyebrows in the fuel-cell industry. Mr Sridhar believes his target is achievable because Bloom will reap economies of scale as it ramps up production and because fuel-cell technology will improve in leaps and bounds. But a host of other firms have been trying for years to produce small cells cheaply. Andrew Neilson of Ceramic Fuel Cells, which has deals with several European utilities to develop domestic fuel cells and has sold a few two-kilowatt units, points out that it is especially difficult to shrink all of the components needed to feed air and fuel to the cells and to extract energy from them.

Generous state and federal subsidies for fuel cells should help Bloom sell to big businesses. Thanks to these, and to savings on its electricity bill, eBay, which is one of several companies that has been trying out Bloom Boxes, reckons its investment in them will pay for itself in three years. But many firms, including experienced manufacturers such as General Electric, have their eye on the corporate market, too—which helps explain, along with filings from car companies working on fuel-cell batteries, why patents for fuel cells far exceed those for other sources of green power (see chart). Moreover, the more often subsidies are claimed, the less keen on them governments tend to become.

Why investors have been deserting clean energy

THE slogan that BP adopted in 2000, “Beyond Petroleum”, was brilliantly unforgettable. It linked the company’s name with the bright, clean future which, the flower/sun logo implied, was to be found on the far side of fossil fuels. But that, as it turned out, was unfortunate, for the company is no longer hurrying towards those fresh green pastures.

BP insists that the role of renewable energy in its strategy has not changed, but admits that investment in it will fall from $1.4 billion in 2008 to between $500m and $1 billion this year. The company is selling some of its renewable-energy assets, including three wind farms in India, and has cut its solar-cell manufacturing capacity in Spain and America. The one renewable-energy source it still seems to be serious about is biofuels.

Shell, which also took a sizeable punt on renewable energy, admits that its strategy has changed. Earlier this year its then chief executive, Jeroen van der Veer, said of wind, solar and hydrogen, “I don’t expect them to grow much at Shell from here.” Further investments in renewable energy, he said, would focus on biofuels. Linda Cook, who resigned in May as head of Shell’s gas and power business, said that wind and solar “struggle to compete with the other investment opportunities we have in our portfolio”.

Whereas policymakers have been scurrying from conference to conference to urge the world on towards a green future, investors have been walking away from it. For one businessman the attendance at the World Business Summit on Climate Change in Copenhagen in May said it all. “There was the usual raft of bigwigs on the panel, but the audience was just hangers-on—journalists, PR people and so forth. There were no serious delegates there.”

The clean-energy business has had a hard year. Investment in the sector tanked in late 2008, as did share prices (see chart 2). Private equity and venture capital held up a little better, but not much. The beginning of 2009 was “scary”, according to Michael Liebreich, chief executive of New Energy Finance, a consultancy.

The industry suffered particularly badly in the credit crunch. Almost by definition, renewable energy sources have low running costs but high up-front costs. And because they are regulated assets with long-term pre-defined revenue streams, they are particularly suited to debt finance, and therefore tend to have high debt-to-equity ratios (typically 80-20). “When the project finance disappears, you’ve got a problem,” says Robert Clover, director of alternative-energy equity research at HSBC. He points out that some of the banks that suffered worst during the crisis—RBS, Lehman Brothers, Washington Mutual and Fortis—were also among the biggest in clean-energy finance.

As the flow of finance to electricity generators dried up, so did the orders to equipment manufacturers. Mr Clover reckons that wind-turbine manufacturers’ order books so far this year are down by 55-60% on the same period in 2008.

But the problem was not just the shortage and cost of capital. The credit crisis also revealed a basic problem with the clean-energy business. Fossil fuels are, in terms of the energy they store, remarkably inexpensive to get out of the ground and sell. That makes dirty industrial processes irresistibly cheap—so long as they are not required to cover the costs of the pollution they cause. Companies cannot be expected to abandon them unless they get a clear signal from consumers or governments that it is in their financial interest to do so. And they are not getting such a signal.

Public awareness of global warming picked up significantly about three years ago. Now most consumers claim to be concerned about it, and public concern is one reason why companies have been branding themselves green. Energy companies boasted of their diversification out of fossil fuels. Businesses with small carbon footprints, such as banks and retailers, promised to go carbon-neutral.
But consumers’ commitment to greenery is rather doubtful. There is a big market for organic products (though it has got smaller since the recession), but shoppers are more concerned about their families’ health than about the planet, and few are prepared to pay premium prices for green products. BA, for instance, has been offering carbon offsets with its flights for the past four years, but finds that only around 3% of customers buy them.

In the absence of pressure from consumers, governments need to give businesses a shove. That was the idea behind the Kyoto protocol, which aims to cut greenhouse-gas emissions by getting countries to accept binding targets with timetables attached. It divided the world into developed countries, which are required to cut their emissions, and developing countries, which are not. When rich countries ratify the protocol, they have to commit themselves to reducing their emissions by a certain percentage below a date of their choosing (mostly 1990)—Britain by 12.5%, Japan and Canada by 6%, and so on. The idea is that in order to meet these targets governments should introduce policies that send price signals to businesses to shift investment away from dirty products and processes to cleaner ones.

Global carbon-dioxide emissions have risen by 20% since the protocol was signed in 1997, so the plan has evidently not worked all that well. There are three main reasons for that. First, rich countries have exported some of their dirty industry to the developing world. Steel, cement, cars, fridges, computers, toasters, kettles and all the paraphernalia of modern life the production of which used to cause pollution in developed countries are now made in China and other developing countries where emissions are not capped—and have risen partly as a result of that shift.

Second, the world’s biggest emitter when Kyoto was signed, America, has not ratified the protocol, and the biggest polluter per person among countries with significant emissions, Australia, did so only two years ago. It might reasonably be argued that the blame should fall on those countries’ governments, rather than on the treaty itself; but a treaty in which the most important parties play no part cannot be said to be a success.

Third, some countries have failed to cut their emissions as promised. In 2007 Canada’s emissions were 29% above their 1990 level and Spain’s 57%. But there is no need for them to miss their targets, thanks to the countries of the former Soviet Union. Their dirty industries collapsed during the 1990s, so they are awash with carbon credits that can be bought for a small consideration. Countries in danger of failing to meet their Kyoto targets can simply buy what is known in the industry as “Russian hot air”. As the 2012 deadline for meeting Kyoto targets approaches, there is a growing appetite for those meaningless credits.

Even in countries that have cut their emissions substantially, business is not always getting the right signals. Britain’s apparently creditable performance, for instance, is less the result of a well-designed policy than the “dash for gas” in the 1980s, spurred by the hostility to the coal industry of its then prime minister, Margaret Thatcher. Attempts to get a renewable-energy industry going have flopped.

Britain is not alone in finding it hard to work out how to send business the right signals. Policies that are effective, efficient and politically palatable have proved elusive everywhere.