Environmental Fundamentalism vs. Capitalism

Wow! Such a serious title, and it’s only about 10 in the morning. At first I wanted to call this piece something wacky like “How Many Bureaucrats Does it Take to Change a Light Bulb?”, but changed my mind after reading Lehman’s (LEH) climate change report. Now is unfortunately not the time for “How Many XYZs Does It Take to Change a Light Bulb?” jokes.

In the broadest sense of the word, capitalism is a system that rewards participants when resources are allocated optimally. Workplace productivity could be increased with more widespread use of computers, and as a result capitalism gave us Bill Gates. Internet users needed a more effective way to search through mountains of information, and as a result capitalism gave us Google.

But sometimes resources aren’t allocated optimally, and capitalism corrects itself, often violently. If you’d like a reminder, just think of the dot com bubble, where investors learned the hard way that the traditional rules of capitalism still apply in an Internet world. The same rules that applied to the dot com era now applies to the era of green investing, and the Lehman report was a great wake-up call.

Lehman’s John Llewellyn authored the report, which attempted to predict the likely future climate change policies. The most shocking figure in the report relates to the controversial EU plan to force car-makers to reduce carbon emissions. Mr. Llewellyn calculates the cost to benefit ratio at 46 to 1. In the case of solar power, he demonstrates that every $1 of benefits cost $130 in taxpayer subsidy. The report shows that switching light bulbs is a more efficient way to cut carbon emissions than solar power, hence the idea for the original title for this piece.

In an article called “Environmental Fundamentalism is Ruining Lives”, Alvaro Vargas Llosa suggests that Western guilt has made the lives of the poor even worse by supporting despots and corrupt governments through foreign aid. He goes on to talk of a new form of Western guilt, Environmental Fundamentalism, which is making the lives of the poor in Mexico even worse. He blames the government-induced increase in demand for ethanol in the U.S. for triggering a massive rise in the price of corn, the chief component of the tortilla.

These examples illustrate clearly that the drive for carbon reduction comes at a cost, and green investing needs to generate a benefit to offset that cost. Otherwise capitalism will end up doing what it does best – allocate resources elsewhere.

If green investing is going to have any place in capitalism, Environmental Fundamentalism would have to make way for Environmental Realism.

Environmental Fundamentalism vs. Capitalism
Photo:Fotocitizen, Creative Commons, Flickr