Business and pollution-as-usual offers a future leading us relentlessly toward global ecological crisis as billions of tons of carbon dioxide pour unimpeded into the atmosphere each year in a world dependent upon and addicted to fossil fuels.
Is there another way? Is it possible, is it even conceivable that we can transform economic growth from a force moving in lockstep with fossil fuel pollution, to a transformative force for ecological improvement, where the growth of GDP means carbon emissions decline and the ecosphere heals? Must economic growth of any kind remain the enemy of life? Must an efficient renewable-energy powered world remain an unfulfilled promise until a distant future? For the remainder of the 21st century and beyond, must we suffer the dire consequences of permitting business and pollution-as-usual until a catastrophic future unfolds?
We have irreversibly and tragically unleashed global forces leading to catastrophic climate change. Can renewable resources networked on a continental scale, using high voltage direct current transmission networks (HVDC), really provide clean energy to power our world, to light and heat and cool our homes, power our factories, run our vehicles and replace the vast majority of fossil fuels within the 21st century, if we act as if our lives and our futures and our children's future depend upon it?
Getting the prices right
Carbon dioxide is our leading long-term global ecological threat. But fossil fuel carbon dioxide is certainly not our only major source of pollution, depletion, and ecological damage that threatens the biosphere and our wellbeing. Solving the carbon dioxide problem is a necessary, but not sufficient step, toward an ecological future. How can we deal with habitat destruction, with depletion of resources, with poisoning of our air, water, soils, with draining of aquifers, with sweeping the sea clear of fish, the leveling of forests, the erosion of soils, the consequences of an industrialized agriculture based on enormous inputs of fossil fuels for fertilizers, pesticides, antibiotics, and an industrialized aquaculture? The ecological crisis is immediate and dire and not limited to consequences of climate change. It has become the norm, and global with intensifying super storms, drought, flood, wildfires, mud slides, melting ice and rising seas.
How can the myriad transactions in a global economy for a plethora of goods and services be informed by ecological signals to help achieve ecological ends? Can we do more than just slow the pace of ecological degradation? Can we find a way to help let all economic activity be informed by ecological signals? Can we, in fact, find a way to make markets work the way they were intended, that is, to send clear and accurate price signals to investors, producers and consumers? How can economic growth mean ecological improvement?
The quick answer is that by using comprehensive ecological consumption taxation on all goods and services, for example, either in the form of a smart sales tax, an ecological value-added tax, or a structure of ecological taxes on pollution sources and sinks and on ecological impact, we can raise the prices of unsustainable goods and make sustainable goods of similar quality less expensive, more profitable and gain market share. Business people pursue lower costs and higher profits. Consumers search for lower prices.
Ecological taxes can be phased in as zero new net-revenue taxes, replacing dollar-for-dollar existing taxes such as income and payroll taxes. Ecological taxes tend to be easy to administer. For example, a smart sales tax, since it is paid by businesses on the value added by their sales, uses the credit-for-invoice system on their purchases and is therefore almost entirely self-enforcing since businesses have every reason to file their taxes to claim credit for all their purchases. Under an ecological value-added tax system, all goods and services will be rated based on their degree of sustainability using objective measures, based first on industry averages which will provide an ongoing incentive to improve performance and lower tax rates.
An ecological tax system focused on pollution sources and sinks and ecological impact can, for example, easily replace all property taxes with carefully calibrated ecological-impact taxes, and income taxes with assessment on pollution sources and sinks for an ecological market. An ecological tax system of whatever style needs to be comprehensive to seal the hole in the market bucket and stop the costless flow of pollution externalities that sustains business and pollution-as-usual.
An ecological growth system
We do, in fact, have the tools to build an ecological growth system that can use trillions of dollars of future investment for ecological improvement, building through enterprise a sustainable and prosperous future. This means changes in the rules for business-as-usual. It means the withdrawal of consent from industrial pollution-as-usual. It means transforming our energy system. It means transforming our tax system. It means redefining fiduciary responsibility, by law, so that the pursuit of profit must mean ecological improvement in the context of social and ecological justice. It means the creation of sustainability as a new asset class, for example, the ecological value of displacement of carbon dioxide emissions by renewables, Sustainability Credits (SCs), to be monetized on the books of investment banks as paid-in capital and cash to be invested in more renewables. SCs can become the basis of trillions of dollars in green investment capital based on displacement of gigatons of fossil fuels by renewables. And it also means, of course, the rise of a mass citizen-led movement to demand change.
No one in an ecological growth system will be permitted to continue to pollute endlessly, with impunity, and without charge. This does not mean shuttering factories tomorrow and putting millions out of work. What it does mean is to begin to send economic signals throughout the economy that ratchet up slowly (but not too slowly) that allows businesses to make strategic decisions and investments in sustainable processes and products to maintain long-term profitability and profits. The truth of the matter is that there are, in fact, today myriad mega-polluters, old factories and production facilities ‘grandfathered’ and exempted for decades from complying with environmental regulations long-ago adopted for all new plants. They will continue to operate as long as they do not have to spend money to comply with requirements for ecologically sound, and usually much more efficient, operation. For example, there are the old coal plants grandfathered under the Clean Air Act and old paper mills still permitted to use dioxin-creating chlorine for paper bleaching. They are competitive only to the extent that they are allowed to continue to pollute, as they always have fully depreciated assets, with minimal investment in operation and maintenance expenses beyond the minimum required to keep the plant running.
I was part of a team that did an energy audit of a large chemical plant in Nashua, New Hampshire. Corporate headquarters ran the old facility very hard indeed and had no interest in our suggested and economically cost effective low payback energy improvements. The company apparently would make investments only in what increased output and gross income, and not in expenses that reduced operating costs and increased margin per pound of product. The diligent plant engineers had to respond to over-firing their fire-tube boilers leaving vanadium deposits from flame impingement on the boiler walls, the vanadium coming from ancient sea-slugs that formed part of the oil. The insulating deposits which reduced heat transfer and boiler output had to be chiseled off the tubes. Of even greater concern was the heavy use of the chiller whose sudden failure represented a potential major safety danger.
Under an ecological tax system, a dollar of income produced from unsustainable and inefficient conduct would be taxed at a substantially higher rate, thus sending crystal clear signals to corporations. Today, a dollar of income from poison pays the same tax as a dollar of sustainable income. If net income from unsustainable conduct was substantially reduced as a consequence, the market would quickly discipline polluters once the ecological tax system was fully operational. A five year phase-in gives fair warning to incumbent polluters to change. Under an ecological tax system, improvements in efficiency would mean — in addition to reduction in costs — a reduction in tax rates by reducing pollution, depletion, and ecological damage under an ecological tax regime.
An example of the signaling power of ecological taxation
An ecological tax system will quickly send unmistakable signals to both customers and to Wall Street, where the bottom line — not good sense — rules. In the following example, the combination of an efficiency improvement and a reduced ecological tax rate increases company earnings per share (EPS) by 54%. The market can and will follow ecological taxation price signals very quickly.
In a simplified example, currently a chemical plant has income before taxes of $25 million on $175 million of capital investment. Under a 30% tax rate, net income after taxes is $17.5 million. The company is considering either a major $10 million dollar energy efficiency improvement with a two year simple payback, saving $5 million a year in operating expenses, or an expansion of existing production processes that would increase gross income by $5 million dollars a year. The investment is to be financed from cash-on-hand from retained corporate earnings.
If production is expanded, net company income (ignoring depreciation) before taxes is $30 million. At a 30% rate, taxes are $9 million. Total net income after taxes is $21 million a year. Not bad. Under an ecological tax system, a $10 million dollar investment in efficiency results in $5 million a year savings. Income before taxes is now also $30 million. But because of dramatic reductions in pollution, depletion and ecological damage, income from the plant is now taxed at a 10% rate. From the standpoint of Wall Street, net income has soared from $17.5 million a year to $27 million a year. Increasing the all important EPS by $9.5 million, or 54% in one year would warm the heart of both a Warren Buffet considering buying a company, or an option trader betting on a positive quarterly earnings report to get in and out with a handsome daily or weekly profit.
Last and best chance
An ecological growth strategy is, I believe, the market system's last and best chance before unfolding ecological crisis and economic collapse foreclosing options beyond a brute struggle for survival. This article is not another contribution to the eco-collapse, the sky is falling, all is certainly lost genre. Nor is it another 'step one: abolish corporate capitalism' manifesto. Making economic growth mean ecological improvement encourages us to do what we do best, apply our entrepreneurial energy to build an ecological growth system and unleash an age of sustainable global prosperity and peace. It therefore entertains the prospect that the profit-driven free market, given requisite new market rules, proper price signals, and supportive government action might, just might, pursue a high economic growth strategy that results in both ecological improvement and profit. This is our chance, at last, to prove that ecological economic growth is not an oxymoron.
The hour indeed is late. If we do not act very soon, the sands will run from the hour glass and we shall all be overtaken by the consequences of ongoing and increasing mega-pollution. Keep going in the wrong direction and it should be no surprise that we reach ecological collapse sooner or later. But it is still within the power of productive market systems, I believe, to make the necessary changes in market rules and investments to create a global ecological growth system. This must be based on actions changing the rules that govern our economy that will overcome market failure that supports pollution-depletion and ecological destruction.
The good news is that, at bottom, if we pursue an ecological growth agenda now, we don't need a revolution to seize power to build an ecological future. We don't need to abolish markets, or capitalism, or banks. In fact, we don't need subsidies. We don't need higher taxes. Essentially, all we need to do is insist that we end the ability to pollute for free. We need new market rules to get the prices right ultimately for all goods and services up and down supply chains from basic inputs to finished outputs. This can be done systematically and comprehensively by an ecological consumption taxation system to send clear market prices for sustainability, and by creation of ecological assets by displacement of fossil fuel pollution. If market prices can reflect true costs, the market price system will do for us much of what needs to be done. But not all.
It must be democratic government, following the will of the people, not the polluters, that makes and maintains this structure of new market rules, regulation, investment, and responses to market failure that supports a transformative strategy for global ecological growth. Of course, politically, this is no small order. People such as the millionaires of the U.S. Senate and the representatives of the polluters in positions of wealth, power and high office throughout the land will require some tough love to do the right thing. On the other hand, this is a value proposition for enormous economic growth, and prosperity based on economic growth leading to ecological improvement on a global scale. This will mean creation of enormous amounts of wealth in sustainable business and sustainable investment that must be broadly distributed to workers, communities as well as business. Politically, the improvement of the general interest of the overwhelming majority is counterposed to the narrow self-interest of the recalcitrant polluters who turn a blind eye to clear, new market opportunities for sustainable business and cling like grim death to polluting ways.
Nevertheless, enough of those profiting from business and solution-as-usual will use their not inconsiderable power and money to defend the status quo. Success will, in all likelihood, require a massive withdrawal of consent from business-as-usual and the rapid growth of an enormous citizen movement where the hundreds, will become thousands, and become millions in the streets. And recent history provides many relevant and encouraging examples of seemingly improbable reversals of fortune.
When Vaclav Havel was a writer and activist in Czechoslovakia under Soviet domination, he finally made a decision to act as if he was a free man in a free country, able to write and say what he thought. He was committed to “living in truth.” Havel described what this meant in his 1978 essay The Power of the Powerless assuming the standpoint of a once obedient community greengrocer.
Let us now imagine that one day something in our greengrocer snaps and he stops putting up the slogans merely to ingratiate himself. He stops voting in elections he knows are a farce. He begins to say what he really thinks at political meetings. And he even finds the strength in himself to express solidarity with those whom his conscience commands him to support. In this revolt the greengrocer steps out of living within the lie. He rejects the ritual and breaks the rules of the game. He discovers once more his suppressed identity and dignity. He gives his freedom a concrete significance. His revolt is an attempt to live within the truth.
Havel was harassed, jailed and marginalized, and many people were afraid to be seen with him. But he persisted living as if he was in a free country until, to his considerable surprise, he found himself president of the free Czech Republic. We need to remember the lessons of the truth tellers who exemplified the wisdom of Victor Hugo, “all the forces in the world are not so powerful as an idea whose time has come.” It's that time for us to live within the truth. We don't want to discover one day that we have waited and waited until business and pollution-as-usual has unleashed irreversible climate catastrophe and mere survival is the best we can expect. It's time to speak. To act.
Today and Tomorrow
What can happen when we open our eyes. What are the choices we face, both good and bad, what are pathways forward? Economic growth can mean ecological improvement, and that we can move from self-destructive industrial business-as-usual to a sustainable and prosperous ecological civilization rooted in democracy, markets, peace, and an integrated sustainable energy, agriculture, forestry and industrial ecology. This is a sustainable world as a value proposition for ecological transformation throughout the economy.
This is a sustainable growth strategy to build a global efficient renewable energy system to replace fossil fuels and nuclear energy, to improve end-use efficiency of production by an order of magnitude, a factor of ten, to pursue most vigorously a sustainable agriculture, aquaculture, and forestry. This is a world of information exchange and sale, where information and zero pollution-zero waste production is central. Our central challenge is that of the imagination, and therefore is political, not technical.
New market rules and regulations can establish the basis for profitable global investment of the trillions that must be expended to transform industrial business-as-usual to an ecological future. And this regime for ecologically-led growth needs to be global. The imposition of high import duties on foreign products not complying with national environmental rules is well understood and is permitted under GATT trade rules. Thus ecologically minded nations need not fear a flood of cheaper and polluting foreign imports. In fact, it is the export of jobs to countries with lower wages and lower ecological standards that has been the source of job loss around the world as part of a race to the bottom. Competitive advantage, if we are to survive and to prosper, can no longer come from allowing more pollution.
The trillions that will be spent on futile attempts at mitigation, and trillions that will be spent on resource wars on an afflicted planet can instead be profitable investments in an ecological future. A global ecological transformation is a prescription, as well, not just for common survival, but for a global end to poverty and war. It will require mechanisms for transfer of information and assets from rich to poor, both within and between nations, to help inform and catalyze the ecological transformation. This is not charity or aid. Rather, it will be to the long term benefit and profit of all. The choice is between a largely peaceful and sustainable global world where trade in information and sustainable production is several orders of magnitude larger than current global product, or an increasingly desperate attempt to preserve the lives and privileges of the few within gated communities and guarded borders in an ecologically collapsing world.
The industrial ‘emperor has no clothes.’ We have the ability individually and collectively to withdraw our consent and cooperation with self-destruction. We can choose instead to pursue a path toward a prosperous and ecologically sound future. We must encourage and advance what can become the great mission and adventure of the 21st century, the global convergence of an ecological civilization as a consequence of the most determined and vigorous pursuit of economic growth that leads to both human betterment and ecological improvement.
Burak Bir, March, 3, 2021. Environmental Disasters Across the Globe in June 2021.
Sustainability credits. Roy Morrison, Climate change and inequality: A new market solution, Wall Street International Magazine, Nov. 1, 2020.
Redefine fiduciary responsibility. Inara K. Scott and Gerlinde Berger-Walliser, It’s Time to Redefine Corporate Social Responsibility, Nov. 28, 2017.
Sending ecological price signal in markets. Benoît Timmermans and Wouter M. J. Achten, From value-added tax to a damage and value-added tax partially based on life cycle assessment: principles and feasibility. The International Journal of Life Cycle Assessment, 23, 2217–2247 (2018).
Vaclav Havel. The Power of the Powerless Essay written in 1978.
Kal Evers-Hillstrom, April 23, 2020. Majority of lawmakers in 116th Congress are millionaires Open Secrets: Following the Money in Politics.