We have good news this month from the UK, where the government’s latest energy auction secured contracts for 11GW of new renewable energy capacity at a quarter of the price of current gas fired power stations1. The new projects will provide approximately 13% of the UK’s electricity and include mostly offshore wind, as well as onshore wind and solar. This new low carbon power will start to come online within the next 5 years, helping clean up the UK’s energy grid while also helping lower energy bills for citizens. It’s a win for the environment and for the people of Britain who are increasingly struggling with the cost of energy.
It looks like this is an example of market forces driving social and environmental progress, and an example of sustainable business not being an oxymoron. It’s also an example of how government policy can help shape the business landscape to drive environmental progress and help solve the “emissions of existence” that I talked about last week in my post about carbon footprinting.
The question is, can market forces be harnessed to drive environmental and social progress across the economy more broadly?
Making consumption expensive
Early in my career, I was a regular attendee at the Sustainable Innovation conference held each year in the leafy English market town of Farnham. It was the place to meet some of the most visionary and inspiring designers exploring new approaches to sustainable design.
A talk that stuck with me over the years was from a team at Phillips, the Dutch electronics company. They pitched the idea that the environmental impact of an individual product doesn’t matter and that what matters is the total impact of all products used by society as a whole. After all, the planet doesn’t care if Sally has a bigger environmental impact than Sarah, it just cares about the total impact of the human race. They argued that the limiting factor of society’s impact in a given year is the total amount of money in the economy. Therefore, more expensive products have a lower relative impact than cheap products. They argued that the environmental impact of a product or service should not be measured in absolute terms, but relative to price.
Following this logic, they had assessed the impact of their range of televisions and found that the small cheap televisions were the most polluting relative to their cost. One of their huge new plasma televisions had the lowest impact relative to its cost, despite having the highest energy consumption. After all, you could purchase several small televisions for the price of one large one. The conclusion was that luxury goods are more environmentally friendly by virtue of their high cost.
This theory fascinated me, because on the one hand it seemed to make some mathematical sense but on the other hand it sounded outrageous.
Of course, in a competitive market it's not feasible for businesses to simply raise their prices in order to reduce environmental impact. I'm sure that if they could then they already would. However, cost is used as an environmental lever in a market economy. Environmentally friendly products are often sold as premium products at a higher price point and environmental taxes are used to artificially raise the cost of polluting goods and activities.
Although it might seem like the team at Phillips had stretched their theory a bit too far, it’s hard to deny the basic principle that the cost of resources does affect how much we consume. This elasticity of demand is one of the key factors that drives the rebound effects that I discussed a few weeks ago in my post about the Jevons paradox. When energy and resources are cheaper, we consume more of them. When prices rise, we find ways to cut back.
So it would seem that in a market economy, one of the most effective ways to accelerate environmental progress would be to drive down the price of things that benefit the environment and drive up the price of polluting goods. While I think this is broadly true, the Philips example highlights a potential risk of this approach, which is that it unfairly penalises the poor.
Riding the seesaw
This is one of those rather wicked problems. Using cost as a lever for environmental progress can simultaneously act as a lever for widening inequality. We can see this currently as soaring inflation is hitting low income families hard, while the more affluent in society simply cut back on some non-essential spending.
If the limit to how much we consume is driven only by what we can afford, attempts to limit consumption by keeping prices higher will exacerbate poverty. Conversely, attempts to make things more affordable will increase consumption. Damned if we do. Damned if we don't.
This has always been one of the contentious topics of the environmental movement. If those of us in rich countries are unable to live in ways that are environmentally sustainable, how can we solve the environmental crisis and lift hundreds of millions of people around the world out of poverty? It feels like our current economic system puts us on a seesaw, whereby the two big things we need are in opposition.
The example I shared of the UK’s recent energy auctions highlights that in some cases we can achieve a win-win, but I think renewable energy projects like these may be the exception and not the rule. For those of us trying to use business as a force for good, it makes things exceedingly complex. We want to create businesses that are good for people and planet, not for people or planet.
The rules of the game
Perhaps this is one of those challenges that individual businesses or even industries can’t solve alone. Despite the rhetoric of free market capitalism, anyone who scratches the surface quickly realises that there is no such thing as a free market. Markets operate within the rules of the game set out by governments, so perhaps what we need is for governments to redesign the game. In doing so, they could harness market forces to incentivise businesses to use resources more efficiently and develop more environmentally friendly technologies while also putting protections in place to ensure that the poorest members of society are insulated from any market forces that might work against them.
I believe that businesses can make a valuable contribution towards delivering some of the solutions that we need for a more sustainable society. However, we also need visionary governments to ensure that the rules of the game are designed so that the outcome of a thriving economy is a society that is good for everyone and that can be sustained over the long term.
Is the free market a sustainability seesaw?
Really interesting thoughts! Nice to meet you Tom - my husband Joe Mellin sent this post my way and sends his best! I've been thinking a lot about systems change lately. To my ears, the company's proposal and arguments almost press into the realm of disinformation. The arguments seem designed to press for and justify a prechosen conclusion - that companies raising prices gets to count as advancing sustainability, which strikes me as a litigious way of preparing to greenwash. An alternate frame of thinking would be to pick up some of the ideas from Donella Meadows' Leverage Points: Places to Intervene in a System. The company's arguments, to my ear, seem to be a "goose chase" as we call it, justifying and reentrenching the nasty habits of our current economic paradigm and the way we wield it - valueslessly disconnected from the earth. The language the company chooses to frame the problem, before positioning its own increasing prices as a sustainability solution, seems to locks us as listeners psychologically into fatalism around the present paradigm being the only paradigm, as though the best we can do is batten down the hatches and do our best to sink slowly. Meadows points out that any paradigm can be bested by claiming our power to transcend paradigms. The paradigm they're in (any product doesn't matter, what matters to the planet is the sum total of humans using sum total of products) objectifies both humans and products. An alternate paradigm is subjectification and experiencing. Pressing math and optimization on top of a wicked problem is the oldest trick in the book, but acting like (and using math and "logic" to justify!) tame-problem optimization is the best we've got (or even a meaningful frame) for tackling the complexity of a living ecosystem & the possibilities held within it, well.... that's never been a thing. Mathing it doesn't make it true. If you ever want to chat more about Meadows' work I would be so game!