Fixing the economy - nature is the missing link

A very important series of UN meetings is taking place this week in Nagoya when representatives from around the world meet to discuss how to value the natural environment. The hope is that the meeting will be able to set a target to halt biodiversity loss by 2020, though that will require, as always, money and a willingness to support the developing world. The last point is especially important given the level of environmental destruction in the developing world.

By placing no value on 'nature' at the moment we have created a massive market distortion that fuels unsustainable economic growth and prevents innovators from commercialising great ideas. If we as consumers and the businesses that we buy from do not need to pay the true cost of the resources and economic destruction we cause then how can the market be efficient and how can we make reasonable economic decisions? This is an example of the type of distortion that allows outdated business and industries to stay in business. Far from supporting the creative destruction on which capitalism thrives it is destructive and stupid.

Since we now understand that there is an economic and social cost to losses in the natural environment it is a worthy exercise to value these resources so that communities, companies and governments can better manage their use. It will also help us, as communities and individuals, to understand the true cost/benefit ratio of a business and industry to our region and the world.

It also seems logical to update the 'economic rules' by which capitalism is governed from time to time. We are doing exactly this in the wake of the recent banking crisis and here's hoping we do the same thing now we understand and accept how critical the natural world is to humanity.

Google Changes the Economics of Offshore Energy

Google has announced a huge investment in energy infrastructure off the East coast of the USA with US$5 billion to be put towards an offshore energy transmission line. It will be situated approximately 10 miles off the coast, will be 350 miles long and could provide power to approximately 1.9 million homes.

This could change the economics for wind power in the United States, particularly on the East coast. Grid connection is one of the biggest costs and most complex issues for wind farms, even on land, so for investors in wind energy it will make the business planning and financing of projects much easier.

It is interesting to see that Google thinks the project will provide a strong financial return (that may not mean profit). Perhaps this represents a viable way to develop this type of basic infrastructure - someone invests in the underlying infrastructure and then sells access to other investors.

It will be especially exciting if this project is able to be used in the same way as the highway system where the basic idea is to move people, the products used to move those people can (within certain parameters) be anything. That would enable innovators and engineers to come up with new ways of generating energy provided it is compatible with the infrastructure.

The Green Army

Another big story this month is the news that the US Military has decided to turn to renewables in its constant quest for a new battlefield edge. Though it could also be due to a new found love of the environment I suspect the reasons are primarily tactical and perhaps financial. The House reports that Pentagon Officials have advised the House Appropriations Defense Subcommittee that by the time a gallon of fuel reaches Afghanistan it costs the military approximately $400. That cost does not include the human costs associated with moving large volumes of fuel into the heart of a landlocked nation.

Anything that saves the lives of soldiers is a good thing in my book but this will also result in a large new market for renewable energy technology. The military is probably (I have no stats to back this up) one of the largest buyers of advanced manufactured goods in almost every industrialised country. A shift towards buying advanced ruggedised products will change the economics of many products and companies. When the Military buys things it usually buys big, especially when it comes to energy. The New York Times reports that the Secretary to the Navy wants 50% of the energy for the Marines and Navy to come from renewable sources by 2020. The first items that are reportedly being tested by 150 Marines include solar panels, energy conserving lights and solar shields that provide power and shade.

This is on top of the incorporation of hybrid technology in Naval ships with the commissioning of the USS Makin Island which runs on electric power at low speeds.

The big 'What if?' in the room

I said I would talk a little more about ARPA-E and though I have been reading about its projects with interest it is hard to know where to start. Perhaps that is a positive, it is one of the broadest programs I have seen with funding for potential breakthrough technology in areas ranging from new grid design to carbon capture technology for power plants. The thing I like about this program is that it is seeking to fund revolutionary technology, the type of technology that will probably amount to nothing but could ... change the world.

I think this is just the type of program that government's in my home country (Australia) and my adopted country (UK) would be unlikely to fund. Certainly not on a comparable scale (even relative to their economies), despite the reinvigoration of conservative politics over the last 12 months there are still few (if any) countries on Earth with the appetite for risky innovation as America.

Here's hoping it works!

Oh and check this map out, it gives a great overview of the geographic spread of programs and highlightsthe continued strength of California in US innovation.