Financial meltdown: Still bad for the environment

A few weeks ago, I made some guesses about how the big picture trends in the economy would affect the development of clean energy. And though it’s still early days for the financial crisis, so far my guesses look pretty good.

The Times talks to a few industry insiders, who confirm that the credit crunch is slowing down clean energy projects. Abyd Karmali, the global head of carbon emissions at Merrill Lynch, is optimistic in the long-term (as, I suppose, I am too), but acknowledges that funding for energy development is becoming more difficult to find.

Meanwhile, Earth2Tech notes that venture funding for clean tech start-ups remains strong for now, but doesn’t “expect the party to last.” Of course, venture funding isn’t really the best proxy for the financial sector as a whole, and Earth2Tech notes that the credit crunch is already hammering ethanol plants. Environmentalists may not shed any tears for the ethanol industry, but insofar as the plants are stand-ins for the broader clean energy sector, it does appear that tight credit and lower fossil-fuel prices are slowing deployment of renewables.

About those fossil-fuel prices: I mentioned that high fossil-fuel prices are good for renewables. And, in theory, a slowing economy will cause fossil-fuel prices to drop, further hampering clean energy deployment. This process seems to already be underway, although fossil fuel prices remain highly volatile for reasons that no one fully understands (however much they pretend otherwise). So I’ll stick with my prediction that the long-term upward trend in fossil-fuel prices is good for clean tech, but that ongoing volatility will blunt the benefit.

Finally, I mentioned the importance of the political environment and the precarious state of climate legislation during an unfolding financial crisis. This remains true. Karmali claims that uncertainty over the Kyoto successor treaty is holding up projects in Europe, and recent days have seen a raft of articles on European countries that are getting balky about carbon caps in the face of a recession. The good news here in the U.S. is that regional initiatives such as WCI and RGGI appear to so far be proceeding as planned. Federal legislation, on the other hand, seems as distant as ever.

The depths of the current crisis won’t be known for a while. The bailout plan needs time to work, and its success is not guaranteed. In any case, the clean energy sector will undoubtedly continue to grow no matter what happens. Just not as quickly as could otherwise be expected.

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  1. Jeff B - October 8, 2008

    Hi Adam
    I suggest looking at the problem with a different perspective. With the weak economy, there may be the opportunity to slow deforestation in the Amazon, Indonesia, and central Africa. It may also give us time to re-group and outline a plan on how to address C02 emissions in India and China. If the urgency for economic expansion is less in these countries, we should be able to work with them to develop strategies for future capital expenditures on their energy infrastructure which would be carbon neutral.
    Also, in my opinion, the U.S., China and India should step-outside multi-national Kyoto protocols and negotiate bi-lateral agreements on CO2 and environmental protection. It is the only way to get things done quickly and the only way to address the fairness issue which seems to be a sticking point with Congress and the current administration.

  2. Adam Stein - October 8, 2008

    I’ve heard this theory that an economic downturn is good for the environment because it slows growth. It doesn’t really make sense to me. A 2% smaller U.S. economy is still an economy that’s emitting an astounding amount of CO2. And an economic contraction really gums up all the efforts required to reduce emissions: political, infrastructural, and otherwise.

  3. Jeff B - October 8, 2008

    That isn’t the argument that I’m making. My argument is that it is a politically opportune time to take action to protect the major carbon sinks in tropical forests.
    As the situation appears to be developing, the US, Japan, India, China and other major economies are anticipating negative economic growth. Consequently, we know that there should be less demand for palm oil or lumber exports or farmed shrimp even. When first world economies are booming, there is tremendous pressure to continue with business as usual in the developing world.
    Now that demand is slackening, we should go to the business and government leaders in ecologically critical countries and broker deals for their planned logging and farming ventures. With debts to repay and lower expected returns on investment, there is an opportunity to reserve habitat at a lower cost. The key is to be able to provide an alternative outcomes to the people of these countries rather than standing on the sidelines and accepting reckless action which results from desperation.

  4. GetCaughtDead - October 8, 2008

    I see your point, Jeff. But I think the more realistic response to any struggling economy is to cut corners wherever possible. The cheapest resources are rarely the best for the environment. And sure, one could argue the long term net savings of clean energy, but those all require up front expenditures that few people or organizations would be willing to make in such uncertain times.