Thursday, May 14, 2009

Economic Shift - Profit from Carbon

"If men were angels, no government would be necessary." - James Madison, Federalist No. 51

The issue right now for venture capitalists and entrepreneurs is make carbon pay money – in business parlance, to monetize it. Carbon dioxide emissions are, almost literally, everywhere around us. Thus, to change our system we have to make people earn money or save when they stop those carbon emissions. To ensure environmental integrity of the system, it will be necessary to find a way to measure successful incentive adoption – a difficult problem in and of itself. We must mobilize the entire vigor of the American economy and capitalist system.

This means we must help capital flow to two types of projects. The first is those projects that supply our economy with energy – transportation and electricity – and to ensure that investors gain a return on that investment –and- to ensure that those projects emit little, or no “greenhouse gases” – the compounds of carbon dioxide and their ilk. The second types of projects are retrofits that reduce energy consumed or wasted or projects that absorb, avoid, or reconsume these gases – rebuilding your skyscraper, growing new forests, and storing carbon deep underground, for example.

Capital won’t flow if consumers won’t buy. So the back end of this is the monetization – the revenue streams that make investors preferentially decide to invest in (a) low-carbon energy as opposed to high-carbon, or (b) carbon avoidance or sequestration projects. This requires “offset” supply and sale under a carbon trading system. Other revenue streams – such as renewable energy certificates or controlled mandates, might exist, and without these reliable streams of revenue to businesses “clean energy” is not feasible. And, to be stark, without clean energy, there will be severe economic costs in the long term.

This change in our system naturally requires both government intervention and private will. This expresses the overlapping, and occasionally contradictory, intersection of public and private interests. The public interest is long-term avoidance of costs under the strain global warming will cause. The private corporate interests are to maximize short-term revenues and thus shareholder value. The consumer’s private interest in the cheapest electricity and gas he or she can possibly get.

The government imposes the public interest on the private. But private vigor is just as necessary as government intervention. The problem is one of coordination without stifling innovation.

The point of this blog is to help companies position themselves strategically in the new energy world. It is also to discuss how we can ensure that in fifty years we will have achieved our public interest objectives – a vigorous economic world with a stable climate.


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