This article was originally published in Enterprise Asia’s “The White Book 2011: Best CSR Practices Across Southeast Asia.”

Financial Innovation for Implementing CSR in Small and Medium Enterprises

For entrepreneurs with small or medium enterprises (SMEs), it is a challenge to channel excess revenue into any programs that do not see immediate growth returns, so Corporate Social Responsibility (CSR) programs can seem like a luxury not often afforded to SMEs. However, fortunately for entrepreneurs, innovation is an innate characteristic of smaller, more flexible companies. This innovation grants a comparative advantage to SMEs to find alternative funding sources to institute CSR projects and to leverage those benefits to gain investment and grow business.

The advantages gained from environmental footprint and social development improvements can directly correlate to operational cost savings, lowered employee turnover and absence costs, and positive public relations marketing value. But another, often overlooked benefit of CSR initiatives, particularly for SME entrepreneurs, is the ability to attract investment and grow business by establishing a track record as an environmentally and socially responsible business.

According to a 2009 study by wealth management newswire WealthBriefing, 90% of wealth managers surveyed revealed that their responsible investment (RI) portfolios performed as well or better than other portfolios. The same study identified higher client retention rates for wealth managers who invest in RI portfolios, and it acknowledged a correlation between the entrepreneurial investment community and its targeted interest in RI portfolios.  For SME entrepreneurs, this study indicates the significant potential for drawing higher, longer-term investments by prioritizing CSR as an essential component in business.

Yet, SMEs often find it challenging to realize new investor potential because few SMEs have financial surpluses flexible enough to accommodate the upfront costs associated with seeding CSR initiatives. This barrier can be overcome by utilizing a variety of funding sources, including innovative contracting, government incentives and dedicated social enterprise business development and investors.

Performance contracting is a popular and growing form of service contracting. Often used in energy efficiency retrofits, it places cost-saving performance risk on the service provider rather than the company purchasing the retrofit. This type of contracting has gained significant traction in North America and Europe, with the Institute for Building Efficiency reporting that revenues from energy service companies using performance contracts to retrofit buildings were $4.1 billion in 2008 and projected to reach $7.1 to $7.3 billion in 2011. Another innovative and increasingly popular plan is a power purchasing agreement (PPA), which reduces the liability of installing and maintaining equipment and is often used for high-tech installments like solar photovoltaic panels (PV). Many other financing options, like lease options and certificates of participation (COP), may be available in growing sustainability markets with low upfront capital and minimized risk for business purchasers.

Governments worldwide are realizing the need to reduce upfront costs and financial risks of business to institute socially and environmentally responsible programming. Singapore alone has over 30 government programs promoting sustainability incentives and it provides funding for a wide array of energy efficiency, alternative energy, water efficiency, transportation and other environmental innovation projects. All across Asia, governments, notably including quickly developing India and China, are targeting efficiency and innovation to make their country’s businesses more sustainable. Governmental tax incentives and rebates can be extremely advantageous to a business that is seeking capital to start any CSR programs.

Emerging sectors of investors that are interested in socially responsible investing (SRI) can also be central to CSR improvements in a business. Many of these investors can be found through associations and business development organizations that link investors with responsible business opportunities and provide assistance particularly to SMEs interested in green growth and CSR development. Examples of these groups include organizations such as Enterprise Asia, New Ventures, Small Enterprise Assistance Funds (SEAF), and The Association for Sustainable and Responsible Investment in Asia (ASrIA).

Many venture capitalists also see opportunity for profitable returns from environmental and social initiatives. For example, in 2010 ZheShang Nuohai Low Carbon Fund raised $32 million “to be China’s first dedicated private equity vehicle focused exclusively on the energy conservation, environmental protection and new energy sectors,” according to a report by the Asian Venture Capital Journal. The Impact Investment Exchange Asia (IIX), based in Singapore and launched in 2010, is an example of a trading platform created to meet the demand of investors reaching social enterprises.

While some of these funding opportunities may be non-traditional, the growth of these opportunities shows that there is potential for capital investment in CSR programs. As market innovators, SMEs are well poised to utilize various funding opportunities and turn them into profitable, environmentally beneficial and socially equitable benefits. Additionally, returns on initial CSR efficiency programs can then be converted into seed money for future investments with higher complexity and even greater benefit. With a proven CSR track record, a company can attract even more investments from the burgeoning SRI sector, creating a positive-feedback system of enhanced environmental, social and economic efficiency.

Take one part social programming, one part environmental responsibility and one part corporate profit, mix into one programmatic title and serve up Corporate Social Responsibility (CSR), one of the most important concepts for competitiveness in today’s business climate. Each of these elements, also known by the catchy phrases “people, planet, profit” or “triple bottom line,” dramatically enhance the ability of the others to components to perform. Maintaining a CSR program, therefore, that focuses on integration of these components can have a sum benefit much greater than a focus on any one part alone.

Social Programming

If customers and employees are treated as mutually beneficial partners in a business relationship, profitability becomes much more sustainable over the long-term. Healthy, satisfied customers are loyal customers that will continue to return to the business. A safe, healthy and environmentally friendly workplace causes employees to take fewer sick days and stay with the company longer, allowing fewer work delays, decreased turnover and lowered training costs. By organizing and participating in social charity work, a business enhances reputation, name recognition, and essential public relations value.

Environmental Responsibility

Corporate environmental sensitivity ensures the health and safety of customers, employees, and it also maintains a sustainable supply of natural resources. Reducing toxins and petrochemicals may not only lower manufacturing costs but also reduce risk management and employee insurance costs. Increasing energy, water and material use efficiency in terms of water, energy and material se directly impacts the environmental footprint of a business. A improved environmental footprint alone has great marketing value, but it also allows for a reliable supply of resources or expanded operations based on the same resource flow. Ecological restoration projects can have significant marketable offset value and sometimes even can provide useful ecosystem services to business operations.

Corporate Profit

Ensuring social equity and environmental integrity have a direct impact on bottom line profits. Efficiency measures, resource use reduction, employee health and safety and CSR marketing initiatives can significantly reduce costs and improve brand value. Long-term business stability is sustained by preserving customer and supply chain viability through natural resource protection, customer loyalty and positive brand management opportunities. In turn, a more profitable business is able to spend more capital on social and environmental programs, which again cycles back into profitability.

The inseparable nature of CSR components creates positive and integrated feedback mechanisms that sustain global business, environment and society. A systemized approach to people, planet and profit is one of the most important tools that a business can use to succeed today.

To learn more about what an integrated Corporate Social Responsibility program that promotes operations efficiency and marketing for your business, visit The Green Den Consultancy or contact Daniel McDonell.

Picture: Cornell Sustainability Hub

Because responsibility never sleeps.

The Green Den Consultancy (GDC) opened its cyber doors recently with a core group of Corporate Social Responsibility (CSR) and sustainability experts from around the world.

Providing services like strategic CSR implementation, environmental analysis, footprint audits, training and certification, the Green Den Consultancy offers a “ground-up approach with companies” and “establishes a culture of sustainability by integrating HR, PR and marketing.”

Akhila Vijayaraghavan, the founder of the consultancy, is an IEMA certified CSR practitioner with a BSc in Molecular and Cellular Biology and a PgDip in Environmental Law, recruited an expert team of specialists in environmental policy, economics, engineering and marketing to make a dynamic and skillful consultancy. Based in India, Vijayaraghavan argues that the strength of the consultancy is the diversity and experience of its founding group of consultants:

“With our varied cultural, educational backgrounds and experiences, we cover many industries and specialties that will be very beneficial to multi-dimensional businesses.  Our consultants are on the ground in different geographical locations giving us a ‘from the field’ perspective and local advantages…. We live across four time zones, so, in reality, GDC never sleeps!”

To find out more about what the Green Den Consultancy can offer your business to boost performance in an era where integrating people, planet and profit is necessary to compete, get in touch with the GDC on their contact page, or follow the links below to find out more.

• The Green Den Consultancy
• Twitter: @TheGreenDen
• Facebook: TheGreenDen

To observe World Water Day, I am publishing a short white paper I wrote on greywater and wastewater (blackwater) recycling geared toward the Chicago, Illinois area. Currently, water recycling is hindered in most places by cumbersome or non-existent state and municipal regulations. As water becomes a scarcer and more expensive resource, the practical efficiency of water recycling, both greywater and wastewater is being explored and implemented at high levels of technology.

Greywater Reuse

Definition and Overview

Greywater (also spelled as graywater) is wastewater from showers, bathtubs, sinks, washing machines, and dishwashers. Greywater is generally the wastewater from a household that does not flow out of a toilet (sewage/blackwater).

Greywater accounts for about 60%-80% of the outflow produced in homes. It contains little or no pathogens and 90% less nitrogen than wastewater (toilet water). Because of this, it does not require the same treatment process.

Greywater reuse is currently utilized mostly on small residential scale, with the outflow primarily going to landscaping irrigation.

Recycling Methods

Greywater plumbing must be designated and separated from blackwater plumbing. It is currently used either for irrigation and landscaping, which is fairly simple and inexpensive, or for flushing toilets, which requires greater expense, sterilization equipment and testing. The same technology currently used to create flushing water (see Mercy Homes Chicago) could be used to make drinkable water, but no sites have been permitted for turning it into drinking water in the Chicago area.

Systems require a duplicate and separate set of pipes for greywater to be differentiated from wastewater.

Precautions for non-potable recycling include minimizing storage time to prevent contamination. As human contact should also be eliminated with systems that do not sterilize the water, under-soil drainage is the preferred method to eliminate pooling and maximize natural bacteria breakdown by the soil.

Household greywater recycling diagram (homeevol.com)

Benefits

Greywater pipe separation is a relatively easy low cost when planned into a new smaller-scale residential construction. Cost and space savings can even be gained by reducing the wastewater treatment system, especially for septic systems.

Other Potential Benefits:

1. Reduces the amount of potable, fresh water used by households.
2. Reduces the flow of wastewater entering sewer or septic systems.
3. Minimizes the amount of harmful chemicals used by homeowners.
4. Supports plant growth without using expensive potable water.
5. Helps recharge groundwater when applied outdoors.
6. Raises public awareness of natural water cycles.
7. Saves money on water bills.

Challenges:

Separate greywater piping systems are exponentially more expensive as a building becomes larger than one story or if it is a retrofit of an existing unit.

Municipal and state codes are a hindrance to greywater reuse. In Chicago, special permitting by the Dept of Public Health has allowed (as of 2010) only two buildings to reuse greywater for toilet flushing. Illinois Plumbing Code, Illinois Private Sewage Licensing Act and Code currently prohibit discharging of greywater to ground surface and/or for irrigation. (See below for best policy examples elsewhere in the United States.)

Although cleaner than wastewater, greywater reuse systems can carry contaminants or become a pathogenic hazard, insect breeding sites, or odor nuisance if not carefully executed. Receiving areas should be monitored for impacts, and best practices should be followed and research and testing on benefits and risks should be pursued.

Resources:

• Greywater Recycling from Brac System

• Oasis Design Greywater Information Central

• McHenry County Groundwater Protection Program – Section 5 Wastewater

Best Chicago Area Examples:

• Yannell Net Zero Energy House: LEED Platinum zero net energy home that collects used washing machine water to flush toilets in the home. Chlorine, microfiltration and UV light are means of disinfection.

• Margot and Harold Schiff Residences, 1244 N. Clybourn, Chicago, IL (Mercy Housing Lakefront): Affrordale housing that recycles greywater to flush toilets in a 96 unit residential building, with added rainwater collections system. UV light disinfection primary means of treatment.

Best Practice Guidelines and Polices:

National standards: Green Building Standards Guide by the National Association of Home Builders was recently updated to include greywater reuse as option where permitted.

State policy models: Two different policy approaches noted, “design standards model” vs. “performance standards model.” Design standards tend to reduce demand of projects because of strict design guidelines, but produce results much closer to estimates. Performance standards policy models encourage innovation in cost and performance, increasing demand, but a measurable system of oversight and monitoring must be in place because the outcomes are not as predictable.

• California Guidebook – Design standards model, also part of the State Plumbing Code making it uniformly legal to install greywater reuse systems.

• Arizona – Performance standards model, statewide adoption of greywater for outdoor irrigation. Also a Greywater Conservation Tax Credit for residential incentivization.

• Massachusetts – Allows permitting for new construction for greywater flushing use.

Wastewater Reuse

Definition and Overview

Wastewater, also known as blackwater, is toilet waste. Wastewater recycling is typically considered on a much larger scale than greywater reuse due to the higher risk of contamination and mishandling on a small scale. There are four potential uses for reused wastewater, ranked in infrastructural difficulty of processing.

1. Turf irrigation
2. Industrial
3. Agricultural irrigation
4. Drinking water

The theory behind most current wastewater reuse is to apply recycled wastewater to lower value uses (ie turf irrigation) that would otherwise utilize high value potable water applications. However, there are some highly advanced systems, the largest of which is in Orange County, CA, which do use reclaimed wastewater for municipal drinking water (see below).

Recycling Methods

Wastewater can be reclaimed by centralized wastewater treatment plants, decentralized smaller scale plants, or by satellite plants that can be located upstream from the central plant to intercept certain amounts of wastewater before entering the sewer system or by tapping into trunk sewers.

The simplest uses such as turf irrigation (gold courses, cemeteries) and industrial uses (drillbit cooling, concrete cutting, ground stabilization) do not have as stringent water quality needs and can be treated much the same as the Metropolitan Water Reclamation District of Greater Chicago (MWRD) current secondary standards, which is not disinfected.

Agricultural uses require somewhat more stringent standards due the concern of foodborne illnesses, but this use is currently permitted under Illinois law. It is not clear what standards would be needed, but a higher level of secondary standards than above would by most reports be preferred.

In the most difficult method to create drinking water, such as the case in Orange County, California, wastewater is sent through filters, UV light sterilization, reverse osmosis and diluting basins before being injected into the groundwater for further dilution and filtration. The process takes two to three months before the water reaches the tap.

Benefits and Challenges

Although many obvious water conservation benefits are the similar to greywater reuse, benefits of wastewater recycling are realized best on large scale processes, both in terms of centralized treatment and large scale agricultural, industrial or public use.

One of the greatest reported challenges to reusing wastewater is the psychological deterrence by the public of using reclaimed wastewater. Therefore, the most immediate potential benefits would be the lower-value use, such as the turf irrigation or industrial uses.

To get to drinkable standards requires a large upfront investment, although the cost may be considered reasonable relative to alternatives in some situations. The Orange County project cost $481 million to build, but the alternatives included desalination (up to four times the cost) in addition to the cost of new waste piping facilities to be built into the Pacific Ocean.

The McHenry County Groundwater Action Plan estimated that pumping recycled wastewater for golf course irrigation in the Village of Addison would cost the golf courses $0.92/1000 gallons, and $1.75 for other irrigation and industrial uses. This is a major incentive as current water rates for the study area were $4.05/1000 gallons.

Other challenges include concerns over chloride, nutrients and pharmaceutical products in the wastewater, which would require further treatment and/or monitoring for various applications.

Best Examples and Resources

• McHenry County Groundwater Protection Program – Section 5 Wastewater

• Village of Algonquin: Contractor Handbook – Use of Treated Effluent as a Non-Potable Water Source• Orange County Water District’s Groundwater Replenishment System

• GE’s Advanced Water Reuse and Recycling

300 words on slowing down the pace.

One of my favorite extra-curricular activities is the old-fashioned stroll. Whether walking around the block or through the woods, nothing creates a more calming, refreshing and connecting perspective than a stroll. I am not talking about “hiking” or “backpacking,” because those terms imply a pre-determined destination, a physical commitment and some kind of a challenge. Although I do, on occasion, enjoy a good hike or backpacking trip, the stroll is a completely different approach to walking.

A stroll has several characteristics that differentiate it from other forms of walking, and these traits are often best described by the absence of prescriptive requirements. For example, a stroll has no pre-determined length or destination, and asked where one is heading on a stroll, a person might just respond, “Oh, just around.” Lacking a plan, the stroll also has no set pace that must be followed, a condition which usually results in a medium to slow, but almost always variable, rate of walking. Finally, a stroll requires minimally specialized location and equipment. The stroll could take me down to the neighborhood park in my loafers or down a windy forest path in my sneakers. Either way, I like to leave the water bottle and backpack of energy bars at home. More than likely, I will be home in time for dinner anyway.

By slowing the pace and wandering around, strolling allows my attention to become distracted by curiosities I might normally overlook, like dogs playing in the park, a street hot dog vendor’s interactions or the first blades of spring grass. By allowing my mind to absorb the subtle details of the everyday environment, the stroll provides me with important connections about the world around me, and I find these links provide one of the best mediums for a calm and refreshed perspective.

The Tiger by John Vaillant

In The Tiger: A True Story of Vengeance and Survival, John Vaillant uses the 1997 factual account of a man-eating Amur tiger (also known as Siberian tiger) in Primorye, Russian Far East to frame the ambivalence of humans to the essential ecology that they cherish, respect, overuse and fear.

The story is set in a surrealistic landscape, the southeastern most region of Russia. A liminal realm whose maritime and taiga ecologies intermingle subarctic and subtropic species, whose economy and civilized order has been decimated by recent government perestroika and the collapse of the USSR, and whose people eke out a subsistence living from the forest in eerie post-apocalyptic style ghost villages.

Vaillant gives great weight to this unique ecology as a driving force between the conflicts. His descriptions of this exceptional geography, which he dubs a ‘Boreal Jungle,’ paint a colorful picture of the most biodiverse region in Russia:

“Here, timber wolves and reindeer share terrain with spoonbills and poisonous snakes, and twenty-pound Eurasion vultures will compete for carrion with saber-beaked jungle crows. Birch, spruce, oak, and fir can grow in the same valley as wild kiwis, giant lotus, and sixty-foot lilacs, while pine trees bearing edible nuts may be hung with wild grapes and magnolia vines. These, in turn, feed and shelter herds of wild boar and families of musk deer whose four-inch fangs give them the appearance of evolutionary outtakes. Nowhere else can a wolverine, brown bear, or moose drink from the same river as a leopard, in a watershed that also hosts cork trees, bamboo, and solitary yews that predate the Orthodox Church. In the midst of this, Himalayan black bears build haphazard platforms in wild cherry trees that seem too fragile for the task, opium poppies nod in the sun, and ginseng keeps its secret in dappled shade…. It is over this surreal menagerie that the Amur tiger reigns supreme.”

It is in this bizarre ecosystem that human beings, as with most ecosystems on Earth, have chosen to make their home. But by 1997 in Sobolonye, the remote village around which this story takes place, the people have lost the government sponsored logging company and the only means of industrialized revenue. The isolated villagers in Sobolonye are essentially left to fend for themselves as the government frameworks crumble and supply chains have broken down. This decline leaves a strange kind of life for the villagers where, the author says, they are “governed by a kind of whimsical rigidity – a combination of leftover Soviet bureaucracy and free market chaos.” He goes on to point out the bizarre outcomes of this decline up through present times in a real scene that could be taken straight out of an absurdist play:

“The status quo of dysfunction here was summed up by the local postman, who traveled his hairy, backcountry route in a government van decorate with tassels, fringe, and an inverted American flag. After stopping in at Sobolonye’s administrative offices one winter day in 2007, he returned to his vehicle shaking his head. ‘There’s no government here,’ he said. ‘It’s anarchy!’”

Without jobs, government, basic supplies or options, the villagers turned to the land to survive through subsistence trapping, fishing, hunting, gathering and poaching. An existence based on this land is hard and poverty and starvation are ever present.  But the technology, such as an ancient diesel generator and satellite televisions leftover from more optimistic times, still lingers in the village, an odd juxtaposition that adds to the paradoxical nature of the place. “Nowadays,” the author points out, “in many parts of the world – not just Sobolonye – it is possible to starve while watching television.”

Most poaching in the Bikin Valley, where Sobolonye lies, was and is done on a small subsistence scale to satisfy a meager hand-to-mouth existence. But one Amur tiger corpse, although illegal both in Russia and China, could bring a poacher $50,000 USD just over the Chinese border. The Chinese appetite for all parts of the Tiger, combined with the opening of the border to trade in the 1990s, has taken a tremendous toll on the Amur tiger, that actually was beginning to rebound in population through the 1980s.

Loss of habitat and prey added to tiger poaching demands creates a desperate situation for the Amur tiger, where there were about 450 remaining in the region in 2008. It is in this setting that the hero of the story, Yuri Trush, a sort of Wyatt Earp wild-west lawman of the Bikin Valley, emerges as the necessary medium between poachers and the law, between taiga and civilization and between tiger and man. In 1997, he is the head of a regional unit colloquially known as ‘Investigation Tiger,’ whose position, funded by international conservation groups but with broad law enforcement powers, focuses on preventing tiger poaching and export to China.

But Trush is also described as a man of the people, who understands that illegal poaching is a necessary evil for these villagers and struggles deeply with the conflicting requirements of regulation, conservation and desperation. By being able to connect with each of these worlds through commiseration, he represents the undying hope for a future coexistence between humans, their methods of economy and the preservation of their ecology.

In the case of the man-eating tiger terrorizing Sobolonye, however, Yuri Trush is also the person that must hunt down one of the animals he is hired to protect. Because of the increasingly desperate times for both tiger and human, the two species’ crossed irrevocably and people were killed. In the case of this particular tiger, there is no option in the struggle: the tiger learned how to hunt humans and must be killed.

Modern humans’ struggle for coexistence and sustainable livelihoods within their ecologies is the greater theme of The Tiger, and in it Vaillant does present options. By employing descriptive analyses of evolutionary biology and anthropology, he draws useful parallels between the potential of impending doom for the Amur tiger and that of human civilization. Both tigers and humans are smart, adaptable predators at the top of the food chain. Both species’ survival is based on competition, habits and fierce defense of territorial possessions. In the case of Sobolonye’s villagers, both humans and tigers even compete for the exact same food sources. As such, the tiger truly represents a keystone species for humanity, a “canary in the coal mine” that is giving fair warning of the overuse of the resources that sustain both species.

Some might argue that it is simply that human intellect and industry has allowed people to compete and survive better, and the tiger is merely a casualty of this evolutionary competition. But drawing out competitive over-consumption to its logical conclusion after the tiger is gone, will tragedy, poverty and violence between humans not also result from a lack of resources? As the author asks, “Where does this trend ultimately lead? Is there a better way to honor the fact that we survived?”

Recently, I traveled to Amsterdam on a course designed by the Foresight Design Initiative to make a comparative analysis of sustainable innovation in Chicago and Amsterdam. Both cities are doing fascinating work in the environmental sector, but one of the most simple yet striking features of sustainability in Amsterdam is the bicycling. I probably don’t need to spend much time describing why bicycling is one of the most sustainable, healthy and freeing modes of transportation, but the cultural pervasiveness of bicycling in Amsterdam and the Netherlands can certainly teach us some lessons. The following is a short excerpt from my presentation at the Chicago Green Drinks about our bicycling tour Amsterdam:

There are several reasons why bicycling is so popular in Amsterdam: like Chicago, it’s a flat city. They have very little space (a reason which motivates many of their environmental initiatives), so they have to embrace alternative forms of transportation (perhaps even alternative forms of bikes). The city has a history and culture built around bicycling which leads to the development of policy and infrastructure around the bicycle. The combination of culture, policy and infrastructure make this a very practical and comfortable form of sustainable transportation.

On what must have been one of the coldest days of the year in Amsterdam, not so different from the weather we left in Chicago, our group went for a morning bicycle tour with Pascal van den Noort, director of the organization Vélo Mondial, an international non-profit that promotes cycling.

Some interesting features of the tour included dedicated and separated bike lanes with their own stop lights, features like the award winning Nesciobrug pedestrian and biking bridge and other newer developments incorporating features like bike lanes between buildings and traffic diversion to the periphery.

On the topic of making bicycling a practical, comfortable and safe experience, I was interested to see the lack of bicycle helmets – I don’t think I saw one the entire trip. While personally I’m a fastidious helmet wearer in Chicago, this contrast really exemplifies the ease of biking in Amsterdam and the stress and danger of biking in Chicago. The biking culture and environment in Amsterdam really does promote a safe and relaxed environment for riding that can be utilized by everyone from men and women to small children to the elderly.

One last plug has to be made for our excellent tour guide Pascal and his organization. Vélo Mondial promotes cycling as a positive mode of transportation and sustainable mobility through global conferences, projects and events. I hope there could be a potential to involve the organization in the promotion of biking here. In Amsterdam, a city where Pascal described one of the main problems as “not enough bicycle parking,” I have high hopes that Chicago can and will learn a great deal in terms of making sustainable mobility a practical, comfortable and typical activity in the city.

Bicycle Parking (from velomondial.blogspot.com)

There has been much ink spilled over the environmental and economic costs and benefits of the federal government’s “Cash for Clunkers” program (officially known as the Car Allowance Rebate System)- whether the higher gas mileages outweigh the benefits of new raw material use, whether the foreign automobile sales really helped the American economy or whether the money spent there would have been spent elsewhere anyway.

But a certain economic aspect of the program I have not heard frequently addressed frequently is the resulting deadweight loss from the economy in the long term because of the inefficiency resulting from taking an entire segment out of the used car market.

For simplification, I will disregard the requirements and break vehicles into three segments based on economic value in a hypothetical regular market:

Group A. High Value: > $4,500

Group B. Medium Value: $1,000 to $4,500

Group C. Low Value: < $1,000

Here it is important to pose a new vehicle to purchase in our hypothetical example, and we select the cheapest to find out what the minimum cost to the consumer is in this program. The Hyundai Accent GS Base is the cheapest new car on the current market, running around $10,000. In the highest rebate Cash for Clunkers category, the consumer can receive a $4,500 credit. This leaves the consumer paying, at a minimum $5,500 to participate in the Cash for Clunkers program.

Minimum Vehicle Cost ($10000) – Maximum Rebate Allowance ($4500) = Minimum Consumer Cost ($5500)

Group A, the highest value used cars, are not worth trading into Cash for Clunkers because they are worth more on the market than the value of the rebate.

Group B, the medium value vehicles, are the most useful for Cash for Clunkers, because the economic return to the consumer is greater than the value of the car. Additionally, individuals owning cars valued at $1,000 to $4,500 are far more likely to be able to afford the minimum consumer cost of $5,500 for a new vehicle, unlike:

Group C, the low value vehicles. Like Group B, the economic return is greater than the value of the car, greater even than those consumers in Group B. However, these consumers are much less likely to afford the minimum $5,500 necessary to take part in the program.

The clincher comes when one considers what Group C will do 1-5 years in the future as their low values cars necessarily need replacement. Normally, consumers in Group C would move to cars in Group B that have reduced in value enough to become affordable to them. However, many of the Group B cars have been taken out of the market due to the program. The result is a future bottleneck as demand outstrips supply of Group B cars as Group C begins to need them.

Group B vehicle prices will increase. However, because having a vehicle in the US is rather inelastic (ie, necessary, so the demand will not change much) consumers in Group C must either spend a higher percentage of money on these vehicles (at the cost of something else) or suffer the potential economic, employment and social consequences of not having a vehicle, which are rather great in the United States. Many on the edge of affordability will not have a choice and will be forced to take the latter.

This scenario, which government and consumers have gladly bought into in the Cash for Clunkers program, is called ‘deadweight loss’ a term describing an economic inefficiency when goods and resources are not allocated efficiently. When we talk about efficient resource allocation, we are also talking about environmentalism. Although we must use natural resources to live, environmentally conscious living uses the least resources for the greatest gain, which is also economic efficiency.

When doubts about the ostensible environmental and domestic financial short term gains from the program are put into the equation, we will only be able to look back at the Clash for Clunkers program with regret.

My good friend Jon Flowers recently gave a presentation on sustainability in the Chicago area. He produced this list of terms and definitions to clarify some of the buzzwords that are out there. Of course, no list is comprehensive, but it is a great reference guide, with particularly well reasoned definitions.

Organic-

Organic foods are produced according to certain production standards. For crops, it means they were grown without the use of conventional pesticides, artificial fertilizers, human waste, or sewage sludge, and they were processed without ionizing radiation or food additives.

Free Range-

Historically means the raising of farm animals without fences, allowing the animals to graze on the land and maintain a diverse diet. Now is defined by the USDA only for meat poultry as poultry given “access to the outside”. Egg poultry, swine, and cattle do not have any officially recognized criteria for being defined as “free range.”

Native Vegetation-

Plants of a certain geographic habitat that were not transported to that habitat by man. Native plants are adept at surviving without human intervention (watering, shade, fertilizer). Examples include Illinois prairie grasses and Arizona cactuses.

Biodiversity-

A measurement of the variation of life forms within an ecosystem. Ecosystems with a high level of biodiversity are more apt to survive, as extinction of one species does not result in a gap in the food chain/web.

Community-based Economics-

The practice of encouraging consumers to buy locally made products. The goals of buying local are to encourage self sufficiency of a community, reduce transportation of goods and services, rejection of outside influences, promotion of personal investment in the community, and education of consumers.

Fair Trade-

The idea of giving disadvantaged producers in developing countries or smaller operations a fair chance on the world’s market, thereby supporting their sustainable methods of production. Fair trade products are usually identified with the International Fairtrade Certification Mark.

Global Warming -

Global Warming is the rise in the earth’s temperature resulting from an increase in heat-trapping gasesmainly carbon dioxide and methane) in the atmosphere. Fossil fuels used in the production of electricity may contribute to two-thirds of these gases found in the atmosphere.

Green-

Synonymous with sustainable.

Biofuel-

A fuel derived from living plant material that can be burned for energy.

Hybrid Automobile-

A vehicle that runs on a combination of electric power and gasoline or diesel fuel power. The electric power is supplied by a battery that may or may not be charged via a wall socket. Most commercial hybrids use the running fuel engine to recharge the battery and do not recharge from braking.

Flex uel Automobile-

A vehicle that runs on a combination of conventional gasoline and ethanol, from 0% ethanol to 85% ethanol. A flexfuel model is almost identical to gas-only models. Federal fuel efficiency ratings: http://www.fueleconomy.gov/Feg/findacar.htm

Sustainable-

Meets the needs of the present without compromising the ability of future generations to meet their own needs.

Compact Fluorescent Light-

A small fluorescent light that operates by passing a current through mercury vapor, which gives off ultraviolet light that excites a phosphor coating on the inside of the bulb. The phosphor coating gives off light when excited. CFLs last longer and generate more light with less energy than conventional incandescent (current passed through a filament, which lights up with heat) bulbs. The mercury vapor contained in CFLs is toxic, and all CFLs should be disposed of properly.

Rainwater Harvesting-

The capture of rainwater for human use. Rain barrels (55 gallon drums connected to a residential roof drain) and cisterns (large underground storage tanks) are common storage devices used for harvesting.

Peak Oil-

The idea that world oil production has reached its peak or will in the very near future (US oil production peaked in 1970). Falling production will be accentuated by increases in demand from population growth, the industrialization of developing counties, and ever-shrinking new oil discoveries.

Offshore Drilling-

The drilling of oil wells near coast lines. Oil rigs are given an allowance of oil, drilling fluid, and metal cuttings they may discharge into the ocean. The allowance usually accumulates to about 90,000 tons of pollutants discharged into the ocean over the lifetime of one rig.

Clean Coal-

The process of removing carbon dioxide from the emissions of coal fired power plants (and other CO2 generating sites). Carbon capture and sequestration (CCS) is the most common clean coal technology discussed. There are no power plants in the world that currently capture and sequester their carbon dioxide, and the technology has been deemed infeasible until 2020.

Alternative Energy sources-

Usually refers to renewable energy sources that are not fossil fuel based. Examples include wind, hydro, tidal, solar, and geothermal energy.

Green Building-

The practice of constructing buildings that minimize impact to the environment. Practices include: employing high efficiency space conditioning systems and appliances that are commissioned before operation and maintained properly; designing buildings in concert with their environment; selecting sites that minimize automobile transport, land disturbance, and maintenance; employing fixtures, plumbing, and practices that reduce potable water use and sewage generation; ensuring a proper dwelling environment for inhabitants; and encouraging material, site, and resource reuse as much as possible.

Sustainable Development/New Urbanism-

The practice of constructing new places for human activity with goals of preserving natural functions and minimizing resource use. Trends have been to develop: on previously developed land if possible, near public transportation, with extensively planned communities, using mixed use practices, increasing building density, and encouraging walking and biking.

Composting-

The process of subjecting liquid and solid biodegradable waste to natural bacterial processes to remove all harmful bacteria in the waste and break down the complex molecules of the waste, and then using the finished product for a rich organic soil substitute.

LEED-

Leadership in Energy and Environmental Design. A certification issued by the United States Green Building Council (a non profit trade organization) to recognize environmentally friendly development. 

Brownfield-

A vacant plot of land that no one wants to buy because of real or perceived pollutant contamination.

Greenfield-

A plot of land that has not been previously disturbed by a soil grading.

Life Cycle-

The term used to evaluate the whole impact of a human development, activity, or trade good from development to decommissioning/destruction. Synonymous with footprint.

Grey Water-

Water that has been used by a human activity but is not contaminated with bacteria or pollutants that could be degraded by bacteria.

Economics by nature is the study of tradeoffs. However, when politicians propose a development projection, like the Richton Salt Dome Strategic Petroleum Reserve (SPR) project, somehow they’re all agreeing that there is no tradeoff – everybody wins forever. Supposedly, it will have no adverse impacts. Senators Thad Cochran (R-MS) and Roger Wicker (R-MS) sound like they’re rapping a repetitive hip-hop hook, as long as they keep repeating “jobs, infrastructure, energy security…jobs, infrastructure, energy security”. Unfortunately, just saying it enough doesn’t make it come to pass.

 
The Richton, Mississippi salt dome is the proposed site of a Department of Energy (DOE) SPR expansion. On the surface, the DOE portrays the project as a reasonable idea – the ground surface is minimally damaged and salt domes are typically fairly impervious choices to hollow out and stockpile petroleum reserves. The reserves can be used in emergency situations. They have been used twice since the SPR system was enacted in 1975, during the first Gulf War to overcome the OPEC blockades and during Hurricane Katrina when the Gulf Coast pipelines were disrupted.

As planned, the Richton project would squirrel away 160 million barrels of oil, or 16% of the planned SPR of 1 billion barrels (it stands now at 727 million barrels).

The powers that be, led by the DOE, would like you to think that this is a no-brainer and the best alternative for strategic petroleum reserves. However, when you consider the long-term environmental and economic costs to the state of Mississippi and the United States as a whole, the argument doesn’t stack up.

First let’s explore the “positive” talking points the politicians have.

 1. The 160 million barrel stockpile is a lot of oil- it will really help us to weather any catastrophe.

This actually isn’t that much – it would last the U.S. about 7 days at its current consumption of 20.68 million barrels per day.

2. Hundreds of construction jobs will be created.

For a while- most will be very temporary and continue the cycle of boom-bust economy which has us struggling right now.

3. Additional infrastructure will be created for the State of Mississippi.

The infrastructure the politicians brag about, once installed, will not be used for anything else. They will sit there until the SPR has to be tapped, which for now averages to be once every 19 years. This is wasted infrastructure and a deadweight loss to the economy.

4. The reserve will lower the price of oil.

No it won’t, Senator. Don’t make me explain this one.

What are the negative effects?

 
The Economy

The project is estimated to cost $2.9517 billion dollars in addition to $35-40 million a year in upkeep costs for perpetuity. Add to that the cost of stocking it with oil, which the average DOE estimate comes out to $9.704 billion.

In the end, this will directly cost $12,655,700 in addition to the yearly upkeep costs. This does not include the potential effect of raising oil prices while stockpiling.

The Environment

They propose desalting the mine by pumping water through it for 5 years at 50 million gallons per day. That water has to come from somewhere and go somewhere. The proposal has been to take it from the Pascagoula or Leaf Rivers causing incredible damage to the habitats of several threatened species. The alternative is to pump it from the gulf, at an even greater cost than originally planned. While this will save the rivers, the dissolved brine slurry will have to go back out to the gulf, producing detrimental effects to the salt balance.

Leaks in the pipeline that takes out the brine slurry, which even the DOE admits will happen, will destroy wetlands. Even in the Environmental Impact Statement, the DOE admits that 1557 acres of wetlands will be disturbed, some irreversibly. Wetlands are important, so important in fact that there have been estimates that each acre of wetland provides economic benefit of $9,000 dollars per year through such things as water infiltration, pollution filtering and storm buffering. Add on another $14 million to the yearly upkeep, DOE.

Of course the environmental damage will contribute to all sorts of other indirect costs to the economy such as commercial fishing, sport fishing, effects on small businesses that use the water, ecotourism, etc. There are very modest and short term financial gains from building the project to the construction workers and engineers. There is little to no financial gain from the finished product – in fact it is a deadweight loss of the value of the oil and the cost of upkeep while it is not being used. The financial losses from the environment are permanent.

One of the most tragic parts of the story is the way the DOE has proposed and attempted to implement the project – at best shady and at worst illegal. But, of course, for an illogical and terribly planned project that is really the only way to do it. The environmental impact statement (EIS) required for a project like this is legally obligated to explore reasonable alternatives. Although full of big words and geological studies, the DOE certainly has not given full faith.

The original project specifications necessitated that it be able to hold 160 million barrels of oil. The DOE chose several “reasonable alternatives” to study that held far less than that capacity. The sites were, unsurprisingly, rejected because they only held 60 million barrels and not the required 160 million barrels. Thanks DOE for that insightful study into sites you already knew wouldn’t work in the first place.

Here is my alternative to the project: DO NOT DO IT.

It seems they forgot to explore the “No Action” alternative in the EIS, which is standard procedure in writing an environmental impact statement. Instead, I suggest creating an emergency fund for the state of MS or even all the gulf coast states with the 12.6557 billion dollars and add 40 million a year to it. Plan emergency management from the interest (at 2% that is still over 250 million a year).

Better yet, give everyone in the state 2.9 million dollars- less than the cost of the project and let them plan for the emergencies – they’ll know what to do better with it, it will cost less, and they won’t be paying for irreparable short and long-run mistakes.