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Is it Time to Put the Carrots Away? by J.P. Bombardier (May 12, 2014)

Posted by: | February 3, 2015 Comments Off on Is it Time to Put the Carrots Away? by J.P. Bombardier (May 12, 2014) |

Sustainable development needed a jump start

Not that long ago sustainability was little more than a buzz word on college campuses. Only the most environmentally focused among us saw sustainability as a real goal. Sustainability concepts like green building were met with strong skepticism.1 Before getting off the ground, the sustainability movement needed to teach big business the facts about global resource scarcity and environmental degradation. Today, things are different. There is an immense amount of work to do before the planet reaches a sustainable equilibrium, but it feels like the greenies won the ideological battle. Now, we must ask ourselves whether the policies established to incentivize sustainability are still necessary.

The need to adopt sustainable business practices is clear. Nevertheless, a meaningful shift towards sustainability will not happen unless it makes good old-fashioned business sense. A business might come to believe in the tenants of sustainability, but businesses cannot afford to spend their money on losing investments. The decision in Dodge v. Ford Motor Co. (204 Mich. 459 (1919)) created a legal imperative to prioritize shareholder profits above other potential motivations. Additionally, sustainability investments often carry high initial costs and promise modest long-term dividends. This could put an environmentally conscious business at a competitive disadvantage compared to businesses’ making purely profit-motivated decisions. Therefore, while the need for sustainability is clear, the business community was understandably hesitant to jump into the green end of the swimming pool.

At the start of the sustainability movement, the biggest barrier to entry was simply the cost. Building suppliers did not commonly stock environmentally friendly building materials, few architects and designers had experience and expertise planning green projects, and eco-conscious construction practices were in the early stages of development. Going green, given all the factors associated with a nascent industry, carried a premium price tag when compared with traditional building practices.

Given the barriers to entry associated with sustainable building practices, it is not surprising that governments wanted to encourage green development. State, local, and federal governments created financial incentives for making green investments. Federal programs included the Energy-efficient Commercial Buildings Tax Deduction, Business Energy Investment Tax Credit, and the Modified Accelerated Cost Recovery System. These programs sought to bridge the gap between the cost of traditional designs and the cost of more environmentally friendly options.

Considering the cost barriers and the skepticism associated with a paradigm shift, early financial incentives were appropriate. Now however, the realities that informed the decision to incentivize have changed. Government investment in green initiatives during the past decade has resulted in the creation of a burgeoning sustainable development industry. Now, suppliers routinely carry green building materials and LEED Accredited development professionals are becoming the industry norm. Because of these changes, the premiums associated with choosing sustainable options have decreased. With luck, downward trending prices will encourage new investments in sustainable development.

Time to switch strategies?

Now that sustainable development is no longer a mystery, businesses are much more likely to comprehend the inherent benefits of going green. In 2011, the Department of Energy found that LEED Certified building have reduced operational costs by 19% on average nationally. Additionally, a 2012 White House report found that investments in energy efficiency during the preceding four year period could be expected to save approximately $18 Billion in energy costs of the lifetime of the projects.

Findings like these, which verify sustainability’s financial bonafides, should provide a new incentivizing force for green enterprises. Now that sustainability has credibility, government inventive programs are less necessary. Further, the costs associated with green development are coming down, and the benefits are more quantifiable. Today, rather than impede sustainability, competitive market forces should encourage green investments.

Governments should still work to encourage sustainable development, but there are better ways to expend government resources. For example, LEED certified buildings have been shown to result in meaningful cost savings, so what why not pass local regulations requiring all buildings to meet similar standards? Regulations could level the playing field and encourage increased conservation without spending tax dollars. Even if new regulations are not the answer, we should ask whether government assistance is still necessary now that sustainability is walking on its own.

under: Business, General, Land Use

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