The credit crunch and its impact on green projects
There have been a number of good stories and blog postings about the extent to which the credit crunch and its economic downside will hurt renewable energy projects and act as a drag on cleantech financing. Here’s my own take on how things are playing out in Ontario.
Obviously, it doesn’ t help that oil has fallen back to the $80-a-barrel range. And obviously, some projects will be squeezed more than others given the “flight to quality” we expect to see. Already we’re seeing some hesitation from U.S. politicians about placing a value on carbon or advancing cap-and-trade schemes. The same discussions are taking place in Europe, and much more passionately. Nobody yet is talking about completely abandoning such things, but there is talk of delays — and this is a concern (see this post in the WSJ’s Environmental Capital).
This is also on the minds of big industry. To repeat the words of GM vice-chairman Bob Lutz, who last week described a scenario in which the automaker’s Volt electric car could hit a brick wall:
“Let us say that over the next 18 months the world goes into a major recession, car sales and fuel use drop dramatically, the steel companies produce less steel and therefore less energy, China finds its main export markets drying up, so they are into a contraction … And at the same time Canadian tar sands come onstream, and coal-to-liquids come onstream. All of a sudden there is a reduction in primary demand in petroleum plus all these additional new supply sources. Oil drops to $25 a barrel and we’re looking at gas pump prices at $1.25 a gallon. I personally don’t think that’s going to happen, but that would be a dramatic event for the Volt because everybody would say, ‘Ha!, why should I bother?”
Only a week later exactly what Lutz described began to happen. Now, we still have $80 oil and gasoline at $3 a gallon, but that has happened in just a month! What Lutz describes was an 18-month horizon. And GM is hurting real bad. Let’s hope we’ve reached bottom, or close to bottom, and that the Volt emerges from the carnage mostly unscathed.
I should emphasize that green or clean technology isn’t just about fighting climate change and saving polar bears. It’s about energy security, becoming more competitive, and creating the economy (and jobs) of the future. In this sense, one could argue the need now is even greater to move in that direction. As California governor Arnold Schwarznegger said at the Solar Power International conference in San Diego on Monday night, “We must not give in to those that say that environmental goals should take a back seat until our economy comes back. It’s backwards thinking and just plain wrong.”
I couldn’t agree more. Problem is, backward thinking has a track record of ruling the day when people start to panic. People become selfish, inward looking, and more nebulous concepts like “climate change” get pushed to the margins. Personally, I don’t think we’ll see a repeat of the 1970s, when the eventual collapse in oil prices led (in North America, at least) to an all-out abandonment of conservation and renewable energy. The reason is because we saw what commitment to such programs did in Japan, parts of Europe and Scandinavia. We know, in retrospect, that it paid off in the long run for these countries to stick with the program, and resist the flight to consumption and excess.
Let’s hope we learn our lesson this time around. I’m convinced, on the whole, that we have.
Tags: cleantech, credit crunch, investing
Tyler Hamilton is editor-in-chief of Corporate Knights magazine and a business columnist for the Toronto Star, Canada's largest daily newspaper. In addition to this Clean Break blog, Tyler writes a weekly column of the same name that discusses trends, happenings and innovators in the clean technology and green energy market. This blog is a personal project started in April 2005. It is not an official blog of the newspaper.
October 14th, 2008 at 2:56 pm
Alas! I saw this coming at some point- falling gas prices and how they could affect the momentum of a greener change. Sadly, you are correct- most people wil take the short view of things when now is the time to push for a change in how we power our autos, our homes and our factories. Frustratingly, the technology exists today to make such a change, especially if you don’t mind some nuclear thrown in the mix (I do not, and see it as an important part of our overall energy scheme to get completely off of carbon-based energy). If only our next leader, whether here in the US or Canada, will have the foresight and vision to see what this can really become. How it can drive our economy for years both in terms of money not sent overseas for fuel, and in terms of creating an export consisting of Green Technology. Okay, let me take off the rose-colored glasses now;-) It will be an interesting year after the elections!
October 14th, 2008 at 2:59 pm
Oh- and myself- a lifelong, mostly-republican-voting conservative- I am more and more leaing toward Barack Obama, because of his more agressive stance on this issue- that is how important I see it for our future;-)
October 14th, 2008 at 3:00 pm
“Leaning” – ARRGH- I should vote for Noah Webster if my online spelling gets any worse!
October 15th, 2008 at 1:07 pm
[...] on What Could Kill The Volt Published October 15th, 2008 in General News. Tyler Hamilton at Clean Break reminds us of what Bob Lutz said a month ago when I asked him if a recession could kill the Volt, [...]
October 15th, 2008 at 1:11 pm
[...] Learn. Shop. Explore. Tyler Hamilton at Clean Break reminds us of what Bob Lutz said a month ago when I asked him if a recession could kill the Volt, [...]
October 16th, 2008 at 3:32 am
[...] Hamilton at Clean Break reminds us of what Bob Lutz said a month ago when I asked him if a recession could kill the Volt, [...]
October 16th, 2008 at 10:58 am
It’s important to note that while the low fuel prices and supply-side economics of the 80s placed a major damper on the progress of the 70s, they did not stop the momentum altogether. Indeed, environmental awareness continued to gain traction throughout the 80s and 90s. The current (or recent?) greentech boom was well underway back when oil was $20 a barrel, and ‘An Inconvenient Truth’ was just a glimmer in Al Gore’s eye.
Meanwhile, the importance of climate change and energy security are well cemented into our minds, even if the solutions have to go on the backburner for a while. We’re not going to forget about the volatility of oil prices the second gas comes down. And while investment will suffer for a time, greentech remains as one of the most promising sectors. The mindset of the past month should not be taken as representative of the next five years.
In fact, the idea that “we all got greedy/lived beyond our means” has emerged as something of a mantra in this latest crisis. This suggests a “small-c” conservative attitude is taking hold–literally, conservation will be seen as a good investment strategy. And we will (tend to) reward long-term thinking in our political leaders even if we are temporarily shy of overly ambitious-sounding projects.
Until now, we’ve been far more willing to spend money on the latest gadgets, than on conservation-related improvements that will ultimately save us money. Will this change?
As an architect, I’m constantly stunned to see how many of the green building ideas now in vogue were fully developped in the 70s, during the short period of time between the first oil shock and the return to cheap energy in the 80s. Many of these ideas were well and truly shelved, but others had momentum. Building codes significantly improved in the 80s. Windows and major appliances have seen huge advances in efficiency throughout the last thrity years.
Recessions are inevitable. They do not stop progress. The current one, or a siginifacant fall in gas prices, will not kill the greentech industry.
October 17th, 2008 at 9:09 pm
[...] Hamilton at Clean Break reminds us of what Bob Lutz said a month ago when I asked him if a recession could kill the Volt, [...]
October 21st, 2008 at 3:00 am
[...] Hamilton at Clean Break reminds us of what Bob Lutz said a month ago when I asked him if a recession could kill the Volt, [...]
January 24th, 2009 at 5:37 pm
[...] The credit crunch and its impact on green projects [...]