This week's feature article, by David DeRemer, originally appeared in frog Design Mind "The Green Issue", October 2007, and was republished with permission.

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Beyond marketing campaigns and good intentions, it is time to look at the greening of America's businesses from the long-standing perspective of supply and demand.

Suddenly, everyone is "green." A quick scan through leading business publications would leave the uninitiated believing corporate America is hell-bent on solving the global environmental crisis. Yet take a look around - nothing seems to be all that different. Buildings with nobody inside still light up the city skyline; highways are still choked with fuel-inefficient vehicles ferrying solitary souls. So what gives? How is everything the same, while everyone claims to be more environmentally conscious?

One possibility is that corporations, and the advertising agencies they employ, have pushed a green agenda into the mainstream by focusing on the latest hot-button consumer sentiment. An eco-friendly stance is easy to sell, and it is telling that the number of green-focused advertising agencies has grown more than 10x since 2003. [1] Clearly, big money is being spent and, as a result, consumers are now familiar with words like carbon footprint, neutrality, and sustainability. But, marketers are also becoming familiar with a different word: "greenwashing."

If marketing departments are adopting green campaigns because it resonates well with consumers, not because it is supported by corporate action - aka greenwashing - then certainly things do not bode well for the planet. If all this green chatter turns out to be nothing more than a marketing trend, then - as is the case with all fads - it must ultimately fade. So the question that every polar bear, migratory bird, and predatory fish wants to know is: how can the knowledge that mankind needs to do something about the eco-crisis translate into palpable results?

Both the solution and the problem lie in economics.
Today's industrialized society is governed by the laws of supply and demand. Driven by the pursuit of ever-increasing profit margins, corporations diligently create goods and services to satisfy the demands of the market. Modern society has been blessed by tremendous innovation that has led to unprecedented economic prosperity. However, with this quest to produce, satisfy, and grow has come a deepening dependence on an infrastructure that is extremely damaging to the environment.

Indeed, it seems that everything can be tied to pollution. The clothes we wear are dyed with damaging chemicals. Cars and airplanes consume huge quantities of oil. Electricity, the lifeblood of society, most often originates from a puff of black smoke. The miracle of plastic sits for centuries in landfills. Even the cows we eat are polluters; cows burp 50 million metric tons of methane per year, [2] and methane has an effective radiative forcing that is 23x CO2. [3] Unfortunately, many of the things that modern society can't seem to live without come with an environmental trade-off.

But industry hasn't necessarily done anything wrong. While there are certainly examples of corporate exploitation, for the most part companies have simply created supply to satisfy demand, or created supply where they anticipated demand would one day be. The corresponding negative impact on the environment can be attributed to a prioritization of immediate needs and wants over long-term considerations. Booming economics have created a set of consumer desires where the impetus to protect the environment has never been more powerful than the desire to have a strawberry Pop-Tart - with sprinkles.

Yet, within those same forces that drive society to inadvertently harm the environment is the power to correct the problem. If every consumer decided that being more environmentally friendly is a critical feature of the products and services they want to buy, then companies would theoretically adapt to meet that need. And thanks to more prominent media coverage and the rise in green marketing (greenwashing aside), more people than ever are factoring environmental impact into their purchasing decisions.

Yet if this is so, why have the products in our stores remained so remarkably unaltered?
Unfortunately, environmental impact is only one of the inputs that go into a purchase decision, and only recently has it emerged as a major factor. For most of the world's population, price is - and will continue to be - the most important consideration when making a purchase. In fact, anyone who knows what a supply and demand curve looks like knows that the vertical axis is always price. And at this point, green products are simply too expensive. Unless relative costs come down, green products will continue to be nothing more than a fad with compelling media coverage.

Let's face it: being green is a luxury. Buy a hybrid car; pay a premium. Buy a compact fluorescent light bulb; pay a premium. Buy wind power; pay a premium. A price-sensitive family will have a much harder time switching to green products if they want to continue to pay for their groceries - even if they really, really want to save the polar bears.

But, we can't fully blame the corporations for this state of affairs. On the supply side, companies are facing pressure from investors to achieve ever-increasing profit levels, and profits increase when production costs are low and sales high. Changing the game now to focus on green products would require massive financial commitments and carry tremendous risk in the market. Following years of product development and economies of scale, it's easy for businesses to perpetuate the problem with lower cost non-green products. Businesses cannot simply abandon their mainstays now that people have seen An Inconvenient Truth. For many companies, financial success means continuing business as usual, regardless of the effects on the environment.

Some of the required change will occur as the limitations of our natural resources are felt with increasing urgency. Take oil for instance. People are still consuming it in tremendous quantities, despite the knowledge that it is limited in supply and creates pollution. So, why hasn't everyone switched to hybrid cars and wind or solar power? The problem is that it's still too costly to buy the substitute green product relative to the oil-based solution. For lower-income families, or corporations where marginal cost increases are significantly magnified, switching to the green product isn't feasible. The resulting low demand also means companies don't spend a great deal on product development and fail to provide attractive green alternatives. But as the price of oil rises (and it surely will), economic efficiency will start to be more favorable to green products. As relative costs align, more and more consumers will demand fuel-efficient alternatives, and more and more companies will produce them. Already sales of hybrids have taken off in the face of rising gas prices, despite the fact they are still less economically efficient.

The compact fluorescent light bulb (CFL) is another green product being held from widespread adoption due to price concerns. Yet in this case, the green product actually is cheaper than the standard product - in the long run. Unfortunately, the majority of consumers only see the price tag at the point of sale, which is 5-7 times greater than a regular bulb. The true cost savings comes from a reduced energy bill (CFL's use about 75% less electricity) and fewer replacement purchases (CFL's have substantially longer bulb life). But this long-term savings is overlooked due to a lack of awareness, a misunderstanding of the time value of money, and an aversion to risk. In the end, the true obstacle faced by CFLs is consumer education.

Part of the onus to educate the public about available green products, particularly those whose financial benefits are not immediately apparent, is on businesses. If CFLs are cheaper, manufacturers must find a way to help consumers understand. Green practices can be profitable for businesses, if their green marketing fosters demand in areas where they can deliver. GE's Ecomagination campaign, for example, has led executives to coin phrases such as "Green is green," in an effort to demonstrate the company's drive to produce profitable eco-friendly products. Furthermore, GE and several other major corporations are focusing their green efforts on fixing the flawed infrastructure that, while critical to history's economic successes, are wreaking havoc on the environment. Only massive investments into developing innovative eco-friendly products will result in the price reductions necessary to move the green movement forward.

Government policy also has tremendous sway in shifting the economics of being green. Australia passed a bill to phase out all incandescent bulbs in favor of CFLs by 2010, and Canada has aimed to achieve the same goal by 2012. Tax credits, incentives, grants, and other monetary instruments can help bring down the relative price point of green products to make them more cost effective and encourage widespread adoption.

While a reduction of costs falls within the domain of industry and government, consumers must begin to generate stronger demand for green products. Those who can afford the luxury of green products should be participating in the market to kick-start eco-friendly products on the verge of going mainstream. Meanwhile, as many people as possible need to educate themselves and others around them about the fiscal benefits of purchasing and using green products. It is consumers who must change the demand equation so that businesses reap the benefits of their environmental investments, and thus continue to fund them.

Beyond marketing campaigns and good intentions, it is up to the long-standing dynamic of supply and demand to fix the environmental business problem. Producers must supply more eco-friendly products, and people must want to buy them. But, as individuals, we can all help speed up the cycle.

It is up to economics, but the economics is up to us.

Sources:
[1] "Upstart ad agencies find profit in promoting greenness," International Herald Tribune
[2] "Do cow and termite flatulence threaten the earth's atmosphere?," The Straight Dope, 24-Mar-1989
[3] "Climate Change 2001: Working Group I: The Scientific Basis"