Framing the Dialogue

Environomics

kermit-the-frog“It’s not that easy being green…It could make you wonder why, but why wonder why?  Wonder, I am green and it’ll do fine, it’s beautiful!  And I think it’s what I want to be.”

When Kermit the Frog famously sang these words, being green was not all that popular and that was the point of his song.  Fast forward a couple of decades and green is good.  Green is so good that television networks have green weeks, schools go green, cities go green, and lots and lots of money is steered toward green enterprises.  Investments in green infrastructure is necessary, it is explained, to drive development of the technology.  That is a reasonable position and one taken by most politicians.  Even the staunches fiscal conservative often bows to green energy.

Until most recently, I worked for an environmental agency and had a very limited involvement with projects given money for green energy projects.  The money given was, as you might expect, taken from working citizens in the form of taxes or as politicians like to call new taxes, fees.  In addition to the grants, many green enterprises were given preferential treatment to hasten their ability to become operational.  I am not suggesting that rules were broken, however these projects got VIP treatment.

Two unrelated stories appeared in our local papers that illustrate Environomics as applied in the Commonwealth of Pennsylvania.  The first story involves the Spanish company, Gamesa, a manufacturer of wind turbines.  Pennsylvania politicians fell over themselves to attract the manufacturer to locate a facility near Philadelphia, Pennsylvania.  By fgamesa_-_wind_turbinesalling all over themselves, I am referring to the nearly $14 million pledged in tax breaks and incentives to locate in Pa.  In January, Gamesa announced that it was cutting 184 of the 700 jobs

Here is the funny part (and by funny I mean my head wants to explode).  It seems that the equipment manufactured in the plant near Philadelphia, which was built in 2005, is no longer in demand.  Gamesa is, however, adding jobs to its other plant.  This is good news for Pennsylvania because the other plant is also located in the state.  If my math is correct, Pennsylvanians “invested” around $7 million to build the plant near Johnstown, Pa.  A June report in the Pittsburgh Tribune Review trumpeted Gamesa’s entry into the United States’ turbine market as President Obama and Congress is expected to “require” more energy to be generated by green technologies. 

In environomics, the government takes your money, gives it to favored industries, passes laws requiring the use of the favored technologies and claims that they have improved our conditions and have created jobs.  Now for the bad news.  Gamesa announced that it is laying off more than half of the workers at this facility.  The jobs are gone, but the politicians have already gotten the photo-op.  You may think that this is Environomics at it worst, but I must disappoint you.

The second story is related in that it centers around another green energy technology, solar panels.  By the way it is cloudy and snowing here in Western Pennsylvania today.  Not great for solar panels.  Again our local paper featured a story on green technology.  A local quasi-governmental agency had installed a series of green technologies in a building that they owned.  The project reportedly cost $3 million and culminated with the installation of solar panels on the roof.

Here is where the Environomics comes in.  It was reported that the project “should” save the agency $5 million over 15 years.  Saving five million dollars sounds great except for the pesky economics involved like the initial investment of $3 million.  Most of you might invest $3 million to get $5 million back except again for the pe

Sweeping snow from solar panels.

Sweeping snow from solar panels.

sky fact that it “should” realize the return over 15 years.  Two things should pop out at you; “should” and 15 years.  If you trust their numbers, you “should” actually get your original $3 million back after around nine years.  That is still a long time to get return on just your original investment. 

I used a future value calculator from Investopedia.com to compare the investment to a more traditional and fairly conservative investment scenario.  My investment assumed an interest rate of 4 percent (this is more than your passbook savings, but easily achievable when you have 3$ million to shop around) and quarterly compounding (this is where you earn interest on the interest that you have earned.  Your passbook savings probably compounds monthly which would earn more money than my assumption).  You may run the numbers yourself (1% per compounding period, $3,000,000.00 invested for 60 periods) to get a return of nearly $5.5 million.  If you ran a business, which would you choose?

That is government and that is classic Environomics.  Since it is not their money they forget that money costs money over time.  There are many stories of grants from government to place solar panels (since I started writing this post, the sun has actually come out a few times) or build wind turbines (while the sun has shown itself, it is very calm – no wind).  I have seen some proposals where I ran some very rough estimates of return on investment (“ROI”), ignoring interest and got ROI’s of over one hundred years.  Try to find a real company that would invest it that project!

Unfortunately this economic scheme is not limited to the environmental industrial complex.

Leave a comment

Use basic HTML (<a href="">, <strong>, <blockquote>)