I came across this fanastic talk by Lawrence Summers at ICRIER ( a think-tank based in New Delhi). The talk is based on global warming and Summers stresses that emerging markets have a bigger role to play than is assumed if we are to lower global warming. It is a good talk and Summers has some good viewpoints.
However, what I found interesting was this:
I always believed as an economist that firms naturally are efficient and they do things in the least cost way and that is how it works. I discovered as President of Harvard, and I do not believe Harvard is at all unique in this respect, that we as a university engaged extensively in constructing buildings and we held those who were involved in the construction of buildings closely responsible for the cost of the building. We asked how much our laboratory can cost compared to MIT’s laboratory or compared to the budget that we set.
We made no effort in assessing the cost of the buildings to build in the lifecycle costs of the buildings, whatever it cost to heat them in the winter or whatever it cost to cool them. So what happened?
People built the buildings in ways that invested as little as possible in insulation so that they could succeed and quite consciously chose to forego opportunities to invest in energy saving that would pay itself back in three or four years when we were able to change that focus by providing special loans and such we produced a somewhat better outcome. It is clear from those who know that such opportunities are ubiquitous, that we do not have in most energy users accounting systems that succeed in giving credit for even the highest return investments that promote efficiency.
The construction firm just did what was expected- minimize expenses and this kept Harvard happy as it meant lower pay to the firm. No one thinks about spillovers to environment and by spending on insulation etc just adds to costs. So, thinking efficiently does not promise the desired outcomes all the time.
I think it would take a while for all construction to become environmentally responsible/friendly. The practices may have started in developed economies but I hardly see anything happening in emerging economies (exceptonals are always there). Apart from materials used for interiors, the construction also causes tremendous pollution because of all the materials used for exteriors.
I would propose that all accounting for construction purposes should have energy accounting as a default. Otherwise I don’t see how things will improve quickly. People ignore these things as first it adds to their costs. Second, people might know environment is important have a short horizon and tend to ignore things which will help them many years later (A classic similarity is savings, people know savings are important but don’t save. This behavior has also been corrected by using defaults). Third, all want to free-ride on each other as there is no accountability and with everyone expecting the other to be more responsible, we see more and more environmentally damaging constructions.
So, if a construction is proposed it should explain how much energy it indicates to save by using such and such measures. It should also indicate how it proposes to use the various construct material so that pollution is minimised. And once it is completed, the builder should review what he had proposed and tell the outcomes. The more environmentally conscious builders should also get more incentives like higher ratings, easier bank finance etc.
We may debate on how long global warming will impact and effect. The bottomline is it is going to effect and needs policy attention.