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Can Green Business Survive the Recession?

Posted by Evan
June 7, 2008

Each day, it seems, there are more signs of a serious economic downturn. On Friday, the price of crude oil jumped by an unprecedented $10.75 to more than $138 per barrel, with major U.S. stock market indexes dropping roughly three percent for the day. The rise in the U.S. unemployment rate in May was reported the same day as the largest monthly increase in 22 years. A report on home mortgages this week found that the first three months of 2008 were the worst for homeowners in nearly three decades, with indications of more trouble to come.

With rising energy and food prices, growing unemployment, and increasing difficulty making mortgage payments, can the economy sustain emerging green businesses?

Juliette Jowit, environment editor of Britain’s The Observer, recently explored this topic.

According to Jowit, worldwide annual sales of “environmental industries” - broadly defined - are estimated to have reached $550 billion, which she writes are comparable to major industries such as aerospace or pharmaceuticals. But there are several reasons why an economic recession could have an adverse impact on green businesses in particular. She cites Shell’s move to withdraw from a major wind power project as one recent action that sparked concerns about prospects for the future.

Peter Young, chairman of the Aldersgate Group, a British coalition that advocates higher environment standards, explained to Jowit that a recession demonstrates why voluntary measures alone are not enough:

“When there is a slowdown, we realise how important it is to have high environmental standards underpinned by regulation.”

During an economic downturn, large numbers of consumers as well as businesses look for ways to cut their spending in the short term, and nascent environmentally responsible measures may be abandoned, even if they may save money in the long run. Young also noted that many politicians may be reluctant to accept new environmental protections at a time of economic weakness, despite both environmental urgency and economic opportunity. In fact, such arguments were used this week by critics of the Lieberman-Warner climate proposal. Of course, some politicians have gone even further, advocating plans that would strengthen demand for oil by dropping the gas tax, for example.

Despite these reasons, Jowit finds several studies that suggest environmental industries will continue to grow. Rising fossil fuel prices are driving investment in renewable energy, although the amount of that investment (as well as demand) will surely depend upon the regulations that we adopt to deal with the climate crisis.

Blythe Masters, head of global commodities at JP Morgan, concludes that action on the climate crisis is inevitable, regardless of economic concerns:

“Personally I don’t think the recession is an issue at all. Recessions will come and go, but the environmental reality is upon us whether we like it or not.”

Jowit ends with some hopeful notes for community entrepreneurs. Retail businesses that specialize in socially responsible goods, including fair trade and locally sourced products, which have experienced strong growth in the U.K. in recent years, tend to have more loyal customers than do stores that compete primarily on price. As I noted previously, members of Community Supported Agriculture farms (CSAs) also tend to be very loyal to their farms.

In addition, if politicians respond to rising home heating costs by taking steps to encourage energy efficiency, they could increase demand for companies that improve home insulation, creating jobs in the process. With the likelihood of record high heating costs in the northeastern U.S. next winter, there may be some moves in this direction.

Finally, Jowit quotes Andrew Simms of the New Economics Foundation, which describes itself as a “think and do” tank, on the potential of economic problems to spur social innovation, just as cooperatives emerged out of the poverty of the Industrial Revolution: