09/07/2010 04:21 pm ET Updated May 25, 2011

The Clean Economist: Cleaning House

Oikos, the root of both our conception of economy and of ecology, paints a picture of an inner sanctum of home, where a household system balanced its needs with the services it provided. So when we distill economics and ecology down to the core principles, it is the balance of needs and services that we are defining. In re-imagining our future in a post-carbon, post-extraction global society, we begin to transition to this reality by "cleaning house" now with a frame of reference that calls out the extractive economy that we are currently embroiled with, and that begins to build a new foundation based on clean economic principles. Our home is our world and the economy in which it lives; our economy is interdependent with the living systems in which it is a part and it is time that our metrics and our systems reflect this basic and fundamental truth.

The distinction between a clean economy and an extractive economy is the energy foundation upon which each system is built. In an extractive economy, the "driver" for all exchange is from an extracted energy source like petroleum or minerals that are depleted and not replenished. We currently run our global economy on extracted energy, both literal and figurative. We pull large amounts of fossilized sunshine out of the ground every day that we convert to the fuel behind moving all the goods and services, the people and products, the food and fashion throughout our civilization.

This energy is subsidized by discounting our grandchildren's future; fossilized sunshine is not cheap if we monetize the value of those millions of years (hydro-carbons in fossil fuels and carbo-hydrates in plant material for biofuels have at their core the same root for energy, one is just in a form from fossilization that makes it much more effective in powering combustion engines). In today's global extraction economy, we ignore the true price of that fossilization and so we power our economy with fuel that is deceptively inexpensive (to the tune of $557 billion in subsidies to fossil fuels in 2008 alone).

Here is the first of many fields of battle that will be engaged in the tug-of-war between the extractive economy and the clean economy: the clear and mutually understood battlefield of the true cost and price of energy. There is no argument that expensive energy will lead to further economic woes; the challenging conversation is to better define how we decrease the costs of energy, whether it is through better systems or better technology. And the larger question is to decide whether we want to continue to spend resources on pretending an extracted energy source is less expensive than it really is, or to spend our human energy on working towards solutions that decrease the costs of renewable, clean energy sources.

In a clean economy, the fuel for economic development is human ingenuity, where innovations spark new products and services. The goal is to enhance quality of life by means that mimic eco-systemic balance. If we are building a foundation for an economy based on ideas as the source and that is looking to create the most efficient alignment of those ideas with markets for those ideas, we can see a "virtuous cycle" begin to be possible in every sense of the word. As ideas grow, opportunity grows, and quality of life becomes more attainable for a growing number of participants.

The elephant in the room in clean economic development is that it hinges on the synergy between technology innovation (how do we access sunlight and other renewables in the cheapest and most sensible way to power our quality of life needs), policy innovation (how do we better internalize externalities from fossils and come up with ways to limit up front costs of clean energy) and market innovation (how do we promote ideas for market acceleration that work within an extractive game, like the power purchase agreement).

In this arena, there is an obvious need for the engagement of government with the private sector, unless of course we went for a completely laissez-faire approach that would level the playing field with good information... so $557 billion off the table and maybe an appropriately sized carbon tax to even things up a bit. Being a little more pragmatic, it is safe to say it's more likely we'll transition to a clean economy using more traditional relationships between the public and private sector. Which brings us to the latest challenge from the Economist to the phenomenon of governments "picking winners," and here I'd like to call into question some of the assumptions that most respected publication makes about economic development and extractive realities.

"Industrial policy" by its very definition needs an overhaul, so it's rather unfair to pick apart the conclusions of our friends at the Economist. In an extractive economic landscape, it is much easier to define the boundaries of specific industries and sectors within those industries. It is why funding for "clean technology" is put into the silos of "solar" versus "geothermal" for example, much as agriculture is defined by what crop is being extracted, much as manufacturing is defined by what feedstock is being used, much as energy itself is defined by the extractive feedstock in question. This is why when the Economist questions the wisdom of clean technology investments in specific technologies, such as the electric vehicle as distinct from clean transportation, they have a real and valid point.

However, they reach the wrong conclusion. It is not that we should abandon any "vertical policy" that favors specific companies and sectors. It is that we need to reframe how we define those sectors in the first place. We are framing sectors within an extractive conception of economics where the end application of the technology in question is always seen through a specific lens of how it compares with our existing extractive infrastructure. Instead, we need to ask the right question in order to get the right answer. Instead of asking how we should "subsidize" specific technologies to catapult us towards a clean energy future, we need to ask how we can define an economic landscape based on clean energy and human ingenuity as a "feedstock" itself.

In other words, how can we accelerate the generation of clean electrons, how can we build the best systems to distribute those clean electrons, and how do we champion the best models and applications for "negawattage," not needing electrons in the first place? The negawattage within our economy represents a huge market opportunity; a recent report by the American Council for an Energy-Efficient Economy warns that the US economy is only about 13% energy efficient. Once we identify a meritocracy of access based on reframing these fundamental questions, we can leverage the best of information communication technologies to virally spread what we have learned and can create ways to adapt baseline concepts to local markets. Through this lens, we can strategically plan for transitioning from extraction to innovation to build quality of life for a growing global population.

Already the statistics seem to favor "innovation" models in terms of a ripple effect in local economies; a recent crunching of numbers found that only 5 jobs were created for every million dollars invested in oil & gas, almost 14 jobs were created for that same sum when the dollars were put towards solar, more than 12 jobs for smart grid, 13 jobs for wind generation, and 17 jobs for retrofitting buildings.

In an extractive economy, economic development translates to more and more depleted energy as reserves shrink. Quality of life for economic participants is a zero sum game. In a clean economy, economic development translates to enhanced access to prosperity as ideas themselves are fostered to provide the foundation for local development of quality of life. The concept of "innovation networks" is gaining momentum, where people can inspire and collaborate with one another using information communication technologies to leverage understanding. In fact, online communications have fundamentally shifted what will be possible for global collaboration going forwards as we explore clean economic development.

Take One Block of the Grid as an example of where social media has combined with visualization tools to accelerate the market uptake of solar technology; if you happen to be in a place that has residential programs in place for financing, you may not even have to pay anything for your clean energy out of your pocket up front. In other words, quality of life built on ingenuity vs. quantity of power pushing quality of life as an unintended consequence.

I used to be a huge pack-rat as a kid, and my bedroom would become a towering landscape of piles of stuffed toys, mountains of laundry, stacks of books, and jars of flora and fauna...most still living specimens. When it came time to tidy up, the challenge was daunting. So, my dad would coach me to just start in one corner of the room and work outwards. Our global extractive economy is quite a mess. It is naïve and laughable to compare this conundrum with a messy room. However, I'll use the metaphor anyway. If we look at our corner of the planet and focus on urban strategies and clean economic development, there are already some interesting stories.

In terms of cleaning up an existing mess, cities are exploring ways to transition away from extractive energy to clean sources of power, often times in protracted engagements due to the nature of complexities and perverse incentives in many electrical systems. Boulder was the home to one of the first Smart Grid demonstration projects in the US, and now is questioning its franchise agreement with its large utility because they feel that this company cannot fulfill the city's mandate towards addressing climate change. So, they are seeking ways to align their municipal decision making authority with their choices for clean power. This also resonates with the contentious discussions going on around Property Assessed Clean Energy (PACE) legislation, where cities are trying to be creative about supporting clean energy purchases by their citizens as an aggregated community benefit.

A recent study by the Brookings Institute calls for a regional approach for western states to accelerate their shift to a clean economy, so widening the net a bit from urban strategies to regional engagement. If we can work through some of these local and regional issues to strategically transition towards clean economic development, we can spread these lessons to a global audience through online forums, webinars and other tools (not to mention learn from our friends in other countries as well). Even in emerging economies, access to wireless is often easier than access to clean water. To be blunt, an economic development strategy that engages around innovation principles as opposed to extractive ones is a very different, and potentially more collaborative discussion than the contentious conversation surrounding rationalizing one population's rights to resources versus another's. China may be outspending the US 3 to 1 in terms of clean energy, but that should not be nearly as troubling as the fact that they have just surpassed us in energy consumption in a global extractive energy economy. The politics around a declining resource are going to be a lot more heated than those around innovation.

Our civilization is here because humans were able to imagine a narrative for ourselves that looked into the future; we were able to create a story for ourselves that spanned a horizon looking ahead. It is an iterative process; we can change this narrative as we go because we rely on a feedstock of ideas that is renewable and constantly replenished. At the most fundamental level, our global economy needs to reflect this truism of human advancement and progress. It makes no sense that our continued prosperity and the potential for the populations to come after us depends on an extracted fossil energy foundation. The ontogeny of human development in our ability to generate a new idea for ourselves from a feedstock of innovation needs to be recapitulated into a phylogeny of clean economic development globally where our civilization will finally live within an economy that can thrive in our planetary ecosystem. It's time to realize that we are home.