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Abstract

CalPERS is only one of many investors who face major challenges in finding and evaluating truly sustainable investments. Cheap fossil fuels create a strong monetary bias against stable secure steady-state investment in basic needs, while aggravating the climate change which makes sustainability a key goal. Cheap fossil fuels also offer unprecedented size and power to large, hierarchical, centralized, and authoritarian organizations that are ill-suited to human nature and historical culture. Some innovative perspectives, approaches and criteria for success in meeting these challenges are described and discussed, along with several specific examples.
Abstract
CalPERS is only one of many investors who face major challenges in finding and evaluating truly
sustainable investments. Cheap fossil fuels create a strong monetary bias against stable secure steady-state
investment in basic needs, while aggravating the climate change which makes sustainability a key goal.
Cheap fossil fuels also offer unprecedented size and power to large, hierarchical, centralized, and
authoritarian organizations that are ill-suited to human nature and historical culture. Some innovative
perspectives, approaches and criteria for success in meeting these challenges are described and discussed.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2222988
Sustainable Investment Means Energy Independence From Fossil Fuels
By Muriel Strand, P.E.
CalPERS faces substantial challenges in making
successful and truly sustainable investments.
Although CalPERS’ ROI requirements are
constrained by contracted pension liability, a key
principle is that satisfying the real goal of
pensions—modest and secure stipends for those
who have become less capable—calls for an
economy that is healthy and stable, unlike the
current one on its present course.
A challenge for CalPERS, as for all sustainable
investors, is grappling with the price signals of the
dysfunctional monetary-fossil-fueled system, and
nonetheless managing to achieve the wildly
different character of a sustainable investment.
Climate change is obviously another huge
challenge for CalPERS in selecting investments so
as to maximize stability and security for
pensioners and for the economy they live in. Some
decision-makers are now planning how to “adapt”
to climate change, but unfortunately they usually
mean adapting the planet to our current lifestyles
rather than adapting ourselves to the planet. The
changes in energy use which are wisest are also
mostly about adapting ourselves to the planet, but
are typically least rewarded by the monetary, all-
growth-is-always-good model on which CalPERS’
ROI expectations depend.
The best and most sustainable investments will
continue to be in longterm, basic, traditional,
appropriate and stable technology and
infrastructure such as traditional crafts and trades,
permaculture and eco-villages rather than in
transitional projects such as PV, big windpower,
electric cars, or ‘smart’ computerized buildings.
While these latter may at times be helpful, they are
inconsistent with and cannot guarantee long-term
sustainability and so should never be a first
priority for investment.
Investments in truly sustainable projects only need
to be made once, whereas investing first in
transitional projects just means more resources
will be required for two or more investment stages
rather than just one. While more investment stages
may yield more short-term paper profits, they will
require more real work, including the work (and
carbon emissions) of fossil fuels.
The best way to prioritize investments for
maximum sustainability is with a goal-oriented
global criteria for efficiency:
clean air and water, healthy food,
comfy shelter, plus plenty of sleep
& exercise
Efficiency = ---------------------------------------------
energy & resources
Investing so as to transform our overdeveloped
economy into one which produces optimal health
and happiness can best be leveraged by focusing
on real variables such as our true physical needs:
clean air and water, healthy food, sound shelter,
and plenty of sleep and exercise. It’s these
physical needs which are most relevant to the
issue of physical energy sources. All of these
needs are (and have always been) available
without any of the fossil fuels—coal, oil, natural
gas—and nuclear. It’s only recently that we have
gotten addicted to these jackpot fuels. It should
also be noted that all mining and refining currently
(and practically) require fossil fuels. Perhaps
unless extraction falls a million fold or more.
The path to truly renewable steady-state
sustainability has few benchmarks or milestones.
One of them is the idea of the 2000 watt society,
an academic idea for an energy diet. The rate of
2000 watts was then (1998) the approximate
global per-capita average energy use, and the
Swiss were using about 5000. (Their estimates
indicate that a substantial proportion of energy use
is societal rather than strictly individual, so a
market-dominant policy approach risks
misallocation.)
Concerns exist that such modest amounts (1/6 of
the U.S. average) of energy use promise
deprivation and discomfort, but there are many
reasons to think this is not necessarily so.
However, it’s not easy to find information relating
an individual’s energy use to global average
temperatures, so it’s difficult to be sure what kind
of an ‘energy diet’ might be truly sustainable in
the sense of actually reducing climate changing
emissions and temperatures. But I’m certain it’s
less than 2000 watts.
Another useful parameter for evaluating an
investment’s sustainability is the energy price of
human muscles, or biofuels grown with no fossil
fuel input. As a rule of thumb the price of
humanpower is about $800/gallon, at least in the
U.S. In other words, it takes a healthy and
energetic person approximately 100 hours to
provide the work we can now get for about
$4/gallon. While insisting an investment meet
such a stringent criterion may seem daunting, it is
possible and will require only the one stage of
design and investment.
For example, rearranging habitation patterns so
that people’s needs for producing food and water
could be met within walking or bicycling distance
(as was traditional until 100 or 200 years ago)
would be a very efficient way to adapt to climate
change so as to reduce greenhouse gas (GHG)
emissions substantially and cost-effectively.
Concerns about and plans to provide mobility
should be reframed for the goal of access.
Judicious and widespread removal of asphalt
would be very effective when replaced by local
and intensive neighborhood farms. Similarly,
supporting education in traditional methods of
producing and preserving food, as well as fiber,
wood, cloth, pottery, and other basic artifacts
would be a very reliable long-term investment for
providing a basic typical standard of living plus
reducing GHG emissions while minimizing
discomfort and real economic deprivation.
Fortuitously, many manufacturing and
consumption processes which are now powered by
fossil fuels can be revised to use muscle power
instead. The classic example is the electric can
opener, but there are many more processes now
performed by devices powered by engines or
motors that could be accomplished with manually
operated mechanisms. Good candidates for such
substitution include leafblowers, lawnmowers,
washing machines for clothes and dishes,
blenders, sewing machines, cars, and many
carpentry tools.
Since sustained 1/10 hp power output is possible
for many people, investing in manual (and pedal)
mechanical devices to replace the many existing
machines that can operate in that range can offer
very attractive real returns while reducing GHG
emissions and offering handy, less-is-more
innovations. The simplicity and potential of
ergonomically adroit, human-scale mechanical
designs is widely underappreciated, in my
engineering opinion.
Usually there is a traditional tool or design already
available that accomplishes the same purposes
without using any fossil fuels except perhaps in
the initial construction. And creative designs could
expand the number of processes that can be re-
manualized, developing new mechanisms which
leverage our own strength (not to mention that of
unemployed young men). Moreover, many
traditional trades and craft processes have multiple
benefits, such as providing healthy exercise while
simultaneously growing and preparing healthy
food or constructing energy-neutral buildings
which can serve as both residences and
workshops.
Even more fortuitously, reducing the many
unhealthy aspects of excessive fossil use can
dramatically reduce both costs and externalities.
We know fossil fuels are themselves toxic, and
their extraction is becoming increasingly so, not to
mention all the costly ‘side effects’ of fossil fuel
technology (in addition to climate change), from
fracking contamination of ground water and
addiction to drugs such as sugar, to ocean dead
zones and collapsing bee colonies. Investing for a
healthy planet would put fossil fuel investments
dead last. For example, it would be better to invest
in a bicycle than in a bus, better to build a solar
cooker than buy a microwave oven, and better to
have composting privies than low-flush toilets.
What’s an economy for anyway? Maslow’s
hierarchy identifies 5 basic levels of a well-
rounded human: Self-actualization, Esteem,
Love/belonging , Safety, and Physiological. The
most basic, physiological level corresponds to
‘clean air and water, healthy food, affordable
shelter, and plenty of sleep and exercise.’ There is
evidence that people usually experience life on all
these levels even during scarcity. Thus, a modest
sufficiency of physical needs suffices for the
pursuit of happiness. And fossil fuels really only
pertain to the first, physiological level; beyond
that, we just need each other (and the world). But
fossil fuels have warped our lives and culture so
that all levels of needs and wants (aka ‘economic
demand’) are now more or less larded with
unnecessary energy consumption that tends to
distract or even block us from living as we were
evolved (or created) to live.
Could it be enough, could everyone adequately
meet their real needs without any fossil fuels? Is
there enough land for everyone to live and thrive
by traditional means? That depends in large part
on how much more land we trash, and how soon
and widely we begin healing it instead. People
fear widespread disasters, famines and floods. But
what parents would not sacrifice their lives to save
their child if attacked in a home invasion? How
can this be different?
Chambers of commerce can be expected to cry the
blues at the prospect of dropping the growth-at-
all-costs ideology and of the withdrawal pains of
kicking our fossil fuel addiction. But the growth
model leads to the boom-and-bust, manic-
depressive system that caters to the comfortable
and whacks the meek at every downturn. We need
a model that favors the basic survival priorities
that pertain to physical energy and thus to fossil
fuels’ inevitable role. Businesses often express
anxiety about unpredictability in the economy;
they should instead take comfort from the
likelihood that a stable, steady-state, no-growth
economy would be reassuringly sustainable and
predictable, once we get it set up.
GNP as the indicator of economic health is
obsolete, but people can’t seem to get out of the
habit of using it. In addition to the global
efficiency equation above, various goal-oriented
‘happiness’ and ‘welfare’ indicators are also
available, such as Gross National Happiness, the
Human Development Index, the Green GDP, the
Genuine Progress Indicator, and not least the
ecological footprint score.
The bottom line is that money can never be the
independent variable. The real independent
variables that are the highest priority are: clean air
and water, healthy food, comfy shelter, and plenty
of sleep and exercise. Money is simply one of the
interdependent means to these particular ends,
ends which are the most relevant ones when the
issue is physical energy sources. Money is just a
symbol, the ‘poker chips’ we have all ‘agreed’ to
use to play the life game. And it’s an artifact only
humans can control.
A third major challenge facing sustainable
investing is the structure and governance of
existing corporations and jurisdictions. Most if not
all of the standard investments now available to
any investor are structured for paper profits from
global commerce, an economic activity that would
change radically if deprived of its fossil-fuel
inflation. And as multinational corporations have
evolved, they have been warped and corrupted by
the power of fossil fuels, just as have multi-ethnic
political empires.
Corruption is usually thought of as bribes, whether
small or large, paid to someone who is in a
position to cut corners for the buyer, often in the
context of dealing with some large bureaucracy
that has decision-making power in some market
and/or governmental matter. But that is just the tip
of an iceberg of dysfunctional institutional
structure that befuddles us.
The picture that emerges from Maurice Punch’s
1996 report of his research into corruption and
white-collar crime, is of large hierarchical
organizations such as corporations and
government agencies (or their components) which
over time develop an internal culture and a feeling
that they understand their mission and operation
better than does the outside world. Moreover,
strict, by-the-book hierarchical function is not
really the way human nature works, and it can also
be very cumbersome in a large organization.
Thus, the people who operate an organization cut
corners, mostly small and innocuous ones, in order
to make things work. Punch sums up the situation
thusly: “The organization is the villain; our
inability to control it is the essential message of
this book and that represents a substantial
challenge for society.”
Based on a review of the literature and notable
case studies, Punch defines 6 types of corruption:
- informal rewards to individuals – perks, often
non-monetary
- work avoidance/manipulation – webcruising at
work, gossip at the water cooler…
- employee deviance against the organization –
absenteeism, theft, sabotage, fraud…
- employee deviance for the organization –
fudging the law for profit or political leverage
- organizational deviance for the organization –
letting marketing trump engineering
- managerial deviance against the organization -
embezzlement
Thus, corruption is not one simple obvious thing
but rather a continuum of departures from law,
regulation, and/or policy that range from harmless
to lethal. Ken Silverstein reports in detail (in
Harper’s as well as in “Turkmeniscam”) on facts
which create a picture of corruption among
Washington lobbyists and Congress. Corruption is
also endemic to the criminal justice system,
notably in law enforcement's code of silence, but
also in the plethora of plea bargains. Law
enforcement and the military are particularly
susceptible to the corruption that follows when the
ends are used to justify the means. And of course
investment bankers.
Accountability is widely hallowed, but
whistleblowers who break a group's code of
silence and cause embarrassment are rarely
appreciated. When scandals do become public, it’s
often those lower in the hierarchy who take the rap
for the organization while top leadership may not
even get a slap on the wrist. Fear of public
embarrassment and of loss of reputation and trust
often motivate organizational tendencies toward
excessive secrecy. And subordinates whose
survival depends on their jobs feel understandably
reluctant to share inconvenient truths with top
leadership who rarely want to hear them.
Punch also addresses the tendency of government
agencies to prefer to negotiate with regulated and
errant industries, rather than sue and apply
proportionate penalties which may require
mountains of paperwork. This can lead to
‘regulatory capture,’ especially when the agency
has a dual mission of promotion and regulation,
such as the USDA or the NRC. Industrial
corporations can easily be seen as too essential to
risk damaging, even if they may not be too big to
fail. After all, many regulated industries provide
common basic products as well as jobs. And while
the trend of U.S. companies taking up official
residence in tax havens may offer more paper
profits, it’s a legal kind of corruption that weakens
the economy in which pensioners reside.
The size of markets and governments and their
sub-organizations create distances between
producers and consumers, as well as between
centralized governments and individual citizens,
that make transparency impractical. The
misalignment of checks and balances invites moral
hazard and rationalization—and PR. Widespread
fixation on monetary profit, as well as the passage
of time, induce mission creep away from the
original non-monetary purpose. When the ends are
used to justify questionable means, the latter can
be expected to sabotage the former. "The means
are the ends in the making."
In a local Sacramento conference in 1991, Garrett
Hardin shared with this writer his conclusion that
any group of people larger than about 25 would
begin to develop cliques among themselves. And
prehistorically, traditional tribes and villages
tended to remain small, perhaps at most several
hundred, being limited by ecological resources
and (at times) human wisdom. Thus, the larger
organizational sizes seen in the last few centuries,
as well as prior exceptions such as Rome,
Alexandria, the Aztec and Mayan cities, or
imperial China, are rather different than the
experience of the vast majority of humans who
have ever walked the earth.
So the large organizations—cities, states,
countries, multinational corporations, etc.—which
now form the majority of most people’s
experience, create a political and social
environment very very different from the
environment in which we arose and where
humanity has spent virtually all of its existence.
Such large, centralized, hierarchical and
authoritarian organizations could never have
reached their current degree of power at a distance
without cheap fossil fuels.
So what's the solution to the challenge of stepping
back from bigness (as well as from those related
fossil fuels) and recreating local control and
relocalization with the kinds of checks and
balances that will minimize cheating and
corruption and reliably link rights and
responsibilities?
One very promising path is offered by Elinor
Ostrom and her colleagues in the 8 criteria (below)
they have discerned for reliable long-term
sustainable management of common-pool
resources, which are “natural or man-made
resource system[s] sufficiently large as to make it
costly (but not impossible) to exclude potential
beneficiaries.” A river or a fishery is a common-
pool resource. These rules enjoy documented
long-term success in achieving and maintaining
stable steady-state harvesting systems.
1. Clear and accepted boundaries of the group of
users and of the common resource
2. Rules governing use of the common resource
match local conditions & needs for labor/money
inputs
3. Most of those affected by the rules can
participate in modifying the rules
4. Those who monitor the health and harvest of the
resource are accountable to the users or are the
users
5. Rule violations receive graduated sanctions that
depend on seriousness and context
6. Local, low-cost and prompt means are available
for dispute resolution
7. Users have long-term tenure rights, and distant
centralized authorities respect the rule-making
rights of the group of users
8. For common-pool resources that are part of
larger systems:
Harvest, use, monitoring, enforcement, conflict
resolution and governance are organized in
multiple layers of nested institutions.
But bottom-line, people have to tell each other the
truth, and first they have to tell themselves the
truth. No society, government or economy can
thrive without common honesty. The pursuit of
happiness is hobbled when cheaters prosper. And
obeying the letter but not the spirit of the law is
also cheating.
While much of this essay may not be much help to
a CalPERS staffer who has to make a specific
investment decision next month, the indirect
effects of absorbing this global sustainability
perspective can be expected to pay off in the
medium to long term.
Economics is usually called dismal because it’s
about making challenging choices in the face of
some uncertainty, and afterwards you don’t get to
count the opportunity cost of what you haven’t
chosen. The current notion of, and plans for,
renewable alternative energy sources as being
primarily about PV, big windpower, or even big
hydropower—is a first step that is really a detour.
It’s the type of detour that can be expected to lead
to an expediency trap. Beginning with settled
agriculture, perhaps even with fire, we have been
stepping out on a slippery slope of expediency,
using bandaid solutions to problems which have
become increasingly complex due precisely to the
previous use of bandaids. More recently, we have
been squandering the fossil fuel bandaid and
crowding out other flora and fauna, ‘profitably’
shredding the ecological safety net to the point of
directly threatening our own welfare, as well as
indirectly through generation of greenhouse gases.
Two real problems arise with all these expedient
innovations—diminishing marginal returns and
unintended consequences. For example, the
proportional improvement in standard of living
experienced by using fire is much greater than that
from, say, knitting, which in turn is greater than
that available from driving to work as a wage
slave, let alone the enjoyment of using an electric
can opener. But the effort, energy and resources
required to produce and use more advanced
innovations generally exceed what’s needed for
simpler and more traditional ones. And more
‘side’ effects appear.
Achieving basic, stable and secure solutions to
basic needs means, I believe, doing things nature’s
way and not our expedient way. How does nature
design and invest? Masanobu Fukuoka made a
lifetime study of this question, and concluded that
less really is more, and that the lazy way of letting
go and letting Nature do (almost all) the work, is
really the most efficient. So we should study how
Nature ‘thinks,’ so we can learn to think that way
rather than in the oversimplified, expedient,
mechanical ways that are now common.
-------------------------------------------------------------
The chart below offers a broad comparison between these two ways of understanding the world.
Mechanical Logic Biological Logic
Physics Biology
Linear Holistic
Digital Analog
Straight lines are the shortest distance Curves are the shortest distance
Squares – minimum edges Fractal – maximum edges
Big and Fast is most effective Small and Slow (with leverage) is most efficient
More is better Right proportions are best
Economy of scale (of combustion) is large Economy of scale of metabolism is small and fractal
Higher speeds reach goals sooner Steady improvement yields durable change
Short-term Long-term
Conquer nature & kill the goose Go with the flow and harvest from abundance
High energy density/intensity Gentle energy flows & distributed storages
Fossil fuel Sun, wind, water, muscles
Mass & Energy Life & Evolution
Profit Photosynthesis
Opportunistic Coordinated and Balanced Equilibrium
Wants Needs
Bureaucracy Community self-organization
No limits to growth Physical limits; no metaphysical limits
Capital-intensive Free and self-winding
Resistance to change Resilience to change
Separation & Segregation Inclusion & Integration
Mobility Access
Fear of Scarcity Love is Enough
Entitlement Reverence
Analyze & Act Observe & Interact
Competition: win-lose Cooperation: win-win
Power over Power with
Centralized Relocalized
Hierarchy of top-down control Network of control, grounded at the grassroots
Ego Nature
Objectivity Detachment
Mind Bodyheartmindspirit
Yang Yin & Yang
Work hard Work smart
Don’t just stand there… Don’t just do something…
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