Natural Capital: US Under Secretary of State on Environmental Policy in a Weak Economy

Robert “Bob” Hormats was sworn in as Under Secretary of State on September 23, 2009. He was formerly vicechairman of Goldman Sachs (International), after joining Goldman Sachs in 1982. Bob also served as Assistant Secretary of State for Economic and Business Affairs from 1981 to 1982, Ambassador and Deputy US Trade Representative from 1979 to 1981, and Senior Deputy Assistant Secretary for Economic and Business Affairs at the Department of State from 1977 to 1979. Bob was a recipient of the French Legion of Honor in 1982 and the Arthur Fleming Award in 1974. He is also a member of the Council on Foreign Relations. He earned a BA with a concentration in economics and political science from Tufts University in 1965. He earned a MA in 1966 and a PhD in International Economics in 1970 from the Fletcher School of Law and Diplomacy.

A new study is making waves after reporting that a higher unemployment rate is associated with lower political support for environmentally friendly policies. How can the United States, and the world, best achieve the twin goals of economic growth and environmental sustainability in the coming century?

Energy security and environmental protection are necessary components of sustainable economic growth that will lead to improved living standards in both the near and long terms.

There is a gradually emerging understanding that GDP may once have been an adequate measure of economic growth, but it is sometimes an inadequate measure of economic health. As we move deeper into the 21^st Century, more countries are recognizing that natural capital has an economic value, and that while our economic health is undoubtedly measured in growth and employment, it also is measured in the preservation (or depletion) of our natural and human capital.

Economic growth in the 20^th century was largely defined by improved utilization of labor. Cost per unit output was reduced by one of two ways: improving productivity — mainly through technological advancement — or utilizing cheaper sources of labor. For the most part, natural and environmental resources were not included in our economic calculus because these resources were thought to be so abundant that they could be treated as “free” goods. This way of thinking is now obviously false. Natural resources — energy, water, raw materials, clean air — are neither infinite nor free.

The quality of growth in the next century will be defined not by the rush for cheap labor but rather by sustainable management of natural resources — or, in economic terms, natural capital. Therefore, strong environmental standards and more efficient utilization of natural resources in production and other forms of economic activity can have a net positive economic influence by improving profitability, spurring demand for green technology, creating employment in new industries, and improving public health.

The United States’ environmental vision, for instance, took a turn for the better in the 1960s and 1970s with the passage of the Clean Air and Clean Water Acts. Some feared that that our economy would be weakened by these and subsequent laws, but this was not the case. Today, we have some of the cleanest air and water in the world. National air quality standards for the emission of sulfur dioxide and nitrous oxides from power plants alone have contributed to the creation of approximately 200,000 US jobs in the past seven years and to more than $37 billion in exports of environment control technology in 2010.

Moving to a green economy doesn’t mean sacrificing economic growth or creating fewer jobs. Transitioning to a green economy is an opportunity for American businesses to implement practices that are more responsible to their customers, reduce costs, improve our planet, and benefit shareholders. Using less energy, raw materials, and water per unit of output will lead to greater cost efficiency for firms in the medium to long term. This is an opportunity for American businesses to take leadership in natural resource efficiency and in the development of new technologies and services to produce cleaner energy and improve the environment.

On what areas specifically should businesses focus in the next decade to be globally competitive?

Companies need to examine all aspects of their operations, one of the most important being how they use energy and other natural resources. The central point is that eco-friendly and money saving are not mutually exclusive — in fact, often simple changes in a company’s operations can accomplish both.

Beginning in the 1990s, the Environmental Defense Fund (EDF) and McDonald’s formed a public-private partnership to switch from foam-plastic sandwich boxes to paper-based sandwich wraps, eliminating some 300 million pounds of packaging waste over ten years. In addition, McDonald’s saved $6 million per year.

Similarly, in 2000, EDF began a collaboration with FedEx to develop a cleaner, more efficient delivery truck. FedEx now operates one of the largest hybrid fleets in the industry, with more than 1,800 alternative energy vehicles worldwide, including the first all-electric parcel delivery trucks in the United States. As a result, FedEx saved over 66 million gallons of fuel over the last 10 years.

EDF is not alone in this space. Indeed, many groups are engaged in efforts to make businesses more sustainable and more competitive. Organizations such as the US Green Building Council — a group of builders and environmentalists — are working to green and make more efficient companies’ infrastructure by designing buildings that will consume less energy, mitigate their environment impact, and cost less throughout their lifespan.

The Council’s “Leadership in Energy and Environmental Design” or LEED rating system is setting a high standard for buildings in the United States and is rapidly spreading to other countries. The United States is also an example – over a dozen US embassies are LEED certified, including Brazzaville, Dubai, and Monrovia, which earned the prestigious rating of LEED Gold.

What policies do you support in meeting these goals?

Innovation is absolutely critical for achieving a sustainable future. To foster innovation, governments need to develop markets that are open and competitive. They need to vigorously protect intellectual property rights so that entrepreneurs and innovators — in the United States, but also in China, India, and elsewhere — can reap profits for their efforts, thereby incentivizing more intellectual and financial investment for innovation. They need transparent, evidence-based regulatory systems, which are critical to consumer confidence and to providing a level playing field upon which businesses can compete. Governments must foster global collaboration in research and development because many of today’s challenges are simply too great to tackle alone. Additionally, governments need to strengthen the rule of law because innovation is stifled without transparent and unbiased regulations and laws, such as on intellectual property rights.

What efforts has your agency made to promote a clean, green economy in the 21st Century?

Through bilateral and multilateral fora such as the Asia-Pacific Economic Cooperation (APEC), we are paving the way for clean energy and environmental sustainability to underpin economic growth both at home and abroad. Our engagement on these issues is broad and diverse. For example, we recently had a team of negotiators conclude a brand-new treaty to reduce global mercury pollution – an enormous benefit for the health of the children of the world, including of the United States. The treaty also has direct economic benefits because healthy workers are essential for a healthy economy.

Another example is the Climate and Clean Air Coalition, a voluntary, collaborative global partnership uniting governments, intergovernmental organizations, the private sector, and civil society to quickly reduce short-lived climate pollutants such as methane, black carbon, and many hydrofluorocarbons (HFCs). Aggressive action on these pollutants could avoid over 30 million tons of annual crop losses by 2030, to name just one of the benefits. More than 30 countries have joined to date, as have more than 25 international organizations and non-governmental organizations.

Our Trade Agreements with countries, ranging from Colombia to Korea, for the first time include obligations to implement and enforce several important multilateral environmental agreements (MEAs). These agreements are covering trade impacting endangered species, production of ozone depleting substances, and conservation of wetlands. To date, the United States has dedicated approximately $100 million to trade-related environmental cooperation. Our partner countries have improved over 140 environmental laws and regulations. We have worked with these governments, NGOs, and the private sector to improve private sector environmental performance. So far, companies we have worked with have invested approximately $1.3 million in environmental improvements, saving over 1.2 million gallons of water, 1 million kWh electricity, and 405,000 gallons of fuels per year – environmental and economic savings that will continue to grow in the future.

Feature Photo: cc/Ben Heine