The Economics of Sustainability

Abstract

According to the United States’ Energy Information Administration (EIA), in 2010 the US government provided financial subsidies to energy producers—of all types of energy—worth approximately $37 billion.¹ The majority of these subsidies were in the form of direct investment ($14 billion), tax benefits ($16 billion), and research & development incentives ($4 billion). About $15 billion was devoted to renewable energy incentives, up from $5 billion in 2007, mostly in wind and biofuels incentives as part of the 2009 federal stimulus programs. Another $16 billion was devoted to conservation and heating assistance for low-income consumers; $4 billion was devoted to fossil fuel sources, down from $6 billion in 2007. The EIA does not focus on the reasons for providing these subsidies, but we covered the general reason in the preceding chapter: to incentivize development of technology and production of energy that increases social welfare for the population of the United States. The $37 billion estimate does not capture some indirect subsidies that other industries also receive (such as depreciation benefits and domestic manufacturing tax deductions), so the total energy subsidy is likely higher than just $37 billion.

Business success, sustainability, and survival are all driven by economic factors. In a world with limited natural resources and increasing population and with evolving personal preferences and priorities, our ability to find novel approaches to utilizing these resources is paramount. Human, social, and environmental investments can be significant sources of competitive advantage. Understanding the economics behind those investments is essential for maximizing value.