If Green Were Good for the Bottom Line
December 18, 2012 Central Planning

Wouldn’t one expect either to find no correlation between the profitability / wealth of firms and their propensity to invest in green projects, or perhaps even a negative correlation? In other words, if “greener” is richer, then it makes lots of sense for those who need to pinch every penny to go green. Do we see evidence of this among consumers? Do poorer Americans buy “greener” cars at a greater clip than non-poor Americans (i.e. conditional on preferences, are a larger share of their car purchases greener than rich folks)? Do poorer Americans insulate their homes more frequently than their richer counterparts? Are poorer Americans more likely to install solar panels?

You might reasonably argue that the poor are credit constrained, which is why you are unlikely to see that in the data. And this may be true, particularly given the fact that many of the green subsidies that run through the tax code are not refundable credits (i.e. a refundable credit would mean that if you earn the credit and you have no net tax liability, the government will nonetheless send you a check). But lack of credit doesn’t seem to prevent lower income households from buying cars in the first place, or houses (remember the mortgage crisis) or any number of things (cell phone contracts that cost $1,200 per year or more). So it seems odd that such sure “good deals” are not a regular occurrence.

But what do we know more broadly about who adopts green technologies? A recent paper by economist Sarah Stafford asks the question: what factors lead universities to engage in “sustainability” initiatives? And what does she find?

Larger and wealthier institutions are more likely to adopt sustainability than smaller, less well-endowed institutions

She also finds that the “agency” problem in higher education reveals itself yet again, meaning that a convergence of interests from disparate stakeholders seems to be causing the investments, which explains why there is pressure to do these sorts of things. We’ve just conducted research here at the U of R to ask whether these investments nonetheless result in measurable “good” outcomes for colleges and universities. We will report the results shortly.

"6" Comments
  1. I look forward to the forthcoming U of R study. The point made here is a good one: solar panels, the Prius, etc. seem to be luxury goods to me. In my town solar panels are popping out in several neighborhoods, but mostly very large, Mcmansion type dwellings. Which leads me to think that all of these (non refundable) tax credits are largely benefitting the “rich” (or dare I say, the “2%”). It sounds kind of like an extremely negative regressive tax situation to me (or perhaps just a direct transfer of wealth to the weatlthy). Any data (or thoughts) on this?

  2. I haven’t seen research on the tax regressivity of those programs, though I am sure it is being done. We certainly do know that the formal environmental movement is indeed a movement of the 2% or perhaps 5%. Several studies have examined the demographics of folks who volunteer for the environment or are members of the AMC and Sierra Club and they more closely resemble the 1% than the 99%. OK, I exaggerate, but it appears that their average incomes are in the $100,000 range. And other research conducted by my students here indicate that the environmental movement is far older and far whiter than the country at large. If you didn’t know better, you’d think it was the Republican National Committee.

    • Here is the deal in Massachusetts. If I get the time maybe I will see if Mass or anyone (Pioneer Institute?) breaks out the data to show who takes the credit (baesd on AGI, etc.)

      Solar Wind and Energy Credit (Renewable Energy Source Property)

      Massachusetts allows an energy credit for expenditures incurred for certain renewable source items to any owner or tenant of residential property located in the Commonwealth who is not a dependent of another taxpayer and who occupies the property as his or her principal residence.

      Note: This credit is only for the installation of a solar/wind system. This credit is not the same as the current Federal credit for energy efficiency items.

      The amount of credit allowed equals the lesser of:

      •15% of the net expenditure for a renewable energy source property; or
      Renewable energy source items include equipment which uses or transmits solar or wind energy to heat, cool, or provide hot water for a principal residence in Massachusetts.

      JB: This discussoin reminds me of a parallel (at least I think it is): those nations that have had the greatest success in terms of environmental remediation are also the world’s wealthiest nations; in other words, Brazil is more concerned about people getting to eat, having shelter vs living in a favela, etc. vs saving the rain forest. It seems to me that in the U.S. we turned our attention to cleaning things up AFTER we got everybody fed and clothed. Who are we to lecture them? We pretty much annihilated New England, trashed our rivers, etc. but became rich in the process, and then and only then did we turn back to cleaning them up. Jeez I am preaching to the choir here. I am not sure where I am going with this to be honest…but there seems to be a similar line of reasoning in that “going green” is in fact more a luxury good. You can see it in terms of national economies and on the individual level.

      • Favelas. In Latin America there seems to be a realization that living people must occupy some space, have a place to eat and sleep, that isn’t determined by the standards of other societal groups. In the US, there are no favelas, the homeless aren’t allowed to slap together a hovel on some unused patch of real estate. Instead they either become transients between charitable shelters, government wards of some sort, or live under bridges and in subway tunnels. Which makes more sense?

      • There is a huge literature on the “Environmental Kuznets Curve” which confirms your insight John. Happily, the income level at which we begin to clean up is lower than we think (it differs for different pollutants).

        And PLEASE remember that even if we are smoking up the outside air, we tend to clean up local micro-environmental problems first (like not cooking over open wood fires in our homes) and then move onto the macro environmental ones (like SO2 in the air) …

  3. From ‘ “Conspicuous Conservation: The Prius Effect and WTP [Willingness to Pay] for Environmental Bona Fides.” When you drive a Prius, the Sextons argue, there’s a “green halo” around you. You make new friends; you get new business opportunities. In an especially “green” place like Boulder, Colo., the effect could be worth as much as $7,000.’

    My friends who are buying e-cars, solar panels, etc. certainly have a desire to show off their greenness. And I’m sure all are in the 100k+ per year salary.

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