The New Green Will Favor Big Industry

The winds of economic destruction are flattening not just retirement accounts but also naive visions for a green economy. Public support for costly new green mandates is weakening, and government budgets to fund them are bleeding red ink. Plummeting prices of oil and other fossil fuels have made it harder for green to compete in the marketplace. IPOs of firms working on "clean tech" green energy that have fueled fantasies of the coming energy revolution have crashed to a halt. In all the bad economic news, a new face of green is coming into focus. Whereas the old view of green tech was based on many small, decentralized sources of power and a green economy that harnessed the power of the marketplace, the new version will rely more heavily on regulation and subsidies. It will also embrace the wisdom, true in most of the energy business, that bigger is better for weathering economic storms.

The market, it's now clear, is not a reliable force for driving the adoption of green technologies. Just as the role of government is rising across banking and other sectors of the economy, new green will be much more wary of market forces as the route to profit. Google dreamed, in its "RE < C" scheme, that if it put enough money into green renewable energy ("RE") that eventually those power sources would triumph over dirty coal. With coal prices half what they were in July and the cost of steel and concrete for building coal-fired power plants sinking, that strategy isn't looking like a winner. Supporters of renewable energy have been much more effective in affecting regulation: in most of the United States it is now nearly impossible to get approval to build new coal plants (even when they replace older, less efficient units) and half the states force power companies to buy rising amounts of renewable electricity almost regardless of cost. Obama plans to extend such mandates nationwide.

The carbon market may be another casualty of the poor economy. It became the darling of green economists because in theory it created a market price to encourage switching from high-carbon fuels that cause global warming. In recent years European countries have imposed caps on emissions of carbon dioxide and let firms trade emission credits. Cap and trade, however, has not done much to reward green energy. The cost of emission credits in Europe over the last year weren't even half what they would need to be to coax power companies to drop coal for natural gas. Those market forces have been even less effective in pushing zero-emission green energy into Europe's electric-power system. Green energy has taken off, but because European governments channeled direct payments to renewable energy, especially wind; carbon markets had little to do with it. Solar energy, which is more expensive than wind, is most successful in Germany and Japan, which are famous not for sunshine but regulatory subsidies.

On the logic that greenness could come from harnessing markets, governments from Washington to Beijing dreamed of creating "green GDP" accounts that would make it easier to manage each nation's economy with a fuller picture of ecological assets and liabilities. But politicians scuttled the schemes out of fear in part because of the transparency they would bring, and because of the difficulty of measuring true greenness. Dreams of green tax reform—in which government would replace growth-sapping taxes on labor and investment with new taxes on pollution—have been abandoned nearly everywhere because pollution taxes are too unreliable as a source of income to run a modern government.

The other change to the face of greenery will be scale. Advocates for everything green have always had a hard time with heavy industry, preferring the ideals of self-sufficiency and localism. The paragon of old green was a Lilliputian solar panel on every rooftop linked by local lines to households and even electric vehicles. But "small is beautiful" isn't working because people don't like to live near industrial facilities, even very small ones. Installers of solar panels are finding neighbors wary about letting rooftops shift to odd-colored silicon. When New York City's power utility tried to build a few small gas-fired turbines to stabilize the local grid, neighbors were adamantly opposed. Developers of wind power are finding similar blowback where their giant towers are visible. That's why the richest area in wind power is now in huge offshore wind parks. A future with large amounts of intermittent wind and solar supplies will lead to more big industry, not less: the grid, for instance, will require storage (think batteries) to ride out periods when the wind isn't blowing. In such a world, big operators are more likely to thrive than mom-and-pop green power providers.

Plans to jump-start the economy with green spending won't pan out either. Serious greenery is about efficiency—not only in the use of energy but also labor and capital. Some of the green projects most cherished for their jobs, such as installing rooftop solar panels on homes, are the most dubious economically because of high labor costs. The most profitable green firms require few highly skilled workers. A full-scale shift to green could eventually employ millions, but not until long after the current crisis is over. Green will look much different than what most people imagine.