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Companies Are Ditching Environmental Schemes that Can't Pay for Themselves. Good.

Sean Gallup/Getty Images News/Getty Images

In 2007, General Electric, that model of the American industrial establishment, dipped its toe into frothy green waters. It entered the solar-panel business. GE bought a piece of PrimeStar Solar, a little Colorado-based solar-panel maker whose technology GE believed was cutting-edge. The deal, which GE later expanded by buying the rest of PrimeStar, was tiny by GE standards, but it was strategically significant for the multinational giant. It was in line with “Ecomagination,” GE’s then-fledgling corporate campaign to demonstrate it could simultaneously help the earth and enrich its shareholders.

It didn’t take. This past summer, with solar-panel prices tanking, GE ditched what had been PrimeStar, concluding that making solar panels in the United States wasn’t such a great business after all. GE sold the solar-panel technology to another U.S. solar firm for stock, in the process jettisoning GE’s previously announced plans to build, in Colorado, a $300 million factory to crank out the panels. The exit was a blow to GE brass, to Colorado clean-energy boosters, and, more broadly, to the heavily hyped notion of a coming wave of American “green jobs.” Had it been built, the Colorado facility would have been the biggest solar-panel factory in the U.S.

GE’s solar-power comeuppance is one small example of a reality check hitting companies, governments and consumers around the world: In trying to minimize humanity’s environmental footprint, generating warm fuzzies is one thing, but generating affordable and material environmental progress is something else. The work is expensive, inconvenient, controversial and complex. There’s no quick fix, and every supposed solution brings new problems of its own. The benefits – both environmental and financial – tend to come in unremarkable, incremental bits, not in some jaw-dropping windfall.

Too bad.

And high time.

Economic carnage is mounting from what now looks like the first phase of the modern “sustainability” crusade, a period in which the spending often was profligate and the returns— both environmental and financial— often were poor. Now come signs that, in a nascent second phase of the green endeavor, business leaders and policymakers are shifting to more economically efficient paths. So the wags who quip that “green growth” is an oxymoron, and the marketers who flog every new environmental technology as a silver bullet, are equally wrong. The green push — more specifically, the pursuit of affordable ways to use natural resources less wastefully — is neither dead nor inevitable. It may succeed; it may flop. Right now, tough lessons are being learned. That’s a necessary step in what, even under the rosiest scenario, is going to be an epic slog.

What’s so hard about today’s environmental challenges, at least the big remaining ones in industrialized countries such as the United States, has more to do with psychology than with technology. The difficulty is that the most evident environmental problems were long ago solved. Cleveland’s Cuyahoga River no longer burns with industrial waste. Cars no longer commonly belch plumes of smoke. In their day, these problems were widely seen as crises. They posed technological challenges. But crises tend to spur innovation.

The environmental problems topping today’s list — climate change, water shortages, population growth, urban sprawl — are tougher. They’re tougher mainly because they’re inchoate and incremental, which means they don’t strike most people as crucial to solve. As an economist would say, the opportunity cost of tackling them is widely seen as outweighing the expected benefit. As a physicist would say, inertia is a powerful force.

Polling bears this out. According to the Pew Research Center, 52% of Americans said this past January that protecting the environment was a top priority, a big jump from the 41% who said so four years earlier. Yet protecting the environment apparently doesn’t mean changing the energy system or curbing greenhouse-gas emissions. Just 45% of Americans said dealing with the “energy problem” was a top priority, down from the 60% who said so in 2009. Only 28% of Americans called dealing with global warming a top priority, down a tad from 30% four years ago.

Faced with this collective public yawn, many environmental activists have chosen to bang the drums and spread the message that the earth really does face an apocalypse. Alas, there’s not much evidence this strategy works over time. For awhile, it may spark enough of a sense of crisis to propel some action. But then the concern wears off and the action winds down.

This, in essence, has been the trajectory of the first phase of the modern sustainability push. In 2005, amid mounting scientific warnings about the dangers of global warming, the European Union slapped a price on carbon-dioxide emissions; the rules forced businesses constituting a large swathe of the E.U.’s industrial economy to curb their emissions or to buy permits to pollute. In 2007, the year after the release of Al Gore’s cinematic cri de coeur about climate change, An Inconvenient Truth, GE bought its stake in the Colorado solar-panel maker PrimeStar. At the time, GE was just one of dozens of companies making similar renewable-energy investments. The rationale: A combination of government incentives, consumer interest and technological innovation would boost the market for solar power, making it a profitable piece of the energy business.

What did that spasm of green spending produce? Environmentally speaking, not a lot. The price of a European permit allowing the bearer to emit a ton of carbon dioxide has plummeted, from about 30 euros in 2005 to about 5 euros today. That’s a fair sign the market isn’t inducing much change. Even if Europe’s carbon market had thrived, it wouldn’t have done much for the atmosphere, because the developing world — a place not covered by Europe’s carbon policies — is expected to produce virtually all the growth in global greenhouse-gas output in coming years. As for renewable-energy investments by companies such as GE, they’ve helped slash the price of solar panels and wind turbines, no small achievement. Yet renewable energy remains a small slice of the global energy pie, and greenhouse-gas emissions continue to rise, largely because the developing world is burning more coal and oil than ever.

But just because the first round of modern environmental spending has been inefficient doesn’t mean the next round must be too. Today, institutions with unsentimental investors are ramping up strategies that could accelerate a shift toward an economy that uses natural resources more efficiently — a shift that will stick to the extent that it proves lucrative. Big electric utilities are buying into the renewable-energy business, often more aggressively than governmental clean-energy mandates require them to do. To be sure, they’re angling to look green, they’re still making most of their power profit from fossil fuel, and often they’re lobbying against tougher renewable-energy policies even as they make those investments. What’s changing, though, is that they’ve decided that renewable energy has grown too big to ignore. Utilities that set investment strategy for decades, not just for months or years, are concluding that the cost of renewable energy has declined to the point that, in some places, it’s competitive with conventional power.

Similarly, the World Bank has said it no longer will bankroll the construction of coal-fired power plants in the developing world except in “rare circumstances.” The bank’s primary mission is to facilitate economic development in poor countries, so it can’t justify purely bleeding-heart initiatives. The new stance is a bet that cleaner energy sources have gotten sufficiently economical to enter the mainstream.

One of Saudi Arabia’s longest-serving oil ministers, Sheikh Zaki Yamani, who presided over the Arab oil embargo that so dislocated many Western economies in the 1970s, once offered a wry and wise analysis of what drives changes in peoples’ use of natural resources. “The Stone Age did not end for lack of stone,” he said, “and the oil age will end long before the world runs out of oil.” What he meant is that the most enduring shifts are propelled not by pushes but by pulls. It’s not that the status quo suddenly gets intolerable; it’s that an alternative ultimately gets more alluring.

Over the past generation, the signal environmental gains have been driven by pushes. Anger at the sight of a burning river pushed Cleveland to clean up the Cuyahoga. Horror about lung-clogging air pushed Los Angeles to clean up its smoggy skies. Fear of reliance on expensive imported oil and gas pushed Japan and Germany to ramp up domestic nuclear, wind and solar power.

With many of today’s big environmental challenges, however, waiting for pushes to drive action may not work. If many of the scientists who study these things are to be believed, the pushes, by the time they’re palpable, could prove catastrophic. One way to understand the turmoil now buffeting the environmental markets, then, is as a structural reset – a paradigm shift from push to pull. The first phase of the sustainability effort sought largely to compel society to change. At issue now is whether, in a second phase, the change can be made so attractive – among other things, inexpensive – that people choose it. If this transition fails, taxpayers and investors may lose many billions of dollars. If it succeeds, an economy that uses natural resources more efficiently may prove, well, sustainable.