News flash: business responds to market incentives!

I’ve been a big fan of Jared Diamond’s work ever since Guns, Germs, and Steel, and I enjoyed his op-ed yesterday describing how companies like Wal-Mart, Coca-Cola, and Chevron are “going green.” But I thought the real lesson of the article got buried in his glowing depiction of these supposedly enlightened companies. If you read his account carefully, it’s clear that these big businesses didn’t suddenly acquire an altruistic concern for the good of the planet; they are simply responding to clear market incentives, reinforced in some cases by intelligent regulation. Walmart is working to reduce its energy expenditures because energy (e.g., fuel for delivery trucks) is expensive; Coca-Cola is worried about water supplies because Coke is mostly made of water and its costs will increase as water becomes scarcer; and Chevron now does more to prevent environmental damage because governments now require it to pay clean-up costs and that’s more expensive than preventing oil spills and other environmental mishaps in the first place.

The moral is that we aren’t going to get a greener planet if we don’t make the cost of environment-damaging activities (like burning fossil fuels or wasting water) substantially more expensive, and if we don’t make it harder for those who do the most damage to off-load the costs on someone else.  Everyone watching the climate change talks in Copenhagen should keep this lesson firmly in mind: A truly effective solution isn’t going to be cost-free, especially in the short-term. 

Donald Bowers/Getty Images for The Coca Cola Company