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Climate Friendly Communities:

A Review of What Economists Know About the Potential Business Imacts



Preared for:
Tracy Morgenstern, City of Seattle, Office of Sustainability and Environment

Author:
Kristen A. Sheeran Ph.., Economics for E!uity and

Fall !"##


















Climate Friendly Communities:
A Review of What Economists Know About the Potential Business Imacts
Tracy Morgenstern, City of Seattle, Office of Sustainability and Environment
Kristen A. Sheeran Ph.., Economics for E!uity and the Environment "et#or$
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A Review of What Economists Know About the Potential Business Imacts

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E$ecutive %ummary:

The City of Seattle recently commissioned an analysis of the technical feasibility of a range of
strategies in trans%ortation, building energy, and #aste sectors to achieve net carbon neutrality
by the year &'(' from ma)imum de%loyment of $no#n technologies at reasonable %enetration
rates. The energy*saving strategies that #ere identified %rovide o%%ortunities to reduce
greenhouse gas emissions and redesign urban landsca%es, architecture, and trans%ortation
systems to become more resilient to climate change and higher fossil fuel %rices. They also
introduce %olicies, incentives, and regulations, and re!uire investments that other cities and
regions have not necessarily made. Do these initiatives disadvantage businesses and
households in Seattle, or do they incentivize efficiency and innovation and position the city
more competitively for growth in the future?

This re%ort revie#s the relevant literature in economics to hel% %rovide ans#ers to these
im%ortant !uestions. +e consider ho# the suite of regulations and incentives considered by
Seattle could affect business %rofitability and com%etitiveness. +e also e)%lore the benefits to
Seattle and its businesses of becoming a more climate friendly. The re%ort does not analy,e the
s%ecific economic im%acts of the emissions reduction strategies under consideration. -ather, it
dra#s im%ortant insights from the literature to establish #hat economists currently $no#
about the li$ely business im%acts of creating climate friendly communities.

Economic research on the %otential economic im%acts of regulatory measures and other
incentives to im%rove environmental outcomes s%ans decades. Em%irical studies and other
analyses have reached three general conclusions.

There is no evidence of widespread flight of polluting industries to different regions or
countries to esca%e environmental regulations. /irm relocation decisions have been
driven mostly by the %ursuit of lo#er #age and benefit costs0 the costs of com%lying
#ith environmental regulations are sim%ly not high enough as a %ercentage of total
business costs to motivate relocation.

The em%irical data sho#s that layoffs attributed to environmental regulation are rare,
even in heavily %olluting industries.

At the economy*#ide level, there is no real tradeoff between environmental regulation
and growth. -egulation may slo#ly shift the com%osition of economic activity from
%olluting to clean technologies and s%ecific businesses or industries may be
dis%ro%ortionately im%acted. The net effect, ho#ever, should be small as indicated by
historical evidence and trends.

1n Seattle, the s%ecific concern is #hether businesses #ill choose to relocate to nearby suburbs
to avoid the %otential costs of im%lementing a city*#ide carbon neutral strategy. 2usinesses
based in nearby Seattle suburbs #ould dra# from the same regional labor %ool and %ay the
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same average #age rates0 there #ould be no labor savings by moving outside of city limits. 2y
moving to the suburbs, businesses #ould forgo the advantages of locating in an urban center
and the benefits of Seattle3s %lanned energy*saving and efficiency measures. To offset the loss
of these benefits, the costs of im%lementing Seattle3s carbon neutral %lan #ould have to be
very significant. 4et, as national studies have sho#n, the costs of environmental com%liance are
ty%ically not large enough on average to drive relocations.

Strategies for achieving carbon*neutrality in Seattle by &'(' target e)%ansive energy efficiency
im%rovements in trans%ortation and commercial and residential building sectors. Measures
include ne# building design, building retrofits and renovations, and s#itching to district energy
and heat %um%s. These types of energy efficiency measures have been shown to generate
savings for businesses and consumers and to contribute to economic growth and prosperity in
a region. The %otential energy savings from efficiency im%rovements in the building sector are
es%ecially significant. 1n the 5.S., buildings account for roughly 6'7 of all energy use. Energy
efficiency improvements in buildings and appliances offer the greatest potential for negative-
cost abatement opportunities that generate positive economic returns to society at large over
the lifecycle of the project The literature, therefore, is largely very su%%ortive of the $inds of
energy efficiency initiatives outlined in Seattle3s carbon neutral strategy. Those initiatives have
the %otential to deliver high benefits at relatively lo# cost and ris$.
As com%ared to other regions, Seattle may e)%erience lo#er energy savings and longer %aybac$
%eriods from its energy efficiency investments. This is because the region already benefits from
a mild climate and abundant hydro%o#er. Energy efficiency im%rovements, ho#ever, offer
Seattle businesses and households o%%ortunities to save on more than 8ust their energy bills. 1n
addition to energy cost savings, energy efficiency investments %rovide benefits in the form of
reduced maintenance costs, greater reliability, avoided future ca%ital costs, lo#er #ater and
chemical #astes, and greater %roduct !uality. Moreover, the potential energy cost savings
from space heating and for transportation are significant. Seattle3s %o%ulation is heavily
de%endent on single*occu%ancy vehicles and suffers some of the heaviest traffic %atterns in the
nation. +ith rising fuel costs and the %otential time and cost savings from %ublic
trans%ortation, %edestrian friendly #al$#ays, or bicycling, Seattle3s carbon neutral %lan can
deliver real savings.
Efficiency improvements, in turn, can increase the city!s competitiveness and its ability to
attract industry, capital, and a highly s"illed wor"force Seattle is already home to multi%le
innovation clusters, including clean technology. The literature on regional innovation clusters
finds that businesses benefit from co*location by reducing costs along a su%%ly chain, e)%anding
the labor %ool, and attracting s%ecialists to the region. 9igh tech, green tech, and clean energy
com%anies are not li$ely to locate to areas that do not su%%ort the very technologies, %roducts,
and services they %roduce. The realities of climate change and %ea$ oil su%%lies strongly
suggest that the most successful businesses of the future will be able to innovate ways of
e#tracting more energy services from every dollar of energy e#penditure. Seattle3s carbon
neutral strategy #ould su%%ort local demand for clean technologies and create a %olicy
a%%aratus and set of incentives that could attract more of these businesses to the area.
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Our survey of the literature finds little evidence that Seattle3s carbon neutral %lan #ill create an
environment hostile to businesses and %rofits. Contrary to some %erce%tions, the literature
largely su%%orts the use of incentives and smart %ublic %olicies to incentivi,e efficiency and
innovation and enhance economic com%etitiveness. The successful cities of the future will be
those that pro-actively plan and invest in energy productivity, clean energy, and green
infrastructure and design. These are the cities that #ill gain a com%etitive advantage in the
technologies #hich #ill be in high demand in the future. These are the cities best %ositioned to
minimi,e im%acts on the %ublic and businesses from climate change and uncertain energy
%rices. +e conclude, therefore, that there is sufficient evidence in the literature to su%%ort
Seattle3s goal of becoming a carbon*neutral, climate friendly community.




















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I& Introduction

The city of Seattle is u%dating its Climate Action Plan and develo%ing short*term and long*term
strategies for reducing greenhouse gas emissions, #ith the goal of achieving net carbon
neutrality by the year &'('. To su%%ort the Plan u%date, the City commissioned an analysis of
the technical feasibility of a range of strategies in the trans%ortation, building energy, and
#aste sectors to evaluate the %otential :9: reductions from ma)imum de%loyment of $no#n
technologies at %lausible %enetration rates.

1n the absence of global and federal leadershi% and regulation on climate change, momentum
behind city and regional initiatives is gro#ing. 1n establishing aggressive goals for emissions
reductions and greater energy efficiency, Seattle 8oins other ma8or cities #orld#ide and across
the 5.S. in recogni,ing the im%ortant contributions cities can ma$e to climate stabili,ation
efforts and the gro#th o%%ortunities inherent to the u%ta$e of climate*friendly technologies.
Emissions mitigation on a city*#ide scale, ho#ever, %oses some uni!ue challenges.

Cities have limited sco%e for establishing the broad*based %olicies, such as a carbon ca% or ta),
#hich can raise the %rice of carbon emissions and incentivi,e broad scale reductions by
businesses and households. A carbon %rice %rovides a direct mar$et signal that carbon
emissions are costly and should be economi,ed, and it levels the %laying field bet#een fossil
fuels and clean energy alternatives. +ithout the benefit of a carbon %rice, cities li$e Seattle can
encourage emissions reductions by increasing the energy efficiency of their infrastructure,
enhancing non*single occu%ant vehicle trans%ortation systems, im%roving #aste management,
and to the e)tent %ossible, generating clean energy locally sourcing clean energy from
su%%liers. Seattle is already a #ell*recogni,ed leader in this regard. The City of Seattle o#ns
Seattle City ;ight, the utility that %rovides the ma8ority of electricity to Seattle residents and
businesses. City ;ight is the first carbon neutral electric utility in the nation. Over <'7 of City
;ight3s %o#er comes from rene#able hydroelectric %o#er and any greenhouse gas emissions
related to %urchased %o#er and o%erations are offset.

"o matter ho# successful an individual city may be at mitigating carbon emissions, it alone
cannot solve the global climate change %roblem. Climate change is a global e)ternality that may
be most efficiently solved through a coordinated global res%onse. This fact, ho#ever, does not
negate the im%ortance of city climate initiatives. Cities can %rovide much needed leadershi% on
the climate change front and demonstrate tangible %ath#ays for#ard that can be re%licated on
a larger and more com%rehensive scale.

Though the %rimary %ur%ose of city climate action %lans is to mitigate emissions and reduce
energy use, these initiatives %rovide simultaneous o%%ortunities to redesign urban landsca%es,
architecture, and trans%ortation systems to become more resilient to climate change and
higher fossil fuel %rices in the future. Cities #ill bear the brunt of climate change im%acts.
Coastal cities li$e Seattle #ill #itness the effects of sea level rise. -ising tem%eratures #ill
e)acerbate the urban heat island effect and local air %ollution. 1n the long run, all 5.S. cities #ill
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need to brea$ their de%endence on fossil fuels and antici%ate and %lan for the im%acts of
climate change. /or#ard loo$ing cities and regions that act early and effectively can smooth the
transition and minimi,e im%acts for businesses and citi,ens.

Cities that embrace bold climate change initiatives, ho#ever, introduce %olicies, incentives and
regulations and ma$e investments that are not necessarily %resent else#here. Some fear that
these initiatives #ill disadvantage businesses, industries, and households and negatively im%act
income and em%loyment in the region. Others have argued that the benefits of living and
o%erating in a climate friendly community out#eigh any %otential com%etitive disadvantages.
These advantages include energy savings and %roductivity gains, as #ell as the benefits of living
and doing business in urban areas that are innovation clusters. Com%ared to other cities, the
financial and emissions savings from energy efficiency im%rovements in Seattle #ill not run as
dee%, because the city relies on lo# cost rene#able hydroelectric %o#er and e)%eriences a mild
climate. 9o#ever, electricity conservation measures in Seattle increase the availability of
hydroelectric %o#er to dis%lace fossil fuel use else#here. Additionally, cost and emissions
savings should be reali,ed from energy efficiency im%rovements in trans%ortation and natural
gas use.

There is an established literature in economics that critically e)amines the benefits and costs of
carbon regulations and incentives and analy,es the %otential im%acts on com%etitiveness,
em%loyment, and income in a region. 1n the sections that follo#, #e revie# the relevant
literature in economics to hel% %rovide ans#ers to the follo#ing !uestions confronting City of
Seattle officials as they u%date the Climate Action Plan.

9o# might the suite of regulations and incentives being considered affect business
%rofitability and com%etitiveness=

+hat are the benefits to Seattle and its business community of becoming a climate
friendly community=

This re%ort does not analy,e the s%ecific economic im%acts of the emissions reductions
strategies under consideration. -ather, the re%ort dra#s im%ortant insights from the literature
to establish #hat economists currently $no# about the li$ely business im%acts of creating
climate friendly communities.

II& Bac'(round

There is a large and gro#ing literature in economics that com%ares the economic benefits and
costs of carbon reductions to determine the o%timal %olicy res%onse to climate change. This
literature relies on integrated assessment models, large*scale com%uter models #hich estimate
and com%are the aggregate benefits of avoiding climate change and the aggregate costs of
mitigation. The analyses ty%ically estimate national or global mitigation costs as a %ercentage
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loss of economic out%ut %ro8ected from a given level of emissions reduction as com%ared to
business*as*usual. -ecent estimates of the aggregate global costs of achieving atmos%heric
concentrations of carbon dio)ide of >('*6(' %arts %er million, the levels recommended by
climate scientists to minimi,e the #orst ris$s of climate change, range bet#een ?*>7 of global
out%ut annually @Stern &''A0 Ac$erman et. al &''<aB.

An alternative method to estimating emissions abatement costs involves a bottom*u%
a%%roach, or #hat is sometimes called an engineering a%%roach. This method builds u%#ard
from estimates of ho# much emissions reduction can be obtained through s%ecific reduction
levers @e.g. energy efficiency or fuel s#itchingB. -eduction levers are then ran$ed by lo#est to
highest cost to determine the amount of emissions reduction that can be achieved at %articular
%rice %oints. This method generates abatement costs curves, such as the #idely cited
greenhouse gas abatement cost curves %roduced by McKinsey C Com%any @McKinsey &''<B.

The results of both ty%es of studies are #idely debated @Ac$erman et. al &''<bB. 1n %rinci%le,
estimating mitigation costs in dollar terms is more straightfor#ard than measuring the benefits
of avoided climate change. The ado%tion of energy*efficient e!ui%ment, a%%liances, industrial
%rocesses, and automobiles, as #ell as more #ides%read use of combined heat and %o#er
technologies, #ind energy systems, smart building energy systems, solar %anels, alternative
trans%ortation and other measures for reducing emissions all involve %urchases of mar$eted
goods and services #hose attendant cash flo#s can be counted. The evolution of these
technologies is uncertain, ho#ever, %articularly over the long time %eriods involved in climate
modeling. Economic models are not %articularly #ell*suited for ca%turing the dynamic, socially
determined nature of technological change. They ty%ically do not include the full emissions
reduction %otential of energy efficiency im%rovements, the %ositive s%ill*over benefits from
technological change, the benefits of learning*by*doing, and the %ositive role %ublic %olicy can
%lay in steering investment choices and encouraging innovation. As a result, these studies li$ely
overestimate the costs of emissions reduction @Ac$erman et al. &''<bB.

Modeling the benefits of avoided climate change is even more fraught #ith uncertainty,
difficulty and controversy. The economic damages from climate change accrue to future
generations and involve %otential conse!uences for human lives and ecosystems that are
virtually incalculable. /or these reasons, %recaution, ris$ assessment and ris$ management may
be more a%%ro%riate frames for evaluating climate %olicy. Emissions mitigation could be vie#ed
as insurance against uncertain, %otentially catastro%hic future damages from climate change.
-ecent economic research, %ioneered by Martin +eit,man @&''D, &''EB has %ro%osed ne#
#ays of dealing #ith uncertainties inherent to climate change. According to +eit,man, in a
#orld #ith uncertain future outcomes, the %robability distribution of economic damages from
climate change has Ffat tailsG0 the less li$ely events are the most conse!uential. 1f %eo%le are
ris$*averse, the avoidance of losses from #orst case scenarios dominates decision ma$ing. As
+eit,man argues, fine*tuning estimates of the most li$ely climate damages is less im%ortant
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that determining ho# bad and ho# li$ely the #orst case scenarios of climate change may really
be.
The conclusion to be dra#n from this literature is that the %otential conse!uences of climate
change #arrant investments in %reventative measures today @Stern &''A0 +eit,man &''D0
+eit,man &''E0 Ac$erman et al. &''<bB. This emerging consensus by economists, ho#ever,
a%%lies to national or global emissions reductions efforts, #here reductions are %otentially of
large enough scale to im%act the climate system. +hat this means for cities li$e Seattle, #here
even the most ambitious climate action %lans #ill yield small or im%erce%tible changes in
atmos%heric carbon dio)ide levels, is debatable. Carbon reduction as a strategy for minimi,ing
ris$s from global climate change is most efficiently %ursued on a global or national scale. To the
e)tent, ho#ever, that cities, states, and regions vie# their emissions reductions as %art of
national or global stabili,ation efforts, ho#ever, there is there is a large and gro#ing body of
research in economics that su%%orts these actions as %recautionary investments in avoided
climate change futures. The literature also demonstrates that carbon reduction %roduces
economic benefits to cities and regions beyond climate change.

-ecent %ro%osals in the 5.S. to ca% or ta) carbon emissions at the national level have led
economists to investigate the im%acts of a carbon %rice on businesses and households. These
studies ty%ically find that a carbon ca% or ta) #ill raise fossil fuel %rices, and the %rices of all
other goods and services in %ro%ortion to their energy content. The net im%act on households
or businesses, ho#ever, #ill de%end on several factors. +ith regards to businesses, the im%acts
de%end on the energy intensity of %roduction, and ho# much of the energy %rice increase can
be %assed along to consumers in the form of higher %roduct %rices. +ith regards to households,
the net im%acts de%end on the si,e of their carbon foot%rint and #hether %olicies are
im%lemented to offset increases in energy costs. /or e)am%le, if government im%lements a
carbon ta) or auctions carbon %ermits under a ca%*and*trade system, the revenues generated
can be redistributed bac$ to households to offset higher energy costs. Studies that have
disaggregated household im%acts by state of residence and by income have found that the
incidence of a carbon ta) or ca% #ill vary. 9ouseholds in states #ith lo#er emissions %er ca%ita0
states #ith lo#er energy demands0 and states #here energy su%%lies are not as emissions
intensive ty%ically fare better than households in energy intensive states that rely heavily on
coal and oil su%%lies for heating and electricity. The carbon %rice im%acts on household income
in +ashington state, for e)am%le, are e)%ected to be lo#er than the national average, due to
the region3s mild climate @lo#er demands for heating and coolingB and the dominance of
hydro%o#er in its electricity su%%ly @Ac$erman et al. &''<cB. 1n terms of household income,
studies confirm that affluent households that consume more #ill %ay more in total than lo#er
income families under a carbon ta) or ca%0 but lo#er*income households #ill %ay more as a
%ercentage of income and #ill be dis%ro%ortionately affected. Again, studies have sho#n that
the regressive im%acts of higher carbon %rices can be negated by %olicies that distribute carbon
revenues bac$ to households @2urtra# and Parry &'??0 2oyce and -iddle &''<0 Ac$erman et al.
&''<cB.
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The ta$e home message from these economics studies is as follo#s. Measures that increase
carbon %rices in fossil fuel de%endent economies #ill raise energy costs and the costs of other
goods and services. The im%acts are %otentially regressive, but effective %ublic %olicy tools can
be used to lessen the burdens on households and businesses. Energy conservation, energy
efficiency, and fuel*s#itching to cleaner energies can reduce the vulnerability of households
and businesses to higher carbon %rices and smooth the transition to a lo# carbon or carbon
neutral future.
The &''( Climate Action Plan and the strategies considered in the carbon neutral analysis,
ho#ever, do not include measures li$e a carbon ta) or ca% that #ould directly raise local energy
costs0 rather, energy savings result from measures designed to reduce energy use through
energy efficient design and retrofits. Actions contem%lated include a variety of initiatives and
incentives to reduce vehicle miles traveled, electrify the vehicle fleet, redesign and retrofit
commercial and residential buildings to achieve greater efficiency, s#itch fuels, and increase
recycling and com%osting rates. The carbon neutral analysis assumes that Seattle City ;ight #ill
su%%ly carbon neutral electricity to the city by adding ne# #ind, geothermal, and other
rene#able resources to e)isting hydro%o#er electricity su%%lies. The Plan also assumes that the
overall electricity load #ill not increase0 electricity savings from energy efficiency measures #ill
offset electricity demands from vehicle electrification and s#itching to electric heat %um%s in
buildings @;a,arus et al. &'??B.

9o# might this %ac$age of initiatives im%act Seattle businesses= To ans#er this, #e turn to
related literatures in economics that e)%lore. ?B the im%acts of regulations on businesses0 &B the
benefits to businesses of energy efficiency im%rovements0 and >B the benefits to businesses and
cities of %roactively %lanning for a carbon constrained future.

111. Imacts of Re(ulation on Business
The debate over the %otential economic im%acts of regulatory measures to im%rove
environmental outcomes is long standing. The oft*cited concern is that environmental
regulations #ill increase %roduction costs, raising %roduct %rices and decreasing the !uantity of
goods and services demanded. This could %otentially lead to layoffs and rising unem%loyment in
sectors or industries of the economy affected by the regulations. Em%irical evidence, ho#ever,
finds little su%%ort for #ide*scale 8ob losses or relocations arising from strengthening of
environmental %olicies. The economics research on this to%ic e)tends bac$ over the last forty
years, #ith some of the most im%ortant findings %ublished in the late ?<<'s and &'''s. The
Clean Air Act Amendments of ?<<' mar$ed the last significant %ac$age of environmental
regulation %assed in the 5.S. and the creation of "A/TA in ?<<6 %resented ne# o%%ortunities
for 5.S. firms to relocate abroad to avoid environmental regulations. Thus, there is an e)tensive
literature that covers a long time %eriod that evaluates ho# environmental regulations im%act
businesses, em%loyment, and income.
Economists have dra#n three conclusions based on this history about the li$ely im%acts on
businesses from environmental regulation. The first conclusion is that businesses are unli$ely to
relocate to avoid com%liance #ith environmental regulations. The em%irical evidence sho#s
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that there has been little movement by 5.S. firms to other countries to esca%e environmental
regulatory burdens. "or has there been a migration of ne# investment in dirty industries to
develo%ing countries #ith la) regulations, the so*called H%ollution havensG. Over the last fe#
decades of the neoliberal era, both dirty and clean industries have relocated outside of the 5.S.,
but that movement has been driven mostly by the %ursuit of lo#er #age and benefit costs
@es%ecially health costsB, #hich com%rise a much higher %ercentage of their total costs
@:oodstein ?<<<0 :allagher &''AB. +hat the research has found is that environmental
com%liance costs are generally belo# &7 of total business costs @Iaffe et al. ?<<(B0 the %otential
savings are 8ust not large enough to com%el relocation to esca%e environmental regulations
alone. Economists searching for evidence of #ides%read flight of %olluting industries to
different countries or different states #ithin the 5.S. have yet to uncover evidence of a trend.
?


Most of this literature, ho#ever, is focused on 5.S. industries and the incentives to relocate to
avoid national or state level regulatory burdens. Seattle, ho#ever, is rightly concerned #ith the
%otential relocation of businesses to nearby suburbs to avoid the %otential costs of
im%lementing a city*#ide carbon neutral strategy. -elocations so nearby #ould seem easier to
affect than relocations to China or Me)ico. The literature demonstrates, ho#ever, that #hat
drives firm relocation is mostly the %otential labor cost savings. This driver #ould not be
relevant for businesses contem%lating a move to nearby suburbs. 2usinesses in nearby Seattle
suburbs #ould dra# largely from the same regional labor %ool and %ay the same average #age
rates. 2y moving to the suburbs, businesses #ould forgo the benefits of locating in an urban
center as #ell as the benefits of carbon savings. To offset the loss of these benefits, the costs of
im%lementing Seattle3s carbon neutral %lan #ould have to be great. 4et, as national studies
have sho#n, the costs of environmental com%liance are ty%ically not large enough on average
to drive relocations.

The second ma8or conclusion economists have dra#n from studies e)amining the im%acts of
regulations on businesses and com%etitiveness at the national or regional level is that that %lant
closings and layoffs as a result of environmental regulations are actually rare. "umerous
inde%endent studies sho# this. ;ayoffs that can be attributed to environmental regulations
account for only ?J?'th of ?7 of all mass layoffs @K (' em%loyeesB nation#ide. This is
e!uivalent to roughly ?,'''*>,''' 8obs %er year across the entire country. /or e)am%le, fe#er
than D''' 8obs #ere lost bet#een ?<<'*?<<D as a direct result of the Clean Air Act
Amendments ta$ing effect. Over that same %eriod, ?' million 5.S. #or$ers #ere laid off for
non*environmental reasons @:oodstein ?<<<B. Among the reasons for ma8or layoffs, as re%orted
by the 2ureau of ;abor Statistics, environmental and safety*related shutdo#ns are among the
least common, accounting for about '.?7 of 8ob losses @:oodstein ?<<<0 Ac$erman and Massey
&''&B. A study of the heavily regulated steel, %etroleum, %lastics, and %ul% and %a%er industries
concluded that, L#hile environmental s%ending clearly has conse!uences for business and
labor, the hy%othesis that such s%ending significantly reduces em%loyment in heavily %olluting
industries is not su%%orted by the dataG @Morgenstern et al., &''&, %. &(B.

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That is not to say that firms that leave the 5.S. in %ursuit of lo#er labor costs behave as good environmental
citi,ens abroad.
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The third ma8or conclusion is that at the economy*#ide level, there seems to be no real
tradeoff bet#een environmental regulation and gro#th. Environmental regulation leads to a
very slo# shift in the com%osition of s%ending. 8obs are gained as #or$ers %roduce, install and
maintain clean*u% e!ui%ment and engage in retrofits, and are lost as firms %ass on those cost
increases to consumers, #ho have to cut bac$ their %urchase of goods and services from that
sector @:oodstein ?<<<B. Environmental regulation begins a slo# shift a#ay from the %roducts
of dirty industry. An e)am%le #ould be the shift into ne# recycling 8obs and out of #aste
dis%osal 8obs, as the %ercentage of #aste recycled in the 5.S. rose significantly in the ?<<'s.
1n large cities li$e Seattle, 8obs are regularly gained and lost. +hile 8ob loss can be catastro%hic
to an individual #or$er, net 8ob loss @or gainB is the variable that matters most for %ublic %olicy.
As #ith all %ublic %olicy, changes in environmental regulations create #inners and losers.
S%ecific businesses or industries may be dis%ro%ortionately im%acted @for e)am%le, the coal
industry from national carbon legislationB. An analysis of the business cost im%acts of achieving
carbon neutrality in Seattle could reveal #hich businesses and industries #ould be most
im%acted. 2ased on the economics literature, ho#ever, there is little evidence to suggest that
businesses in Seattle #ill engage in ma8or layoffs or relocate in res%onse to carbon neutral
strategies or that ne# investment #ill be steered to#ards cities #ith less ambitious @or non*
e)istentB climate action %lans. ;abor mar$et conditions in Seattle #ill continue to be more
heavily influenced by larger structural changes in the 5.S. and global economy, than any
%ro%osed regulatory changes at the city level. /urthermore, to the e)tent that Seattle3s carbon
neutral strategy hel%s %osition the city to attract the innovative, high tech, or clean industries
that #ill be com%etitive in the future, it may %osition the city for longer term em%loyment
gro#th.

I)& *he Benefits of Ener(y Efficiency Imrovements
The City of Seattle is e)%loring the %otential for ma8or emissions reductions from energy
efficiency im%rovements in the commercial and residential building sectors. Measures include
ne# building design, building retrofits and renovations, and s#itching to district energy and
heat %um%s. These measures build*on Seattle City ;ight3s longstanding commitment to energy
conservation as the lo#est cost and least ris$y o%tion for reducing load and meeting long*term
energy needs. The utility %ro8ects that it can meet energy needs through &'&' #ithout
ac!uiring ne# generating resources @Seattle City ;ight &'?'B.

Across most of the 5.S. the benefits of energy efficiency im%rovements have long been
overloo$ed0 energy efficiency has been characteri,ed by some as an invisible resource @Ayers
and Ayers &'?'B. 5nli$e ne# solar or #ind facilities, %eo%le can3t see the benefits of energy
efficiency at #or$. "evertheless, the literature on energy efficiency reveals its %otential to
generate savings for businesses and consumers and contribute to gro#th @Ayers and Ayers
&'?'B.

12

All businesses consume energy0 energy services are vital to economic activity. Measures that
reduce the costs of energy services, therefore, can contribute to economic gro#th and
%ros%erity in a region. Energy generation and use in the 5.S. is incredibly inefficient. 5.S.
electricity generation, for e)am%le, is only >>7 efficient. This inefficiency is com%ounded by the
inefficiency #ith #hich consumers then use that generated electrical %o#er. According to a
recent analysis by Ayers and Ayers @&'?'B, the overall efficiency of the different $inds of energy
used in the 5.S. to %roduce Fuseful #or$3 is only ?>7. This signifies a tremendous amount of
energy #aste as #ell as enormous o%%ortunities for energy savings through investments in
energy efficiency.
Energy efficiency is an under*utili,ed resource in the 5.S. economy and an im%ortant
com%onent of any emissions mitigation strategy. 1nvestments in energy efficiency are ty%ically
lo#*ris$ but yield high returns. McKinsey C Com%any @&''<B, for e)am%le, estimates the
investment %otential for energy efficiency in the 5.S. at M(&' billion #ith returns of M?.& trillion
over the ne)t ?' years. Such a %rogram could reduce energy consum%tion by &>7 of %ro8ected
demand and abate ?.? gigatons of greenhouse gases annually using technologies already
demonstrated to be cost*effective @McKinsey C Com%any &''<B. As much as D(7 of ne# 5.S.
energy demand over the last t#o decades #as met by increased efficiency0 only &(7 came from
ne# fossil fuel su%%lies @Ayers and Ayers &'?'0 ;aitner and Ehrhardt*Martine, &''EB. -oughly
D&7 of the Linvisible energy boomG too$ %lace in buildings and industry sector @Ayers and Ayers
&'?', ;aitner and Ehrhardt*Martine, &''EB. A recent study by the 5nion of Concerned Scientists
@Cleetus, Clemmer and /riedman &''<B details a %ortfolio of technology and %rogram o%tions
that could lo#er 5.S. greenhouse gas emissions (A7 belo# &''( levels by &'>'. The study
estimates an annual M6?6 billion in savings for 5.S. households, vehicle o#ners, businesses, and
industries by &'>'. The study concludes that the net cumulative savings @energy savings less the
costs of the technologiesB could total M?.D trillion dollars over the %eriod &'?'*&'>'. ;aitner
and McKinney @&''EB %rovides a meta*revie# of 6E %olicy studies that e)amine the costs of
economy*#ide efficiency investments over a ?(*&( year time %eriod. Their analysis finds that
the energy savings from these investments are more than t#o*times the estimated cost to
im%lement the suggested %olicies. @;aitner and McKinney &''EB. AEC et al. @?<<?B and Energy
1nnovations et al. @?<<DB similarly demonstrate a t#o*to*one benefit*cost ratio for energy
efficiency investments.
The %otential energy savings from efficiency im%rovements in the building sector are
significant. 1n the 5.S., buildings account for roughly 6'7 of all energy use. McKinsey and
Com%any @&''DB find the greatest %otential for negative*cost abatement o%tions amongst
energy efficiency im%rovements in buildings and a%%liances. These o%%ortunities can generate
%ositive economic returns to society at large over the lifecycle of the %ro8ect. A study %ublished
by the "ational -ene#able Energy ;aboratory @:riffith et al. &''DB found that commercial
buildings could reduce their average energy use by as much as A'7 if rebuilt to include a
com%rehensive %ac$age of energy efficiency technologies and %ractices. "e# building designs
and technologies can render buildings net energy %roducers N generating more energy than
they consume. Also significant is the %otential to recycle high*!uality #aste energy from
industrial %lants. A study %roduced by the ;a#rence 2er$eley "ational ;aboratory suggested
13

that a variety of #aste*to*energy and recycled energy systems could ca%ture enough #aste
heat from industrial facilities to offset ?'7 of current 5.S. electricity demand @Ayers and Ayers
&'?'B.
/uture %ro8ections for energy efficient technologies are bright. As energy efficient technologies
achieve greater %enetration, and as behavioral, institutional, and structural obstacles to #ider
mar$et im%lementation are identified and addressed, the energy efficiency resource should
become %rogressively chea%er @;aitner and Ehrhardt*Martine, &''EB. Effective %ublic %olicies
can accelerate the rate of im%rovement and ado%tion of these technologies, enabling lo#er
costs and higher %erformance over time @McKinsey &''<0 Koomey &''EB. The literature,
therefore, is largely very su%%ortive of the $inds of energy efficiency initiatives outlined in
Seattle3s carbon neutral strategy. Those initiatives have the %otential to deliver high benefits at
relatively lo# cost and ris$.
1n Seattle and the "orth#est, the carbon and monetary savings from dee% retrofits and other
energy efficiency measures may be lo#er, and the %aybac$ %eriods may be longer, than in
other %arts of the country. This is because the region already benefits from a mild climate and
relies heavily on relatively lo# cost hydroelectric %o#er. Energy efficiency im%rovements,
ho#ever, offer Seattle businesses and households o%%ortunities to save on more than 8ust their
energy bills. 1n addition to energy cost savings, energy efficiency investments %rovide benefits
in the form of reduced maintenance costs, greater reliability, avoided future ca%ital costs, lo#er
#ater and chemical #astes, and greater %roduct !uality. 1n residential buildings, non*energy
benefits may be e!uivalent to ?'*('7 of household energy savings @Amann &''AB.
1n the "orth#est, concerns about lo#er*energy cost savings from energy efficiency
im%rovements a%%ly mostly to electricity. The %otential costs savings for s%ace heating and for
trans%ortation are still great @;a,arus et al. &'??B. Seattle3s %o%ulation is heavily de%endent on
single*occu%ancy vehicles and has some of the heaviest traffic %atterns in the nation. +ith
rising fuel costs and the %otential time and cost savings from %ublic trans%ortation, %edestrian
friendly #al$#ays, or bicycling, Seattle3s carbon neutral %lan can deliver real savings.
)& Advanta(es of Climate Friendly Communities
Competitiveness
The literature on com%etitiveness is ra%idly evolving. Once narro#ly construed in terms of labor
costs, com%etitiveness is no# understood more broadly to involve the %roductivity of diverse
resources. labor, ca%ital, $no#ledge, and natural assets. Studies of com%etitiveness and
economic develo%ment historically focused on national %olicies and attributes. Economists
today increasingly recogni,e the im%ortance of regions as incubators of economic gro#th and
innovation and the role local %olicy ma$ers can %lay to actively su%%ort cluster*oriented
economic develo%ment @Porter &''>B.
-egional innovation clusters, or sim%ly LclustersG, refer to geogra%hic concentrations of
interconnected enter%rises and su%%orting institutions @Muro and Kat, &'?'B. There are
multi%le innovation clusters in the Seattle area that contribute to the region3s %ros%erity.
14

aeros%ace, information technology, clean technology, life sciences, logistics and international
trade, military, and tourism. The clusters theory, #hich dates bac$ to Michael Porter3s seminal
?<<' %ublication, The Competitive Advantage of Nations, is based on the idea that businesses
of similar ty%e cluster together in the same %lace because there are benefits to be derived from
their LcolocationG @Porter ?<<', &''>B. ;ocating close to rivals can increase a businesses3
customer base, reduce costs along the su%%ly chain, and e)%and the labor %ool and attract
s%ecialists to the region. Porter, ho#ever, argues that colocation can also increase %roductivity,
innovation, encourage ne# business formation, and su%%ort local start*u%s @Porter ?<<', &''>B.
Clustering fills in information ga%s and enables ideas to flo# more freely bet#een businesses.
@:laeser &''EB. Em%irical studies have found that doubling the em%loyment density of an urban
area can raise its labor %roductivity by A7 @Melo et al. &''<0 5"EP &'??B.

The research on clusters finds that the strength of clusters and the diversity of innovation
strongly influence regional economic %erformance @Porter &''>B. The research also cites the
im%ortance of %ublic %olicy in creating and su%%orting the vitality of regional clusters. The
benefits of colocation stem from %ositive s%ill over benefits, or #hat economists call
e)ternalities. E)ternalities contribute to mar$et failures in the form of underinvestment in
s%eciali,ed s$ills, scientific $no#ledge, and s%eciali,ed infrastructure. "o one firm has the
incentive to invest sufficiently in these areas, as the benefits accrue to e)isting com%etitors and
lo#er barriers to entry to ne# com%etitors. Public %olicy can satisfy investment needs in these
areas or %rovide the incentives and structure firms need to ca%ture some the s%ill*over benefits
themselves. Public %olicy can strengthen the %ositive e)ternalities %resent in clusters, thereby
enhancing %roductivity and gro#th as a result @Muro and Kat, &'?'0 Porter &''DB.
The clusters literature argues that cluster*based %olicies should be neutral #ith regards to the
ty%e of industry or economic activity0 the role of %olicy is to su%%ort e)isting or emerging
clusters, not %ic$ #inners. 1n %art, this reflects the notion that the evolution of %articular
clusters is some#hat organic, resulting from regional attributes that are not easily identifiable.
Seattle, ho#ever, already harbors a cluster of more than 6'' clean technology com%anies.
Seattle3s carbon neutral strategy, to the e)tent that it creates local demand for clean
technologies and creates a %olicy a%%aratus and set of incentives that encourages green
innovation and efficiency, com%lements and su%%orts its clean technology cluster. :reen
technologies #ill emerge in the areas #here there is greatest demand. The 5.S. lags behind
other nations in develo%ing clean energies because it lac$s a national carbon %olicy, unli$e all
other industriali,ed countries. 9igh tech, green tech, and clean energy com%anies are not li$ely
to locate to states and cities that do not su%%ort the very technologies, %roducts, and services
they %roduce. The realities of climate change and beyond*%ea$ oil su%%lies im%ly that
successful businesses of the future #ill li$ely be those that innovate #ays of e)tracting more
energy services from every dollar of energy e)%enditure. Successful businesses #ill be those
that manage and invest for energy %roductivity, as #ell as labor %roductivity. @Ayers and Ayers
&'?'B.
The idea that %ublic %olicy can %lay a %ositive role in su%%orting innovation and gro#th runs
counter to the belief of many that the free mar$et @not governmentB is ideally suited to
15

identifying %rofit*ma$ing o%%ortunities. 2ut only if #e believe that all %rofitable o%%ortunities
have been discovered, that there are no dollar bills lying unclaimed on busy side#al$s, can #e
assume that smart regulation cannot contribute to the develo%ment of ne# businesses and
investment o%%ortunities. Economists have long recogni,ed that there are many barriers to
innovation that %revent managers from identifying, and ca%itali,ing on, ne# money ma$ing or
money saving o%%ortunities. There are, in fact, dollar bills lying on cro#ded side#al$s and
%ublic %olicy can hel% steer businesses to their location.

This is the basic logic behind the Porter 9y%othesis, first articulated in a %a%er by Porter and
van der ;inde in ?<<(, #hich suggests that carefully crafted environmental regulation can s%ur
innovation and increase com%etitiveness @Porter and van der ;inde ?<<(, ?<<<B. According to
the Porter 9y%othesis, smart regulation can encourage long run gro#th and com%etitiveness
by. ?B %utting %ressure on com%anies to innovate, es%ecially in situations #here learning ta$es
time and the resulting im%rovements in resource %roductivity do not fully offset com%liance
costs in the short run0 &B %ushing com%anies to identify resource inefficiencies and find ne# and
innovative #ays to do business0 >B encouraging com%anies to consider the environmental
bottom*line in their %roduct and %rocess innovations, thereby contributing to environmentally
friendly business %ractices more broadly0 6B creating demand for environmental im%rovements
until such time as the %ublic and com%anies can better understand and measure the
environmental im%acts of economic activity0 (B leveling the %laying field during the transition to
a more sustainable economy so that com%anies cannot gain %osition by avoiding environmental
investments0 AB moving com%anies ahead of the learning curve for clean technologies so that
they can become more globally com%etitive as com%ared to com%etitors in countries #ith more
la) environmental controls. @Porter and van der ;inde ?<<(, ?<<<B.
-ecent research su%%orts Porter3s hy%othesis, #ith many studies suggesting better stoc$
mar$et %erformance from LgreenG com%anies @Konar and Cohen &''?B. "ations #ith the
strictest standards and regulations often lead in e)%orts of the affected %roducts @Porter ?<<'B.
9eavily regulated countries li$e :ermany and Ia%an maintain strong economic %erformance
and standards of living com%arable to those in the 5.S. @Ac$erman &''A0 Porter ?<<'B. At
%resent, the 5.S. is the only industriali,ed country in the #orld #ithout a national carbon %olicy.
Carbon reducing technologies and $no#*ho# is a gro#th industry0 #ithout com%etitive carbon
technologies and efficiencies the 5.S. not only forgoes o%%ortunities to develo% a gro#th
industry, it becomes increasingly de%endent on im%orts. China, for e)am%le, is moving
aggressively to ca%ture leadershi% in solar, #ind, high*s%eed rail, and other $ey clean energy
solutions. As recently as ?<<(, the 5.S. #as the technology leader in #ind and solar thermal
@:oodstein ?<<<B. Today, 5.S. utilities %urchase these technologies from China, enmar$ and
S%ain. :lobal investment in rene#able energy is e)%anding dramatically. E)cluding large*scale
hydro%o#er, global investment in rene#able energy has gro#n from M?' billion in ?<<E to an
estimated MAA billion in &''D @-enner et al. &''EB.
California is a national leader in energy efficiency and energy conservation for a variety of
reasons, including a very %rogressive and su%%ortive %ublic %olicy frame#or$ @Ac$erman et al
&''<cB. +ith the %assage of A2 >& @California3s global #arming solutions actB, California has the
16

strictest controls on carbon emissions in the 5.S. 1nitial o%%osition to A2 >& and recent
attem%ts to re%eal it #ere led by concerns over its economic im%acts, es%ecially for small
businesses. A &''< re%ort by the 2rattle :rou% @+eiss and Sarro &''<B concluded that the
im%acts on small businesses from A2 >& #ould be small, since most small businesses #ould not
be directly regulated. The im%acts #ould be more indirect, in the form of higher energy and
other in%ut costs. They note that the vast ma8ority of small businesses in California are not
energy*intensive0 the average small business in California s%ends less than ?.(7 of revenues on
energy*related costs. A study of the em%loyment im%acts of A2 >& @Oabin and 2uffa &''<B
%ro8ects net 8ob gro#th, due mostly to the magnitude of savings to households from lo#er
e)%enditures on fuel and energy due to energy efficiency measures.

Jobs

To the e)tent that %ublic %olicy can steer investment to#ards green or clean industries, it has
the %otential to create 8obs. :reen investment can contribute to net 8ob gro#th because it
tends to be both domestic content and labor intensive, as com%ared to other ty%es of
investment or s%ending. Energy savings for businesses and households from energy efficiency
im%rovements can stimulate demand for other goods and services, contributing to aggregate
net 8ob gro#th. One recent study e)amined a Lgreen stimulusG %ac$age recommendation for
the Obama administration that called for M?'' billion of s%ending over t#o years on. @?B
retrofitting buildings to im%rove energy efficiency, @&B e)%anding mass transit and freight rail,
@>B constructing a LsmartG electrical grid and @6B investing in #ind %o#er, solar, and second
generation biofuels. The study estimated that total 8obs created #ould be ?.< million. 9ad the
same amount of money been given to households to finance general consum%tion, only ?.D
million 8obs #ould have been created @Pollin et al. &''EB. "umerous other studies find that
investing in the environment, energy efficiency, and rene#able energy #ill generate more 8obs
than investing in e)tractive industries and fossil fuels @:oodstein ?<<<0 Kammen et al. &''60
2e,de$ et al. &''E0 ;aitner &''<0 Pollin et al. &''<B. One #idely*cited recent study found that
s%ending a given amount of money on a clean*energy investment in the 5S generates
a%%ro)imately >.& times the number of 5S 8obs as does s%ending the same amount of money
#ithin the fossil fuel sectors @Pollin et al. &''<aB. Another recent study that e)amined the local
8ob creation %otential of bicycle and %edestrian infrastructure %ro8ects estimated an average of
< ne# 8obs created for every M? million in %ro8ect cost @:arret*Peltier &'??B. These studies find
em%loyment gains from e)%enditures in clean energy, energy efficiency, and green
infrastructure because they tend to be more labor*intensive than com%arable e)%enditures in
fossil fuels or others sectors.

Adaptation

Seattle3s carbon neutral strategies focus on mitigation N near term reductions in carbon
emissions. "o matter ho# successful cities and countries #ill be reducing emissions, the
consensus of climate scientists is that some climate change is unavoidable. This reality, cou%led
#ith the im%lications of declining oil su%%lies #orld#ide, suggests that all cities should
effectively %lan for ada%tation and the transition from fossil fuels. /or#ard loo$ing cities and
17

regions that act early and effectively and can smooth this transition and minimi,e im%acts for
businesses and citi,ens. /or decades, 5.S. cities benefitted from relatively stable electricity
%rices and abundant fossil fuel su%%lies. +ithout a %lan in %lace to bridge the transition from
fossil fuels, economies #ill suffer the %ressures of rising energy demands from %o%ulation
gro#th, fossil fuel shortages, environmental degradation, and climate change. Ayres and Ayres
@&'?'B argue that the cities that achieve greater energy efficiency #ill be better able to
#ithstand such shoc$s. Energy efficiency, therefore, is a $ey com%onent of a resilience strategy.
/or e)am%le, by u%grading buildings to ,ero net energy or ,ero emissions standards, #e
transform the ris$s of blac$outs, traffic congestion0 automobile e)haust @Ayers and Ayers &'?'B.
+hile the %rimary %ur%ose of much of the urban redesign described in Seattle3s Climate Action
%lan is to reduce emissions and energy use, these measures %rovide simultaneous o%%ortunities
to %re%are for climate change im%acts. ;ong term savings from energy efficiency and
conservation #ill free u% resources for investment in ada%tation to climate change @Ayers and
Ayers &'?'B.
Urbanization
2usinesses that left Seattle to avoid the %otentially higher costs associated #ith the City3s
carbon neutral ob8ectives #ould lose certain advantages that could not be readily found in the
suburbs or even other cities. Seattle offers the most im%ortant benefits of high density urban
centers that %roduce for local and global mar$ets. efficient trans%ortation infrastructure0 a
#ell*educated #or$force0 innovation clusters0 and %orts that offer ready access to global
mar$ets.
Seattle3s carbon neutral vision reflects many of the emerging %riorities of urban %lanning.
com%act, develo%ment #ith convenient access to many destinations, shorter commuting
distances bet#een home and #or$0 and %ublic trans%ortation oriented. +hile the %rimary
%ur%ose of much of the urban form described by Seattle3s carbon neutral %lan is to reduce
emissions and energy use, these measures yield other benefits as #ell.
&
Com%act, densely
%o%ulated cities #ith mi)ed*use develo%ments are ty%ically more resource*efficient than other
settlement %atterns #ith com%arable levels of economic out%ut @5"EP &'??B. 9igh density
urban design ca%tures efficiency gains and technological innovation through the colocation of
economic activities @5"EP &'??0 Porter &''>B. Moreover, it reduces resource and energy
consum%tion by s%reading the costs of urban infrastructure @e.g. streets, rail#ays, #ater, and
se#age systemsB over a greater %o%ulation. A recent study com%ared the costs savings
bet#een smart gro#th region and car*de%endent develo%ments and estimated the direct cost
savings %er household to range bet#een M(''' to MD(,''' @5"EP &'??B.

The reduction in %avement as cities shift from %ersonal vehicles to %ublic trans%ortation may
o%en u% s%ace for %ersonal use, as #ell as %ublic %ar$s, bi$e and %edestrian %ath#ays, etc
@Ayers and Ayers &'?'0 Kahn &'?'B. Studies have also sho#n that traffic reduction and safer

2
For an excellent summary, consult the United Nations Energy Program (UNEP) report: Cities: Investing in Energy
and Resource and Efficiency. Available at:
http://www.unep.org/greeneconomy/Portals/88/documents/ger/GER_12_Cities.pdf

18

%ath#ays for bicyclists and %edestrians contribute to a higher !uality of life #ithin communities
@5"EP &'??B. 1t has also been sho#n that the e)tension of %ublic trans%ortation systems can
reduce socioeconomic ine!uality by im%roving access to %ublic resources for disadvantaged
communities @5"EP &'??B. -educing energy use and vehicle trans%ortation #ill %roduce
locali,ed health benefits from cleaner air and safer streets. Therefore, cities li$e Seattle that
e)ecute ambitious climate action %lans can e)%ect a range of non*climate change benefits.

)I& Conclusion

This re%ort revie#ed the economics literature to establish #hat economists currently $no#
about the li$ely business im%acts of creating climate friendly communities. Though it does not
identify or analy,e the s%ecific economic im%acts of Seattle3s carbon neutral strategy, the
re%ort finds solid evidence from the literature to su%%ort the ambitious emissions reduction
efforts Seattle has cham%ioned.

There is large and gro#ing su%%ort by economists for ambitious and immediate emissions
reductions as %recautionary investments to avoid future climate change damages. Seattle3s
emissions reductions #ill have minimal im%act on atmos%heric carbon dio)ide levels and
tem%eratures, but they #ill yield a range of economic benefits for Seattle and hel% establish
Seattle as a global leader in climate change solutions. The research demonstrates that cities
that embrace energy efficiency, conservation, and urban redesign and begin the transition from
fossil fuels #ill be more resilient to future climate change im%acts and the instability of rising oil
%rices %ost %ea$*oil.

The non*climate change related benefits of investing in clean technologies and urban redesign
are many, including energy cost savings, safer and healthier communities, and higher !uality of
life more broadly. The research demonstrates the enormous %otential of the energy efficiency
resource and the %otential dynamism and gro#th unleashed by the creation of clean
technology clusters. Moreover, the research is clear that the strength and diversity of
innovation is de%endent on carefully crafted %ublic %olicy. 2y su%%orting green innovation and
creating local demand for clean technologies, Seattle3s carbon neutral strategy can su%%ort its
emerging clean energy cluster as an engine for gro#th and %ros%erity in the region.

/inally, the research %rovides little evidence that Seattle3s carbon neutral %lan #ill create an
environment hostile to businesses and %rofits. Contrary to some %erce%tions, the economics
literature on the im%acts of environmental and health regulations on firm %erformance finds
evidence that smart %ublic %olicy can incentivi,e efficiency and innovation, im%roving firm
com%etitiveness over time. +hile s%ecific im%acts on firms or sectors may vary, at the
aggregate level, the research finds little evidence of #ide*scale flight by businesses or ne#
investment to avoid com%liance #ith environmental regulations. The evidence finds that
investing in green technology and infrastructure #ill create 8obs on average, not lose them.

The successful cities of the future #ill be those that %ro*actively %lan and invest in energy
%roductivity, clean energy, and green infrastructure and design. These are the cities that #ill be
19

%oised to gain a com%etitive advantage in the technologies #hich #ill be highly demanded in
the future. These cities can minimi,e the future im%acts to the %ublic and businesses from
climate change and higher energy %rices. Seattle, therefore, should benefit from becoming a
climate friendly, carbon neutral community.








































20

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