It's possible to be clean, green, and profitable

By Paul R. Epstein and Frank I. Smizik  |  April 21, 2006

THE CLIMATE is changing; we know that. And the change is caused by global
warming from burning fossil fuels. It's time we turned to solutions, and New
England can take some bold steps.

Many forces are lining up to drive a change in energy policies. Oil and gas
prices are climbing; conflicts in supply regions are multiplying. Oil will run
out at some point, and climate volatility is sending shivers throughout
insurance and investment communities.

Insurers, banks, and pension and mutual funds face new, huge, and uncertain
risks. Hurricane Katrina, which spread misery, disease, and social disruption,
marks a turning point. As insurers and coastal communities brace for a third
consecutive dreadful storm season -- projected by all four of this nation's
hurricane prediction centers -- the unmanageable is no longer unimaginable.

The financial sector is the central nervous system of the global economy. It is
feeling the pain of catastrophic weather events around the world, and its
signals can ripple through economies and affect public policies that can enable
a real shift in investments.

Disaster damages -- overwhelmingly weather-related -- rose exponentially in the
past two decades. Before 1990, annual losses were about $4 billion a year, with
$400 million insured. Last year, losses were $225 billion, with $83 billion
insured. That is a two-hundredfold increase in payouts. More extremes are
hitting the United States, Europe, and Japan.

Some of the losses are because of increases in coastal populations, real estate
prices, and insurance penetration. And there are more frequent and intense
extremes of all types and novel events, such as hurricanes hitting Brazil,
Spain, and Portugal -- areas that never considered buying hurricane insurance.

Insurers and reinsurers are reacting. The first response is defensive: higher
premiums, wider exclusions, and hedging their bets. But the largest companies,
like Swiss Re, Munich Re, and A.I.G., are also trying to reduce risks and
stabilize the climate. Large banks, such as JP Morgan Chase, Goldman Sachs, Bank
of America, and Citigroup, are crafting guidelines for investing in nonpolluting
industries, and city and state pension funds are reexamining their risks and
resetting their compasses to seek new opportunities. Meanwhile, Standard and
Poor's, Moody's, and Fitch are reexamining the way they rate companies, deals,
real estate, projects, and nations, in light of climate change.

All are taking a hard look at General Motors and Ford, stumbling, in part,
because they failed to keep up with consumer demands for smaller, efficient
cars. In 2005 venture capitalists invested more than $44 billion in ''smart
technologies" for the grid, hybrids, solar, wind, tidal, wave, and geothermal
energy. It's becoming cool to be green, and the trick is to be clean, green, and
profitable.

In the absence of a national plan, we need local and regional plans for safe,
healthy, and economically sustainable measures to address electricity,
buildings, and transport. To make this happen, capital markets need seminal
policy signals from the public sector.

Here's a suggestion: While we're formulating plans, let's start with
''no-regrets" solutions, with multiple co-benefits, such as ''green buildings."
Estimated health and performance savings for workers and students are in the
hundreds of billions of dollars. Geothermal systems that tap into the heat of
bedrock -- such as at Trinity Church and the new Audubon Center in Boston and
the American Repertory Theater in Cambridge -- let buildings derive 80 percent
of their heat free. Better insulation, lighting, and ventilation have immediate
paybacks. Since 70 percent of Boston's greenhouse gas emissions come from
buildings, a change in new construction and retrofitting of old could make a
significant difference in energy bills and security, and create jobs. How can we
make this happen? Green, healthy, and affordable housing in Boston -- that
resonates with Mayor Thomas E. Menino's chief concerns. Green, clean, high-end
housing also sounds good.

Cities and states can donate land, provide tax abatements, and invest their
pension plans. In the Bay State -- where renewable energy and energy-efficient
initiatives have spawned 10,000 new jobs -- the Massachusetts Technology
Collaborative can provide seed money. Insurance companies can alter building
codes and reduce premiums to reward green developers. Banks and pension and
mutual funds can help jump-start infant industries and help others make the
shift to healthy practices. Guided by community development corporations, green
buildings can use wood from sustainably nurtured forests, nontoxic materials,
and biodegradable ''plastics."

California is way ahead on solar and automotives. New England's academic prowess
and progressive spirit can help it create another center for clean growth. With
the proper incentives, the clean-energy transition can be the engine of growth
for the global economy and provide the underpinning for a healthier, safer, and
more peaceful world.

Dr. Paul R. Epstein is associate director of the Center for Health and the
Global Environment at Harvard Medical School. Representative Frank I. Smizik,
Democrat of Brookline, is chairman of the Joint Committee on Environment,
Natural Resources, and Agriculture.