The Environment Is a Balance Sheet: Why Sustainability Has to Make Economic Sense

I am not an environmental scientist by profession.

But environmental issues have followed me through several very different stages of my life.

In high school, I was involved in the environmental club. We grew vegetables and worked on environmental issues, including an effort to recycle soda cans. Professionally, I have spent more than two decades in New York City government, much of it working with public budgets, capital planning, procurement, and technology. Outside government, owning real estate has given me another education in energy, buildings, maintenance, waste, and the economics of keeping physical assets operating.

And more recently, I earned a Doctor of Public Health, or DrPH, in Environmental Health Sciences from SUNY Downstate Health Sciences University.

So while I would never represent myself as a practicing environmental scientist, I approach environmental questions with both formal academic training and the perspective of someone who has spent much of his career deciding how public resources should be used.

Those perspectives frequently lead me to the same conclusion:

Environmental stewardship and fiscal stewardship are often the same problem viewed from different sides of the balance sheet.

Sometimes the Greener Purchase Is Also the Cheaper Purchase

One small example came when the New York City Department of Correction needed replacement light bulbs at its headquarters.

Rather than simply replacing the existing bulbs with more of the same technology, I recommended ballast-free LED replacements.

The environmental argument was straightforward: LEDs consume less electricity and last longer.

But what interested me just as much was the lifecycle economics.

Removing the ballast from the equation meant eliminating another component that could eventually fail and require replacement. Longer-lasting bulbs meant fewer replacement bulbs, less material consumption, and fewer labor hours spent changing them. Lower electricity consumption meant recurring operating savings.

The better environmental decision was also the better financial decision.

Those are my favorite sustainability projects.

They don't require convincing taxpayers that environmental benefits justify ignoring economics. The economics help justify the environmental benefit.

Then There Was the 3,000-PC Packaging Problem

Another experience demonstrated how much waste can be embedded in supply chains before a product ever reaches government.

We were purchasing approximately 3,000 Lenovo computers.

Anyone who has dealt with large technology deployments knows what comes with thousands of individually packaged computers: boxes, inserts, protective materials, and the labor involved in unpacking and disposing of all of it.

I asked Lenovo whether we could reduce the packaging and have the computers delivered in a more consolidated, palletized form.

The answer exposed an interesting supply-chain problem.

I was told the computers were individually packaged at the factory overseas. To provide the alternative configuration I was requesting, they would essentially have to arrive in the United States first and then be handled again at a stateside warehouse.

And that would cost us more.

From the City's immediate financial perspective, paying more to have someone remove packaging before delivering the same computers made little sense.

But from an environmental perspective, it seemed like a literally wasted opportunity to reduce waste.

Why couldn't bulk institutional orders be packaged differently at the point of production?

Multiply that question across thousands of computers, then across governments, universities, corporations, and other large institutional purchasers.

Procurement has enormous environmental leverage because it operates upstream.

By the time 3,000 boxes arrive at your loading dock, most of the environmental decision has already been made.

Sustainability Still Has to Pass the NPV Test

My environmental-health education has not made me believe that every environmentally preferable investment automatically makes financial sense.

Quite the opposite.

I am a big believer in net present value analysis.

NPV forces us to recognize something that environmental discussions sometimes overlook: money has a time value, and capital has alternative uses.

My own house provides a good example.

I have considered solar.

Even when the federal residential clean-energy tax credit was available, the economics did not convince me.

I received solar-related estimates in the neighborhood of $20,000+ before any incentives; however, my roof was old, and replacing it would cost $23-$26K. My existing roof does not presently need replacement. Replacing a functional roof prematurely just to optimize a solar installation would consume materials and capital before it's necessary.

There is also another complication.

Trees.

Removing healthy trees simply to maximize solar production strikes me as a questionable environmental tradeoff. Solar panels may produce more electricity without shade, but mature trees themselves provide environmental benefits.

Environmental decisions frequently involve tradeoffs rather than a simple green-versus-not-green choice.

Opportunity Cost Is a Real Environmental Cost

I've approached alternatives to my oil boiler similarly.

My house already has two electric heat-pump systems. I therefore primarily use oil for domestic hot water and for supplemental heating when temperatures fall below freezing.

If my oil boiler eventually requires replacement, a conventional replacement might cost roughly $8,000 based on the estimates I've considered. Some alternative systems I have examined can approach $14,000 or more.

The question isn't simply:

Which technology is greener?

The financial question is:

What am I receiving in exchange for the additional capital?

If one alternative requires about $6,000 (or really $14,000+, since my current system doesn't even need proactive replacement) more upfront than a conventional replacement, that incremental investment must generate enough energy savings and other benefits over its useful life to justify the extra cost.

Capital also has an opportunity cost.

If money that would otherwise be invested can earn a hypothetical 10 percent annual return, every $10,000 deployed elsewhere represents roughly $1,000 of expected annual return forgone. Of course, a 10 percent investment return is not guaranteed, while energy savings may be more predictable, so a proper NPV analysis should discount each cash flow according to its risk.

But ignoring opportunity cost entirely produces bad economics.

I don't believe environmental responsibility requires spending $14,000 today merely because one technology has a greener label or even a 40% efficiency improvement.

Sometimes the environmentally and economically responsible decision is to keep using an existing asset efficiently until replacement is warranted.

Government Should Think the Same Way

Government has an even greater obligation to perform this analysis because we're spending somebody else's money.

For major sustainability investments, I want to know:

What is the upfront cost?

What is the expected useful life?

What would the conventional alternative cost?

How much energy will actually be saved?

What maintenance costs change?

What replacement costs are avoided?

What incentives are available?

What is the residual value?

What discount rate are we using?

And what is the net present value?

That doesn't mean every environmental benefit must have an immediate financial payback.

Cleaner air has value.

Public health has value.

Reduced emissions have value.

Resilience has value.

Some externalities do not conveniently appear on an agency's electric bill.

My DrPH training reinforces that point.

But acknowledging environmental and health externalities is different from pretending capital is free.

Good environmental policy should quantify both whenever reasonably possible.

Procurement May Be One of Government's Most Powerful Environmental Tools

This brings me back to those light bulbs and computers.

Government buys enormous quantities of things.

Vehicles.

Computers.

Furniture.

Building materials.

Lighting.

Food.

Telecommunications equipment.

Batteries.

Heating and cooling equipment.

Every specification sends an economic signal into a supply chain.

We should therefore ask vendors questions earlier.

Can we reduce packaging at the factory?

Can components be replaced rather than entire units?

How long will replacement parts remain available?

What is the expected useful life?

Can equipment be refurbished?

What is the energy consumption?

Does the manufacturer have a take-back program?

Can products be shipped in institutional rather than retail packaging?

These questions don't necessarily require government to mandate the most expensive environmental option.

They create information.

And better information produces better purchasing decisions.

The Goal Should Be Less Waste, Including Wasted Money

At 17, environmentalism meant recycling soda cans to me.

At 45, after a career involving government budgets and procurement, a doctorate in environmental health, property ownership, and raising a family, I see the issue somewhat differently.

Recycling still matters.

But the bigger opportunity is often preventing waste before something reaches the recycling bin.

Don't manufacture unnecessary packaging.

Don't replace a roof that still has useful life.

Don't discard equipment that can remain in service economically.

Don't maintain obsolete technology when replacement has a positive lifecycle return.

Don't spend $20,000 to save $10,000 simply because the expenditure has an environmental label.

And don't reject a $20,000 investment that saves $50,000 simply because its initial price looks expensive.

Follow the lifecycle. Follow the cash flows. Calculate the NPV. Then make the decision.

Environmental sustainability and fiscal sustainability do not have to compete.

Done properly, each disciplines the other.

The objective isn't spending the most money on the greenest-sounding option.

It is achieving the greatest long-term environmental, operational, and economic value from the resources we have.

Because wasted electricity is waste.

Unnecessary packaging is waste.

Prematurely discarded equipment is waste.

Unnecessary labor is waste.

And taxpayer money spent without considering opportunity cost is waste too.

The most sustainable resource is often the one we never needed to consume in the first place.