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The Marginal Cost of Being Green

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Every time I see video of a family of polar bears stranded on a shrinking floe as the ice caps melt, I feel as if it’s my fault. After all, I heat our two homes and fill our five cars with fossil fuel, our son has not turned out a single light in his 15 years, and I like to swim in a very warm pool. I started to wonder if it was possible to square our over-fed and -indulged lifestyles with conserving the planet and resources for coming generations and realized we all need to be counted in. I decided to investigate what it truly means to be green.

Investing in the Environment

Like any former investment banker, I initially researched how to simply buy my way out of this box. I had heard Al Gore’s people say the former vice president’s own massive private plane–fuel and home-electricity usage were immaterial, as he had purchased enough of something called “carbon offsets” to make his “carbon footprint” neutral. Carbon offsets are a sort of nebulous credit one can claim for investing in green or sustainable businesses and are not broadly regulated or certified. Ultimately, it seems to me, environmentally aware investing should be done for its own sake, not as some rationalized penance for overindulgence. On the other hand, “green” mutual funds, which have done very well in the past several years, have gotten clobbered lately. So unless you want your portfolio footprint to shrink as well, do your research and buyer beware.

A while back I invested in a group of corn ethanol production facilities. The manager pointed out that the United States needed its own energy sources, and our farmers and genetic engineers were capable of producing massive amounts of corn but not the sugar necessary for ethanol use. Since then I have watched in amazement as an entire industry has grown around the denouncement of America’s most promising source of renewable fuel for our transportation complex, blaming it for everything from global warming to rising food prices. It seems that commodity prices have been spiking in part due to financial speculation. Clean-burning alcohol is better than toxic petroleum. Brazil gets about half its auto fuel from sugarcane ethanol—this in a country that manufactures more than two million cars a year. “Perhaps corn ethanol can’t replace all our gasoline needs,” says Scott Brittenham, of Ethanol Capital Management, “but it is a meaningful part of an overall strategy to move away from fossil fuels and toward cleaner, sustainable energy.”

Fighting Climate Change

The ultimate green endeavor appears to be the planting of new forests. Costa Rica’s government recognized this and has been aggressively acquiring land to preserve existing forests. While clearly a good thing, even this is not all it seems: Trees take a long time to grow, and it turns out that the carbon they store is eventually released again through burning or decomposition and must be reabsorbed by more new plantings—something that isn’t necessarily happening. The ideal action, then, is not just to offset the damage we are doing but to actually use fewer resources. “Early adopters are often affluent people who ‘do the right thing,’ ” says Andreas Diekmann, coauthor of Green and Greenback, a study of how attitude and price affect individual environmental behavior, “but reaching the broader population requires structured incentives.” This means that if those who can afford to spend a bit more to reduce emissions do so, it will eventually fund innovation and encourage government action to bring down the marginal cost of “good behavior.” That’s something all of us can and should get behind.

Traveling Smart

Of course, modifying our behavior might range from the sublime to the perfectly acceptable. The trend toward green hotels, airlines, and resorts no longer means a reduction in luxury, but an improvement in the experience. About as far as I am willing to go are elegant ecoresorts such as St. John’s Maho Bay Camps, which offers slightly pared-down luxury offset by its more intimate setting and focus on fresh local food. Properties should at least subscribe to a “green hotel” program to set standards for reducing water use, solid waste, and energy consumption. This would be a major step-up from simply not washing the towels every day; personally I prefer smart practices, not green fungal colonies on my facecloth. While most green technologies have long payback times even with higher fuel prices, they can turn into good investments for hotel and travel companies if affluent customers demand them and are willing to pay the slightly higher prices they require. The more that travelers base their choices on such programs, the faster the practices will become mandatory and spread throughout all levels of the industry. When you think about it, what could be more luxurious than no gas lawn mowers or string trimmers to ruin your outdoor massage?

Driving Smarter

I recently bought a Toyota Highlander Hybrid, a true luxury cruiser about as different from a spartan Prius as a vehicle can be. It gets up to 50 percent better mileage than our former gas- guzzling SUV and can still hold the completely insane amount of junk we carry to the country every weekend. Again, as more people pay the slight premium for these cars, it will help bring down the cost and spur new research, broadening hybrid sales, encouraging new technologies, and creating substantial reductions in fuel usage. Engineers at the top-performance car companies have begun to focus on the issue, as mpg rather than bhp (brake horsepower) becomes the ultimate status symbol.

Homing in on New Technology

I also bought a new furnace and heat pumps that cut our oil usage by 15 to 25 percent. They won’t pay for themselves for a while, but we will be using a lot less fuel. Another option is clean geothermal technology, which uses a loop system of underground pipes to take advantage of the earth’s relatively constant temperature year-round for heating and cooling with a moderate amount of electricity—and no oil or gas.

Improvements in the efficiency of solar panels have made them worth considering for the electric needs of most homes and office buildings, if you can accept the aesthetics. Even better, many electric utilities are now offering energy from renewable sources such as wind power when requested by their customers, so demand will drive further investment. It costs a bit more, but at least you know fewer fossil fuels are being used to turn on your lights. I contacted my utility company and signed up easily. The guys who maintain our pool recommended we use a solar cover to heat the water. It’s a major hassle to put on and take off, but our propane bill dropped by half and our chemical usage by a third.

To capitalize on the green boom, renewable-energy advisors have sprung up and architects and contractors have adjusted their practices. When building or remodeling a home, every choice—from Energy Star–rated (a standard for energy efficiency) appliances to reflective roof products—can have a stronger impact when multiplied across a broad population. According to the Environmental Protection Agency, the use of such appliances, building materials, furnaces, air conditioners, and more reduced energy consumption by some $14 billion in 2006 alone.

Though things green can be remarkably confusing, we Americans, as one of the world’s largest consumer nations, have an obligation to untangle the facts so we can make an impact—a positive one—on the planet. Some fairly simple changes in our personal behavior and buying patterns could trigger a revolution in business practices that would reduce costs and produce real results for everyone. Who says money doesn’t grow on trees?

Mike Offit spent over two decades on Wall Street, during which he was head commercial mortgage trader at Goldman Sachs.


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