I am Pat, and You need a Nudge?

Happy St. Patrick's Day, but this post has little to do with that!

Human Impact (I) on the environment equals the product of population (P), affluence (A: consumption per capita) and technology (T: environmental impact per unit of consumption).

With growing global population, rise of the middle-class in India, China and in other emerging economies, and the use of unsustainable technology, the human impact on the environment is set to grow on an ongoing basis. Thomas Friedman illustrates the exponential growth of this impact with interesting examples, in his recent book "Hot, Flat and Crowded". One scenario that caught my attention was the impact of giving a light bulb to each of the billion people who will be born between now and 2020 -- 20 new 500-megawatt coal-burning power plants.

We need to change the ways [technology] in which we produce, consume and recycle products that we choose not to consume, in order to minimize the impact that we have on the environment. While incremental improvements in technology can be helpful, you can imagine that it may not be sufficient to reverse the impact growing population and affluence will have on the environment. So, what we need is a series of breakthrough innovations in several industries that will promote a more sustainable product life cycle.

Businesses are driven by profit, and they tend to resist creative destruction, as breakthrough innovations often come with risks. To promote sustainability, governments across the world have come up with regulations for several decades and have learnt that the best mechanism is to provide a market based "nudge" to businesses. Carbon Tax and Cap and Trade are popular nudges that have been debated extensively. Operative word -- extensive. Will dive deep into that debate in my next post. Signing off for now, Pat.