Dishwashers and Refrigerators

A-P Hurd on barriers to a sustainable future of innovation

Wednesday, April 17, 2013

Forty years ago, pollutants poured from pipes into our rivers and streams. We created an extensive framework of laws and regulations, an entire federal environmental protection agency and satellite departments of ecology, to help with that; and it worked. You won’t find a pipe anywhere vomiting concentrated pollution into a water source; and the entire emphasis has shifted to more subtle non-point-source pollution, an unintended consequence of our success.

The framework was designed to stop a set of problems different from the problems left in the wake of the success of that framework. But—as another unintended consequence—the framework has the power to stop more than it was originally intended to stop. In particular, it has the power to stop new ways of thinking about problems that have emerged in those four decades.

“People have been talking about sustainable development, complete neighborhoods, mixed use and smart growth for 35 years now. So why aren’t we getting more of this?” A-P Hurd asks.

Hurd is a developer for a Seattle-based company engaged in infill and urban renewal. She has worked extensively on environmental policy at the local and state level. She has a particular interest in the structure of incentives, and how those incentives come together to encourage investment and innovation. She recently published The Carbon Efficient City with University of Washington Press.

“I started looking at the local government barriers, what are the state barriers, what are the federal barriers,” Hurd says. “What are the barriers developers have in their own way of doing business, have they gotten into a rut of ‘this is how we do it?’ What are the barriers nonprofits face? What’s the role of higher education campuses in modeling these things? I looked at all these different institutions and thought, ‘What can they do to make these goals more possible without violating their own self-interests?’

“There is a really interesting nexus between innovation in the field of sustainability and innovation in job creation that is something I’m really excited about,” she says.

Cascadia Weekly: We often hear developers complaining about the regulatory framework that increases the costs of what they do and provide. Less often do we hear from developers complaining that same framework prevents them from achieving a higher set of goals.

A-P Hurd: Stepping into a developer’s shoes, you realize there are things about the regulatory framework around us that cause us to make decisions that are not the best, relative to our ideals as a society.

A lot of work that has been done in the past on sustainable cities, transit, green buildings, comes from having a very strong vision of what the end result should be. But it is weaker on the process of making it happen systematically in capitalist economy. How do we get capital flowing, in a really scalable way, to this way of doing things?

You can have one building that is really great, and it gets profiled in a magazine. But despite that, a whole lot of people go right on building crappy buildings.

It is very important that people do cutting edge things, don’t get me wrong. But my personal interest is, how do you get the other 98 percent—whether they care or not—doing mostly the right thing? How do you push the needle on the average and get the average level of performance better?

CW: You’re exploring the realm of the possible.

A-PH: Exactly. And one way to think about that is, how do you make it possible to do the right thing?

How do we make it not too risky? How do we make it less likely to freak out the neighbors? How do we make investors and lenders willing to be part of the design? How do we make it profitable, because once it is profitable lots of people are going to start doing it.

A lot of people care passionately about the environment, and they are really willing to do things that are challenging for themselves because they believe it will have a beneficial result. But in aggregate, they’re maybe only 10 percent of the population. If you want to make very significant change—for instance, in a society’s energy use or its carbon efficiency—you have to make it fun and delightful for people to change what they do.

Profitability is really a business lens. Making money is the motivator of business decisions. Companies that succeed make money. But the individual, human translation of that is, is it fun? Is it delightful? People that succeed have fun, they have a great life.

At a human level, we can’t expect people to change what they do because they are virtuous.

Someone once said, “The environmental movement is never going to get far if it counts on people embracing warm beer and cold showers.”

For most people, you have to make the alternative better.

CW: How do you approach that?

A-PH: I like to look at places where society has successfully innovated, has come up with something delightful, and see if we can’t replicate that in ways that also happen to be more energy efficient or water efficient.

I’ll give you an example. When you use a dishwasher to wash your dishes, that actually saves a lot of water and energy, through hot water savings, relative to doing dishes by hand. New models use about a quarter of the water and energy of hand washing. But the reason dishwashers are so common in most households is not because the dishwasher saves water and energy. It’s because the dishwasher is better and more delightful than doing your dishes by hand, right?

CW: What do you need to encourage innovation and investment?

A-PH: In order to get innovations that are delightful and energy saving, you need two things.

One is you need to take away a bunch of rules that might prevent you from doing that. So say that our building codes for houses didn’t allow you to have two things that use water in your kitchen. You can have a sink, but that is the only thing that water can connect to in the kitchen. Then that would be a barrier to having dishwashers. So we need to have regulations that are not barriers to innovation.

The other thing we need, if want to have energy saving innovations that are delightful, they need to be profitable, energy-saving innovations. One thing we struggle with a lot as developers is, we know a lot of strategies to make our buildings more energy efficient, but we have a regulatory system around energy that has pushed down the costs of energy. We know a lot of things we could do better, but we can’t get them to pay back, we can’t get a return on investment or make them profitable. The reason they’re not profitable isn’t because they aren’t great ideas. It’s because the thing we’re saving is really, really cheap. It is hard to convince someone who is getting something practically for free to use less of it.

If we could raise the price of energy through a carbon tax or some other mechanism, then anyone who had an innovation that saved energy could make a lot more money off that innovation. Suddenly there would be profit around that product that could drive its adoption through the supply chain.

But until we figure out a way to have the cost of energy reflect the environmental cost of that energy—which is what a carbon tax does—it’s going to be hard to get people to conserve it.

CW: In your book you explore unintended consequences and perverse incentives. An example might be how a zoning requirement to provide parking actually stifles urban design around transit and walkable communities.

A-PH: It is certainly true that it can be more challenging to do an urban project than a greenfield project outside the city. And we have regulations and incentives that sometimes work at cross purposes to what we think we want as cities or as a region.

We have a process in the state called SEPA review, which is the state environmental review process, and it is a very important process as we’re doing major projects. It’s important that we think through how a project is going to impact the environment. And if there are negative impacts, a process where we mitigate those impacts in a sensible way.

The way SEPA has been implemented in urban areas, you draw a boundary for analysis around the project. And the way SEPA has looked at this historically is by assuming a larger project creates greater impact—more people, more cars. The way SEPA looks at a project, if you put 5,000 jobs in this spot, you are creating a negative impact based on those 5,000 jobs. The reference case, the no-action alternative, is nobody comes. But that is not really an accurate reference case, because those people and those jobs are coming whether the project is completed or not.

It is part of a project’s responsibility under SEPA to provide for parking. So you have a very interesting dynamic at work that causes us to provide significant amounts of parking for projects, and that matters because below-grade parking is incredibly expensive to provide, and drives up costs. For companies, that in turn increases the costs of employment. In residential space, it is potentially even worse because it raises the costs of housing and makes housing less affordable.

CW: Can you provide another example of a positive requirement creating negative outcomes?

A-PH: One of the big challenges we have in the Northwest is we’ve tended to create a lot of public process to vet out whether the changes we make are good or not. And that comes from a place of good intention. I mean, if you’re going to make a change, you should talk about that change. It’s a very laudable ideal.

SEPA has a very significant public review process, and transparency is very important. But when you do infill in an area where there are a lot of people adjacent, you are going to have some neighbors who do not want to see their neighborhood change. And SEPA provides some very powerful tools to stop projects, because at very little cost someone can appeal and hold up a project for years and years.

It becomes very expensive to make change. And this becomes important if you believe change is a pathway to innovation. You’ve just increased the cost of innovation.

CW: What are you currently at work on?

A-PH: I’ve been giving a lot of thought recently to how regulation can stifle a lot of sustainable investments and innovations. And I have been thinking how our regulatory environment stifles entrepreneurship.

If we want to grow healthy innovation ecoystems—partly to address our sustainability challenges, but partly to address economic development—we need to have regulatory environments that are navigable for an entrepreneur who doesn’t have access to expensive lawyers. If you have a set of rules and you have to find a high priest or $500 an hour attorney—same thing—to tell you what those rules are, then it becomes very difficult for anyone to do anything in the space governed by those rules.

A lot of times we’re really good at adding rules. And we’re not good at looking at how these rules work to create outcomes we desire, what might be called “making sustainability legal.”

Think of it like your refrigerator. Every week you buy good things to eat. If you keep doing that for years and years, and you never clean out your fridge and you never check out what’s in the back of your vegetable drawer, you’ll have things in there you don’t want in there.

As a society, we’re not very good at cleaning our fridge.

All those rules were good when they got put in, and they were well-intentioned. But they’re not really doing for us what we still want them to do and they are past their “sell by” date.  And a lot of that rot even begins to carry over into newer, fresher rules.

And that’s important not just for sustainability, it’s really important for entrepreneurialism—small companies growing into larger companies.

We live in a capitalist society. Elected people aren’t going to push for things that aren’t going to get them elected. So people are going to do things that are in their self interest, but is there a set of things they could all do that could both incrementally and in aggregate to make those goals possible.

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