Economics: Europeans' "Environmental State"?

-Personal Reflections and discussion on the Sustainability traveling seminar

Yu Zhou

After visiting Copenhagen and Århus in Denmark and Freiburg in Germany, and especially after many deliberations with the group members and Paul Ruud, I have the following reflections.

I realized on the trip, as many did, that Europeans are not fundamentally different economic beings from Americans.  Yes, they are worldlier and many can speak several languages, and they profess to be more concerned with global and third world fairs.  But when coming to the decision-making on a routine basis regarding energy consumption, they are not necessarily more motivated by the distant concerns for global warming than by price, convenience and comfort.   Yet, collectively and individually, Danes and Germans (we don’t know about the French, apparently a lot worse according to the Germans!) make more sensible decisions on energy consumption than average Americans and often end up having a higher quality of life.   We may look for cultural, geographical, historical or other explanations, but it seems to me a major difference is the roles of the state. 

While individual Europeans may calculate their cost similarly with individual Americans, the same cannot be said for the state.  Both Denmark and Germany have a strong pro-environment state, at least as compared to the US government.  The experience made me think about the idea of “an environmental state.”  Many people have heard of “the developmental state.”  It is a term emerged from the political economic analysis on the state-led macroeconomic planning in East Asia in the late twentieth century. A developmental state is characterized by having strong state intervention through monetary or financial policies, as well as extensive regulation and planning with the goal of national development and increased welfare for the public.  In many ways, the Denmark and Germany state have assumed parallel functions with regard to the environment.  Although calling them “environmental state” probably exaggerates their commitment to the environmental cause.  Both governments still formulate their policies based on economic growth, capitalist market, and trade.  They still are dealing with industrial lobby or other pressures from industry.  Both still have a larger ecological footprint than their number of people justify.  Yet, their environmental policies are far more progressive than we have in the US.   So if we assume that they are “environmental states” in a relative sense,  how do they works and how to create them?  The observations from two week tour are necessarily superficial and biased, but we may draw some hypotheses.

The roles of the “environmental state”.

Denmark:

Although it may not be apparent at first, Danish welfare state emerges as a key institutional factor behind their drive for renewable energy. It appears in all the conversation. We do not hear as much welfare state from the Germans, but it is never far below the surface. The followings are some of the functions of the states.  

<!--[if !supportLists]-->1.       <!--[endif]-->Planning:  Denmark is a relatively centralized state.  I have to say that sometimes their practices remind me more of Chinese state than American ones, especially at the local level.  The state provides and requires extensive planning efforts at the national, municipality and district level.  Danish Energy Agency is among the largest state agency with the exception of environmental agency.  They make energy plan to be independent of fossil fuel by 2050 and similar plans are required at the local level.  Århus plans to achieve that by 2030.  Though they seem to be serious, it is not clear the extent to which the state mandates will be carried out at the national level.  We know that Denmark central state also have agencies to help small business and households to find ways to save energy. 

At the local level, Danish municipality has power over their own purchasing and heating decisions.  They heavily promote district heating which is under municipality control.  They also make decisions on the energy mix to promote wind or other renewable energy.  The municipality can also decide the locations of development.  They own land and have been buying and selling land for over a century.  This means that the municipal governments are fairly wealthy, and able to use land transaction income to finance their development decisions.  In other words, they can put the money where their mouth is.  As a result, they can plan concentrated development with higher density and housing types. In this regard, they are remarkably similar to the Chinese local state.  But Denmark is a democracy, so the government devotes significant personnel to communicate with citizen (50 people in Århus municipal government alone!) about the governmental plans and they generally enjoy the trust of the public (the same cannot be said by the Chinese local government).  Nevertheless, in Denmark, the state decision is more or less top down although some public participation is encouraged.  For example, the planning projects have 8 weeks for public comments. But the planner said that during this period, they are busy to do detailed planning so as soon as the eight weeks are up, the detailed plan is issued. 

According to them, the energy saving projects undertook by the state benefited rather than hurt the economy, as they generate more economic activities with higher tax income for the municipalities, income for consultants, and savings for businesses and households.

We are on bike a lot.  It seems that the state is responsible for bike lane development. At Aarhus, it took over a century to build the extensive bike path system and the system is maintained by the state.   The bike promotion also shows state commitment for reducing car in the city.  We see similar local planning at work in Freiburg Germany.   The city is committed to develop public transportation so that people can have access to tram stop with 500 meter or it is distance.  The high density residential areas, public transit coverage and safety and efficiency of bike lanes all discourage car use.  The regional train network was also a major factor to promote independency from cars.

<!--[if !supportLists]-->2.       <!--[endif]-->Tax:  Both German and Denmark have policy instrument such as car tax and energy tax which heavily discourage car and energy use. Denmark does not have a car industry so they do not have to worry about the auto industrial interests.  The fee for cars is very high so they are not as common in Copenhagen. Both Århus and Copenhagen also removed some car parking from the central cities, which made it hard to drive into town.   The Danish tax on energy is on production bases so they do not have to worry about the energy companies go away as long as they get oil and gas from the North Sea.

Germany does have an auto industry, so it does not tax car use as much, but it has high energy tax which made electric costs in Germany much higher than the US or even elsewhere in Europe. The higher price discourages energy waste and encourages efficiency, conservation and production of renewable energy.

<!--[if !supportLists]-->3.       <!--[endif]-->Regulation: in both countries, the government issued progressively strict building codes and set up mandatory energy saving goals for energy corporations.  In Denmark, the goal is set at a level that energy companies found acceptable for their profit margins, (0.03k/kw).  This mandate creates a booming consulting business as corporations sought for ways to increase efficiency.  In Germany, the law requires the energy companies to purchase renewable energy at a fix rate for 15 to 20 years, so people have interest to generate solar energy which energy companies must pay at a higher rate. This price explains the much higher demand for solar system at the residential complexes in Germany.  Although I heard that the solar subsidies are being stopped after the financial crisis, it is not clear it has.  Given that both countries have the reputation of industrial design and innovation, the business sectors responded to the state mandate by making innovation in energy saving technology.   Passive housing in Germany is a good example of that.  The result is that their technology enjoys a great reputation and competitive advantage in emerging countries.

<!--[if !supportLists]-->4.     <!--[endif]-->Investment: Both states make major investment in renewable energy technology.  Both spent considerable in developing wind, solar energy and technology such as district heating.  Both are convinced that future need for environmental technology will be high in the world and they want to have competitive advantage.  Both export such technology to China and perhaps other developing countries.  It is interesting that even if Denmark has not enjoyed the high economic growth, it still manage to invest in these areas.  One wonders about the investment priority of the US?

How to make an environmental state?

 There are clearly some cultural differences between Europeans and Americans and even between Danes and Germans.  Overall, there are higher trust on government in Europe than in America and higher acceptance for collective actions and individual constraint.  But culture is hardly ever good explanation.  Culture is produced partly through historical and partly due to the current propaganda (Foxnews is a case in point).  Instead, I found the following conditions more pervasive.   

1. Mandate from the super-state-EU. Both states are member of EU so the decision making at the EU are influential, especially to Denmark which is a much smaller country. Denmark also has to care for the actions and responses of its neighbors such as Nordic states. In this sense, the norms in EU create strong pressure for the member states to comply. EU generally has a more progressive energy agenda.
2. National security concerns: We learned that the biggest motivator for the environmental goal in Germany and Denmark is not so much global warming but energy security. Both Germany and Denmark rely on Russia for gas and Mideast for oil.  Both experienced a major shock in the Energy Crisis in the 1970s.  They also realize that Northern Sea oil has already peaked and will decline in production.  There is considerable unease of relying on unstable geopolitical regions for crucial energy supplies.  As a result, both are determined to develop alternative energy sources such as renewable energy which they can have more control.  Interestingly, US is also concerned about energy security.  However, US responds such concerns with more military spending and opening up for drilling in its territory or ocean.  US probably is the only country in the world could respond to energy insecurity in such a way.  Europeans countries certainly could not have the luxury to consider both options.  Their only choices are to have regional cooperation and renewable energy at home.
3. The industrial mix: Both countries can be said to be postindustrial societies although Germany still has the world class manufacturing facilities.  But it is fair to say that due to industrial progress and outsourcing, the energy-heavy industries are much less in these countries than earlier time.  Denmark’s only energy-intensive industry is cement, they said. Given how their economies have moved to specialize in high-tech engineering, manufacturing, service or high-tech agriculture, the governments is in a good position to talking about reducing energy use without facing major objections by the industrialists.  The role of energy industry is not as crucial in these two countries as in the United States.
4. Welfare state and political process. Welfare state is a term we heard a lot in Denmark, did not hear as much in Germany, but it is clearly there. Given that the state provides so many basic aspects of life for tis citizens, from health care, to higher education to vacation, etc, there is no wonder that citizens have a more favorable view of the state and are interested to preserve and protect their benefits.  As a result, the state enjoys far more privilege, legitimation and credibility than its counterparts in the United States.  This political structure gives state room to make public policies that affect the long term development of the country. In the US, we could not decide whether the government is good or bad, paralyzing the state actions.   

In Denmark, we saw mostly top down actions, but in Germany, we see considerable more grassroots mobilizations.  Often, communities decide their own principal of living by choosing to have passive house construction and choosing not to connect with power grid.  We have seen communities emerged through counter cultural movements, communal mobilization, anti-nuclear movement, etc.  While such communities exist in Denmark (Christina for example), it is not clear what sort of legacy it left for the Dane society beyond being a counter cultural tourist attraction (local schools visit them to allow kids making decisions on their own behavior).  In Germany, the popular environmental movements have pushed the establishment of Green Party.  This is a great difference from other countries. While Green Party never had the majority to run Germany, it has a powerful voice in the parliament and it has a coherent and persistent agenda to push for the environmental friendly legislation.  It was the Green Party that pushed for the law that forced the energy corporations to pay for renewable energy at a fixed rate.  With the Green Party, the grassroots energy can be translated into national political instruments rather than let it rise and fade as it seems sometimes in the US.

In short, behind the cultural differences are the economic and political structural differences, and the differences in the positionalities of the countries in the international system.

Quality of Life

It seems obvious to many of us that western and northern Europe have a higher quality of life than Americans even if at a lower energy cost consumption.  This can be represented in several areas.

• Better safety net provided by the state
• Cheaper and better childcare (100 Euro for premier kindergarten and they said it is expensive!) Free higher education
• Safe, efficient and convenient public transportation and bike lane
• Active community life such as central markets, and other social activities
• Better and fresher food, e coli withstanding
• Highly insolated and efficient housing, well-constructed and only cost $300 per year to heat (Passive house).
• Shorter working hours

The bottom line is that high quality of life is not directly correlated with the amount of energy consumption.  This is an important lesson not only for the US, but also for the rest of the world looking for raising the standard of living of its population in a constrained world.

So far, this is part of my reflection. The trip is rich in other areas beyond what I put down. I learned a lot.  I want to thank for all the organizers for their efforts, especially MaryAnn.  I also want to thank everyone for making it a wonderful experiences.