The price of Green

Oil is on the boil and looks like the ozone layer will be very soon pock-marked with holes. Rain forest cover is denuding rapidly and carbon di-oxide emissions are choking up lungs at most industrial nations. Time to go green, folks. Sure, so what’s holdin’ us up?

The small matter of price. Benefits accruing from using “green” products are not easily articulated. They are even more difficultly understood, if at all. Worse, the benefits do not directly accrue to the user, and almost never accrues exclusively. This implies the failure of a strategy (or compulsion) of pricing green products higher than non-green substitutes.

Bad News: Higher price for green products will continue in the short run. The problem is more a supply side constraint, and that is not going to go away in a hurry. The only way this gets alleviated is when the state steps in with subsidies (boosts up the demand to bring about economies of scale from suppliers). This has a touch of socialism to it but honestly, is the only option (I just can’t fathom why the Indian government cannot waive duty on hybrid cars imported into the country. The price-differential-to-fuel-efficiency math tells me that one has to drive 593,000 km to recover the additional amount forked out for the hybrid over the normal gas version).

Good News: Snigdha Sengupta in her blog reports an uptick in “Clean Technology” investments by Private Equity players – at least in India. The PE guys are usually the smarter lot and figure things out sooner than normal bureaucrats do. Easier availability of funds may bring down the cost of the most important factor of production – capital – leading to lower prices. Which in turn should fuel demand.

(Naughtly) Afterthought: Can apparently green-neutral products be branded “green” and charge a (little) premium pricing? I mean can remote collaboration tools brand themselves green because they provide ways to conserve natural resources (no travel, no burning gas, no polluting the air…). The thought is a little evil but perhaps we will see this in the future when green is truly in.

Post Script: A conundrum on pricing green products.

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