Clean Tech/Renewables Archives

June 22, 2010

Renewable Energy, the Simpsons' Way

I just saw a recent episode of The Simpsons (best show ever?) about renewable energy.
As usual, their take on things is hilarious, but pointed.

The family visits an energy expo in town and in one of the many quick gags, a digital sign flashes the title of a session at the conference:

"Gas, Grass, or Ass: Exploiting Petroluem, Bio-fuels, and Methane"

Homer is then talking to salesmen about different renewable energy options for his house. Here's the exchange with a sales guy (from Denmark of course):

Salesman: With tax subsidies, it will pay for itself in 12 to 18…
Homer: “Months?”
Salesman: “…lifetimes”

Ouch. As Homer often says, "It's funny because it's true." Or at least it touches on the big perception out there -- somewhat justified -- that renewals have a long payoff.

Finally, after the family buys a personal wind turbine, Homer gets mad that he has to pay anyone for energy, so he takes them off the grid. He then says, ominously,

“From now on the Simpsons are living..BUM, BUM, BUM…intermittently.”

Ok, you might have to be a renewables geek to appreciate that one. I can always count on the Simpsons for a novel look at big issues.

(Sign up for Andrew's blog, via RSS feed, or by email right to your in-box)

August 25, 2010

It's not Environment vs. Economy: Green is the Path to Prosperity

The day after the climate bill failed in the U.S. Senate, the New York Times' conservative columnist Ross Douthat gave his take on "The Right and Climate" in a piece that on the surface sounded reasonable. Maybe it was best that the bill didn't pass, he says. While he displays some bravery in calling out the climate change deniers, who remain almost entirely on the right, for "making a spectacle of their ignorance," he nevertheless himself betrays a much greater ignorance about what climate change means for us and our economy. Douthat espouses the dangerous idea that doing nothing to combat climate change is the best course for business and for the world.

In doing so he relies on a set of arguments against the pursuit of a clean economy that have little basis in fact and mainly defend the untenable status quo. The overall pitch has two main parts: (a) promoting a clean economy through the use of market mechanisms like cap-and-trade is a perversion of free markets, since the renewable energy industry shouldn't need tax subsidies if it's a real business; (b) going green will cost jobs and hurt the economy. Let's look at both ideas.

First, the notion that fossil fuels do not rely on subsidies is absurd. A new analysis from Bloomberg New Energy Finance compares the roughly $45 billion of global government subsidies for renewable energy (mostly tax breaks) to the $557 billion of subsidies for fossil fuels in 2008 alone. That 12-to-1 ratio of dirty-to-clean subsidies is surely understated. Let's just say that the International Energy Agency, which calculated that larger number, is not a liberal think tank, and it is measuring only the most literal subsidies. In reality, the market for energy is not currently "free" at all. So if putting a price on carbon helps us support new industries of the future, drive innovation and, say, preserve the ability of the planet to support our species, it seems like a good deal.

Second, this general notion that green will hurt the economy is simply the easiest defense of doing nothing. This concept — that that there's some tradeoff between economic development and what he calls a "growth-slowing regulatory regime" — is the heart of Douthat's argument. This idea is so very dangerous since it keeps us tied to the past, and abdicates leadership to other countries that are pursuing the real growth and prosperity agenda.

The most thorough studies — such as the well-regarded Stern Review on the Economics of Climate Change — tell us that the cost of ignoring climate change (including the possible devastation to our species) will be far higher than addressing it. Using less energy and material, or switching to electric vehicles and renewable energy, will help everyone from homeowners to businesses save money. As one CEO said to me, "I don't know about climate change, but it seems pretty clear that producing less carbon is better than producing more."

And the flashy side of this "kill the economy" argument remains the odd notion that a green agenda will kill jobs. Of course it will destroy some old-school jobs, but clearly the move to a clean economy will create jobs as well — millions of them. Installing insulation and solar panels, building wind turbines, and managing buildings for energy efficiency are just some of the obvious ones. Every industry that makes components for these new sectors will also have new markets and customers.

So what part of the economy is actually hurt by the race to clean economy? Which companies will lose jobs? In essence, only one sector, oil and gas, will truly get hit. If everyone uses less in general, and switches from fossil fuels overall, then of course those companies that only provide fossil fuels will shrink-unless they decide to play a role in the new energy economy).

But the big mistake is that protecting these particular jobs, and keeping us pinned to the status quo, does not represent a path to growth. Consider this: at the macro level, the world produces roughly 85 million barrels of oil per day. Nobody reputable seems to think that the number will rise much if at all; in fact, "peak oil" theories have gone quickly from fringe to mainstream (even Kuwaiti scientists recently predicted a global peak in the next five years).

My point is that even with optimistic numbers, fossil fuels are not a growth industry, and not a job creator. Relying on that sector is not a path to prosperity for the world or for the United States. Creating new technologies and products, building greener buildings and businesses, and just plain using less energy to do it all: those actions will make almost all companies more profitable — just not the ones providing only fossil fuels.

Our current path, and commitment to doing nothing, is in effect protecting one sector at the expense of all the others...and risking our planet and economy as well.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew's blog, via RSS feed, or by email)

September 29, 2010

China Leads the Clean Economy Race

Creating a clean economy will not be easy. It will require sustained, consistent, and large-scale investment across many sectors, including transportation, building systems and appliances, energy generation, and of course the electric grid itself. We will need new, more intelligent software and hardware to manage the new demands on the grid.

We'll need a smarter grid, one that will both communicate in real time with customers' devices to help manage peak demand and manage the inflows of renewable energy and plugged-in electric cars. But this is not a single pursuit; it's the connective tissue in a network of new technologies and energy systems. These are multi-trillion-dollar markets, so the opportunities for the countries and companies that lead the charge will be vast. And some governments, especially in China and Germany, are taking this challenge much more seriously than others.

At the country level, I see two core indications of leadership and commitment to the clean energy economy:
(1) the amount of capital invested by both the private and public sectors and,
(2) the implementation of an aggressive policy framework that supports the economy-wide shift.
On both fronts, a few countries, but China in particular, are going for the gold.

According to a pithy report from Deutsche Bank titled "The Green Economy: The Race is On", in the years 2000 to 2009, the U.S. invested (public and private) about $67 billion in clean technology. Similarly China spent $72 billion and Germany $38 billion. However, as a percentage of GDP, China, Germany, and even Brazil are investing at a rate three times greater than the U.S. On the specific issue of smart grid investment, another report estimates that the U.S. and China far outpace the rest of the world with an estimated $7 billion each in spending in 2010 alone (PDF). Companies like IBM, Siemens, GE, Cisco, and HP have noticed this investment — and plan to get a piece of the business.

The U.S. economic stimulus package, technically the American Recovery and Reinvestment Act (ARRA), is really kicking in now. ARRA provides tens of billions of dollars for energy efficiency, R&D investment, and new transmission and smart grid investments. According to a recent report in Time Magazine, the Obama administration has turned the Department of Energy into "the world's largest venture capital fund."

This level of investment should not be taken lightly, but the stimulus is short-term. China is doing things differently, making longer-term, sustained commitments that are much larger. The country is already in the process of building 16,000 miles of high-speed rail (that's roughly, oh, 16,000 more than the U.S.). And China is bringing together 16 state-run companies to put one million electric cars on the road within a few years.

But it was the country's ten-year plan that made some jaws drop. Between now and 2020, the country will invest 5 trillion yuan in the clean economy. That works out to about $75 to $100 billion per year for 10 years running (smart grid investment alone is estimated at $60 to $100 billion over the next decade). Imagine the U.S. Congress passing the equivalent of the highly controversial stimulus package 10 times over (not likely).

Since the $100 billion in stimulus spending is significant, it's hard to argue that the U.S. is not investing in the future. It's the second aspect of green economic leadership — building a strong climate and carbon policy framework that supports the economy-wide shift — where the U.S. falls short.

Deutsche Bank's report suggests that countries need a policy regime that provides "transparency, longevity, and certainty" to increase investment and get private money off the sidelines. The report lists eight national policy elements that it deems critical, including having a concrete emissions target and a renewable electricity standard, among others. Only Germany and China have put all eight policies in place, while the U.S. has only implemented one in the form of some tax benefits. Unsurprisingly, Deutsche Bank concludes that, "the US is falling behind in the race to develop new technologies, industries, and jobs as the global economy moves towards a low carbon future."

Finally, as an indication of how serious China really is, the country has built the largest solar and wind production industries in the world in just a few years. The government is supporting its renewable energy industries so aggressively and lowering their cost of business so much, that it's likely the country is breaking World Trade Organization rules on fair play.

Even if that's true, you have to admit that China is in the clean economy race to win it. Is the U.S.?

(This post first appeared in a series on the smart grid at Harvard Business Online.)

(Sign up for Andrew's blog, via RSS feed, or by email)

October 5, 2010

The Military Understands Why Getting Off Oil Pays. Why Don't We?

The New York Times reported today that the U.S. Military is aggressively pursuing "Less Dependence on Fossil Fuels." Why does the military care about going green? Because the cost in money, resources, and lives to bring fuel to Afghanistan and Iraq is just too great. A few of the mind-blowing statistics in this article:

  • Fossil fuel is the number one thing the military imports into Afghanistan (30 to 80 percent of convoy loads)
  • The military spends $1 per gallon of gas, but can then spend up to $400 more per gallon to get it to forward operating bases
  • For every 24 fuel convoys, one soldier or civilian working on transport was killed

This last fact is truly tragic. The Times got this number from an amazing analysis by the Army Environmental Policy Institute. According to this chilling report, in 2007 alone, 170 people lost their lives on fuel caravans (and another 68 on water transport). The study then goes on to provide hope in the form of calculations on how many lives can be saved by investing in thin-film solar to complement generators in forward bases.

The military has realized over recent years that our reliance on fossil fuels is a direct threat to our military in operation, but is also a larger national security threat. The contrast with our political failings to tackle climate and energy holistically could not be more stark. As the Times put it,

Even as Congress has struggled unsuccessfully to pass an energy bill and many states have put renewable energy on hold because of the recession, the military this year has pushed rapidly forward. After a decade of waging wars in remote corners of the globe where fuel is not readily available, senior commanders have come to see overdependence on fossil fuel as a big liability, and renewable technologies — which have become more reliable and less expensive over the past few years — as providing a potential answer.

The military is seeing how much of a liability oil really is to our war efforts. It's not a big leap to say that reliance on fossil fuels is a liability to our health and economy as well. But you'd think the security argument would be enough.

Military leaders at think tanks like CNA and very well-respected security experts such former CIA head Jim Woolsey (see his recent WSJ op-ed) have been making the case for years that we need to get off of fossil fuels (in particular oil, which props up dictators and funds terror).

I wish I understood why the security argument has not united our politicians on both sides of the aisle to create comprehensive legislation which puts a price for carbon and provides incentives to promote new technologies and support entrepreneurs (the stimulus money is a very good start, but is not in place for the long term).

Luckily for our soldiers, the military is not waiting for us to get our act together on a political or industiral level and is just pushing forward to find new energy solutions. Bravo.

(Sign up for Andrew's blog, via RSS feed, or by email)

October 28, 2010

Google Is Doing What the Government Can't

On the heels of my recent column on China's investment in clean technology, two news items really caught my attention in the last couple of weeks. They tell an interesting story of who in the U.S. is really prepared to build a modern energy system.

First, the Governor of New Jersey decided to stop the construction of a new commuter train tunnel between New Jersey to Manhattan (and again today, after further review, he still killed it). This much-needed expansion of our infrastructure would double the number of trains entering New York City from the west. Up to $3 billion in federal funding had already been lined up to offset some of the cost. The project would also reduce congestion on the roads (and/or allow population and economic growth), reduce pollution, improve property values, and employ 6,000 workers. But even with all of these benefits, unless Christie changes his mind, the project is now dead.

Rising costs — which are always a part of big infrastructure projects — were the stated reason for the Governor's defection. But the small-government fever that's taking over the United States is largely to blame. This country did not seriously debate infrastructure investments in the past. Republican President Eisenhower is credited with signing the Federal-Aid Highway Act of 1956, which committed the U.S. to build an interstate highway system. But he wasn't going out on a limb — this was a bill that the House passed on a vote of 388 to 19, and the Senate by 89 to 1. This landmark infrastructure law raised the gas tax by 50% and allocated nearly $200 billion to the project (in today's dollars). Can you imagine our leaders making that kind of commitment today?

As many pundits have lamented, we seem to have completely lost our ability to consider, invest in, and complete big infrastructure projects. This does not bode well for our future.

But just when I was thoroughly discouraged, Google announced recently that it would invest heavily in a truly innovative energy infrastructure project. The tech giant and some other investors are proposing a $5 billion "transmission backbone" for offshore wind farms along the East Coast. This new 350-mile line would connect Virginia to, yes, New Jersey, and allow for much easier, cheaper development of offshore wind (it would also, as a side benefit, get some cheaper energy already produced in Virginia up to the northern states).

This is in no way the first time that Google has made noise about clean tech. A few years ago it announced its intention to invest a billion dollars to help make renewable energy cheaper than coal. The company has also put in place one of the largest corporate solar installations in the world.

But why would Google invest so much in these kinds of projects? It's easy to dismiss it as the socially-minded whim of a cash-rich company. But that's not giving the company much credit for being a smart operator. Given the resource-intensity of its giant data centers — there's a persistent, believable rumor that Google is the largest energy user in the State of California — trying to bring the cost of renewables down is a great hedge strategy. What growing enterprise wouldn't want to rely increasingly on energy with zero variable cost?

But the company must also believe that this wind transmission project is a good investment. Google is not even the first surprising organization to jump into renewables as an investment vehicle. I'm reminded of Goldman Sachs netting $900 million on the sale of a wind company back in 2007.

So while federal and state governments are somewhat incapacitated, some elements in the private sector are trying to move ahead with infrastructure and green projects anyway. Companies have gotten nowhere near the help they need. The stimulus bill does provide for some serious dollars, but we could've unleashed far more capital with price on carbon, the very thing comprehensive climate legislation would have provided.

But let's not kid ourselves. Infrastructure is way too large a project for the private sector to handle alone. Train tracks, roads, the Internet — all were built with massive and sustained commitment from the government.

But, still, it's a good sign that companies are plowing ahead anyway. Let's hope that the Governor of New Jersey, and other leaders, seize the opportunity and actually start helping these kinds of innovative companies.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew's blog, via RSS feed, or by email)

November 3, 2010

What the Election Means (Or Doesn't) For Sustainability

Obviously some things have changed in Washington and around the country in the last 24 hours. But what will this shift in power mean for the green business movement and for the sustainability agenda in general? It may not change as much as you think, and I see a number of reasons to maintain hope.

Here are my three big takeaways from the elections in general, and the defeat of Proposition 23 in California specifically. (Quick reminder: Prop 23 was an oil-company-funded ballot measure that would’ve suspended the far-reaching environmental law AB32).

1. Federal legislative action on climate and energy is dead. But we knew that already -- the defeat of the climate bill this past summer, even when Dems held huge majorities in both houses, sealed that fate. But to be more nuanced about this point, this election does not mean that all government action is stymied. At the national level, the EPA will move forward with plans to regulate carbon, and it will continue its transparency initiatives, such as the mandate for the largest facilities in the country to measure and release data on greenhouse gas emissions. But let's not kid ourselves: the new majority in the House, with some Democratic support from coal states, will be attacking the EPA aggressively. So all federal action will be a tough slog right now.

But the regional and local players will continue to advance sustainability agendas that affect businesses and consumers alike. Yesterday, I gave the keynote address at the State EPA Innovation Symposium in Wisconsin. I sat in on some sessions and heard about some really innovative ways states are using stimulus funds (or continuing existing programs) to reduce emissions and save money in schools, businesses, and homes. The innovation will not stop. Cities are promoting green lifestyles and business aggressively. Cleveland recently announced a program to give sustainable businesses a leg up on getting city contracts, for example.

But the best indication that climate action in particular is not on hold comes from California. The state announced yesterday that it's moving ahead with a cap-and-trade program, and the defeat of Prop 23 ensures that the program will continue. Which brings me to...

2. A broad consensus on building a clean economy future is not dead. The defeat of Prop 23 shows that coalitions for clear economic and environmental winners can be surprising. As green job advocate Van Jones put it a few days ago, defenders of the landmark clean energy legislation AB32 put together “a beautiful coalition,” including clean tech business leaders, faith-based groups, Governor Schwarzenegger, President Obama, and people from "every political, ethnic, faith, and socio-economic spectrum."

But I believe that one of the main reasons the logic of AB32 won the day was that a range of business interests saw that tackling climate was good for the economy. The greening of industry and society makes perfect business sense. Thus...

3. Business can, and will, lead the sustainability movement. It will have to. With federal support on the ropes, business will continue its leadership. For some that statement may sound odd, but I believe that over the last five years, the private sector has shown more sustained, creative drive toward a lower-carbon, resource-efficient economy than the government has. Corporate giants such as Wal-Mart, HP, IBM, and P&G have set tough goals for suppliers that are often much more strict than federal standards. They have also reduced energy use aggressively in stores, data centers, and fleets saving billions of dollars.

Clearly not all companies have kept up the momentum during the recession. But most of the leaders have. And the green business movement continues for one fundamental reason: it's profitable. As GE's Jeff Immelt said a few years back, "green is green."

So on some level, when it comes to green business, the election doesn't matter at all. Economic logic always wins out and sustainable businesses will be more profitable. Of course, without government support, the pace of change may not be fast enough to fully beat back the challenges of climate change, water scarcity, or biodiversity loss. But business and some unusual coalitions will continue on the sustainable path nonetheless.

For those of us who are working for a more sustainable, healthy, and profitable future for companies, communities, and our country, we should channel Martin Luther King, Jr. who once said, "We must accept finite disappointment, but never lose infinite hope."

(Sign up for Andrew's blog, via RSS feed, or by email)

November 28, 2010

The Buzz on Green Business in China

I visited Beijing a couple weeks ago to speak to a group of Chinese corporate executives. They were brought together by a major environmental NGO to discuss climate change. The meeting itself was fascinating, but I was really struck by a general impression in China that the country is taking green business very seriously.

I was interviewed by one of the major Chinese-language financial newspapers, which has a weekly section on clean technology. And each morning at my hotel I received the China Daily, the country's main English-language newspaper. Throughout the news and business coverage, the feeling that sustainability is crucial to the future of the country and its industries is palpable.

Out of 20 feature articles in the business section on November 15th, for example, five were all about the glories (and sometimes challenges) of green. Of course this is anecdotal evidence, but it demonstrates a level of conversation that the rest of the world should take note of.

Of these 5 articles, some were self-explanatory:

Two articles didn't scream sustainability until you read them:

This last article is the one that really grabbed my attention. The theme of the big event was "Technology-led Transition and Innovation-driven Development," which sounds broad. But the focus was squarely on "energy saving, environmental protection, and the low-carbon economy" with other emerging areas -- infotech, biotech, and modern materials -- taking a distinctly secondary role.

Each major government ministry in China was pitching green products and services at the tradeshow. The Ministry of Commerce was showing how some companies "have made use of technology to...promote a low-carbon economy and environmental protection." The Ministry of Industry and Information Technology's pavilion will demonstrate "industrial energy savings and the comprehensive use of resources." And on and on.

Clearly, China is making green a central pursuit of business, not a side issue. Contrast this with the approach in the U.S., where the equivalent to China's Hi-Tech Fair might be something like the Consumer Electronics Show. It's hard to imagine the focus of that Vegas extravaganza shifting from new entertainment devices and other energy-using toys to energy-sipping technologies.

In the U.S. business community, green is still a separate pursuit -- frankly, it's usually ghettoized within companies and industry events alike. Most green-themed gatherings are still relatively small and feature a recurring cast of characters. The one major exception, which does not disprove the rule, is the mega-event GreenBuild which, coincidentally, was happening at the same time, but in Chicago. Tens of thousands of people gathered to explore green building materials, designs, and strategies.

But imagine if the even-larger annual event held by the National Association of Home Builders (NAHB) was focused mainly on environmental issues (I actually spoke at NAHB two years ago as a green keynoter, but to a few hundred people in a side room, not the thousands that attend the main-stage events). That's what China's Hi-Tech Fair is doing.

I wrote a couple of months ago about China's leadership in the clean tech race, but at the macro level. It's another thing to see the green focus up close. However, the company execs and NGO leaders in Beijing tell me that sustainability is still a new pursuit for Chinese companies. It's really the government that's pushing the agenda with massive investments in clean tech. At the corporate level, they're looking to the U.S. and the West for best practices. But don't count them out for long; if there's one thing Chinese companies are good at, it's implementing a "fast follower" strategy.

Still, before I got too carried away with conclusions about the difference in approaches -- and it's nearly impossible not to trip up trying to generalize about China -- I wanted to see if the November 15th issue of the China Daily was an anomaly. Then the November 16th issue arrived at my door and the cover story was about alternative energy.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

December 2, 2010

Why Climate Negotiations Keep Failing

The world is meeting in Cancun this week to talk climate change. Is there any hope of a large-scale agreement on capping emissions around the world? Most pundits would say no.

Why can't we agree to do something? The answers are varied and all contain some truth. There are, for example...

* The inherent challenges of tackling a problem so diffuse and long-term with responsibility laying with all 7 billion of us
* Psychological barriers to change
* A media that paints all issues as having two equal sides even if it's 99 to 1
* Powerful, vested interests in the old, fossil-fuel-based economy
* The fact that the U.S. has no federal climate policy, which makes global negotiations nearly impossible. (And with the recent U.S. election bringing to power more climate deniers, we're moving further away from ever having a federal policy.)

All of these problems, and many more, contribute to the repeated failure of global climate summits. But the hurdle that keeps coming up year after year and is perhaps the hardest to get over is the radical difference in perspective between the developed world and the up-and-coming powerhouses of China, India, and Brazil.

I spoke at a meeting of corporate execs in Beijing a couple of weeks ago and got a glimpse of these different viewpoints. Before my talk, a Chinese academic gave an overview of climate science and policy. He spoke in Chinese, so I understood little (ok, none) of the language, but the charts he put up were crystal clear...carbon dioxide levels over time, commitments for greenhouse gas (GHG) reductions by country, and so on.

But first he set the stage with a chart that gets to the core of the issue. It's data that we rarely discuss in the West, but seems to be pretty important over there. I'm talking about the cumulative CO2 emissions, by country, since the industrial revolution.

In his version, China was responsible for a tiny sliver. I looked up the numbers myself and created the pie chart below - it may not be perfect, but it's close enough. China is responsible for about 8% of the historical emissions from 1850 to 2002, but clearly the developed world is primarily responsible for the climate problem to date.

------------------------------------------------
2010-11-30-CumulativeCO2Emissions18502002.jpg
------------------------------------------------

This historical responsibility is irrefutable. But at the same time, the projections for emissions growth show that the new economic powers will be contributing the lion's share going forward. According to the International Energy Agency, China will be responsible for over one-third of the worldwide growth in energy demand over the next 25 years (full pdf report here).

This reality about future responsibility has been very convenient for those who want to drag their feet on climate action; it was one of the main reasons President Bush used to avoid climate negotiations. Why should we join the Kyoto Protocol, he'd say, if China and India don't have responsibilities?

This is not a new debate, especially to anyone who has watched the climate policy world at all. But I still found it useful to be reminded of the historical figures. It's sort of surprising to see it in hard numbers...and it explains so much.

Here's the crux of the problem: When the West/North says, "you will be the largest emitter going forward, so you have to cut back" and the East/South says, "you created the problem, so you should go first," they're both right. Can you think of a tougher situation for negotiation than when both parties are absolutely correct and yet their positions are so far apart?

But the reality is that Nature doesn't care who started this. When you find yourself in a boat that's leaking and sinking, you start bailing. You can't spend too much time worrying about who poked the hole. So while I believe the developing world's moral position is unimpeachable, it doesn't matter. The science will win, and the data tells us that putting any more carbon in the air is incredibly dangerous for our species. So everyone has to change.

I'd like to think that the world is moving away from these old debates, but they're still seething not too far from the surface. China's negotiating position in Cancun, according to the New York Times, is that the West should cut emissions, pay for the shift to a cleaner economy, and provide technologies to developing countries. Again, this is sort of hard to argue with - everyone must bail out the boat, but the responsible parties can pay for buckets. But given the fiscal and political realities in the developed world, us paying more for anything seems remarkably unlikely.

So my hope is what it always is: the business community will take the lead from the governments of the world and continue investing in and implementing clean technologies, regardless of the success or failure of the global negotiations.

Given how deeply felt the convictions are on every side - and the fact that they're all based in reality and truth - hoping for the business world to lap the policy world may be the only reasonable hope we have.

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

January 23, 2011

Ford's Impressive Sustainability Strategy

For years, Toyota has been the darling of the green business world. The hybrid Prius was a legitimate business home run (2 million sold), and it helped both differentiate Toyota's brand as the market innovator and propel Toyota to unprecedented profits. But now the company faces renewed competition for the title of green auto leader.

Ford%20Focus%20plug%2C%20fce13_007_lg.jpg

In the last couple of years, every auto giant has launched alternative vehicles, which they've been touting aggressively at last week's Detroit Auto Show (see my newsletter on the different strategies the big companies are pursuing). GM's "extended range" Chevy Volt and Nissan's all-electric LEAF are potential blockbusters, with strong early sales and serious buzz.

But I want to focus on Ford. The company announced its own electric vehicle, the Ford Focus EV, at the recent Consumer Electronics Show.

Buried beneath the pizzaz of high-profile PR announcements, Ford has developed what appears to be a broad, well-thought-out sustainability strategy.

As I explored Ford's fascinating sustainability report (and how often do those words go together?) from last year, I noticed a number of unusual things. So I reached out to Ford's Director of Sustainability and Environmental policy, John Viera to help me better understand the company's approach.

Three key aspects of Ford's sustainability strategy strike me as critical, and show the company's real leadership:

1. It's based on hard science. Ford's in-house climate scientists - yes, you heard that right — have bought into an important global scientific consensus: humanity must keep CO2 levels in the atmosphere below 450 parts per million to reduce the odds of catastrophic, species-threatening climate change (many leading scientists have since lowered the goal to 350 ppm — and we've already hit 390 ppm).

Ford then worked back from this necessary future reality, determined the share of global emissions coming from Ford products (around 2%), and mapped out the fuel-efficiency levels required to meet the scientific mandate. As Viera said, "I can tell you 5, 10, 20 years from now, where we need to be." Relying on hard climate science to map out non-negotiable boundaries for your products is, to say the least, very unusual.

2. It tackles both long-term and short-term sustainability challenges. Given those science-based plans, Ford is investing in the long-term — the sexy, new EV market that everyone is going after — and rolling out a series of efficiency technologies in the existing, combustion-engine fleet. The 2011 Ford Explorer, for example, is using EcoBoost engine technology to improve fuel efficiency by 25%. Viera points out that the world may save more fuel between now and 2020 through these incremental improvements than through nascent sales of cleaner cars. "It's not as glamorous," Viera says, "but it makes sense number-wise."

3. It's heretical. In Ford's sustainability report, one statement stopped me in my tracks: "By 2050, there will be nine billion people on Earth...Putting nine billion people into private automobiles is neither practical nor desirable." This is an auto company saying that going after market saturation is not ideal for the company or the world (since cities would cease to function with that much traffic).

To explore the larger topic of "sustainable mobility," Ford worked on a pilot program in Toronto that encouraged people to use more public transit. Suggesting that people might — and should — use less of your product is an aggressive, tight-rope walk of a sustainability strategy. It's not easy, but it can drive real innovation and new thinking, as well as build customer loyalty that maintains or grows market share. (I discussed this idea, and give some examples of companies using this strategy to great advantage, such as Xerox, in my last book, Green Recovery.)

Even as they look at mobility more broadly, Ford is still pushing hard on cars of the future. The company is not missing the electric wave. Car guru Chelsea Sexton, who knows more about the market for EVs than nearly anyone, says the Focus EV demo seriously impressed her and other influencers. As Sexton told me, "It's the first time in my life that I've lusted after a Ford!"

In sum, Ford's sustainability strategy is to pursue a broad portfolio approach, making multiple bets on the future — a stark contrast to competitors that have really bet the farm on one technology. Improving the environmental profile of the current product portfolio while launching new leapfrog products is no doubt a tough balancing act. But it's very smart. The world is nothing if not uncertain; who can know whether policy, technology, and consumer whims will continue to drive adoption of electric cars?

Of course, as Sexton reminds me, strategy is one thing, but execution is another. She believes Ford is doing things for all the right reasons, but wonders how well they'll translate all that smart thinking into market success. In her opinion, the company has been late to the party on communications around electric vehicles (all the heat has been around the Volt and LEAF).

So will Ford develop — and build great brand stories around — the efficient or electric cars that people want? That's the billion-dollar question, and it's where, in this industry, the rubber really does meet the road.

May 8, 2011

Why Companies Keep Investing in On-site Renewable Energy

My latest e-newsletter came out last week. I focused on the seemingly curious situation where companies are increasing investments in renewable energy for their operations. In theory, it's "too expensive" with long paybacks. But the reality is more complicated.

Google%20solar%20roof.jpg

I outlined 7 of the reasons I think companies are going down the zero carbon path. Here's a very brief summary -- see the full post on SLM's site here...

1) For some categories of onsite generation, the economics do makes sense. In particular, onsite biomass in the pulp/paper or textile industries, for example, is often much cheaper than fossil fuels.
2) The genius of the power purchasing agreement (PPA), where solar providers front the capital cost in return for a long-term contract to buy the power.
3) Zero variable cost. Wind and sun are free.
4) Brand benefits. A solar panel on your roof is a nice brand statement.
5) Supporting the growth of an industry. Intel and others are trying to help bring about a larger renewable energy industry which will lower the costs over time.
6) Some buyers have a longer time horizon and don't consider a 7 year payback so long, especially for a long-lived asset like a building.
7) Others have a broader sense of "payback" and ROI. A change of mindset could help companies include the risk hedge of having predictable energy costs and other less tangible value.

For a bit more detail on these 7 and some examples of recent renewable energy announcements from companies such as Ford, P&G, and IKEA, see the full e-letter.

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

August 25, 2011

Headlines You'll Never Read About Renewables...

The New York Times reported today that geologists have “sharply cut” their estimate of how much natural gas exists in the rock formation called the Marcellus Shale. They now guess it holds 84 trillion cubic feet, down 80% from the Energy Information Agency’s estimate just this year.

wind%2C%20iStock_000001762512XSmall.jpg

Seeing this headline got me thinking about some of the benefits of renewables, and what we’re unlikely to see reported in the future…

  • Meteorologists Sharply Cut Estimate of Amount of Sun Hitting Earth
  • Off-shore Wind Farm Explodes, Massive Wind Spill Coats Coast of Gulf
  • Algae Mine Collapses Burying 33 Chilean BioFuel Farmers
  • Heat Source for Geothermal Plants Drying Up
  • Tides Seem to be Slowing Down
  • Troop Deployment Begins to Defend Vast Sun Fields Abroad
  • Scientists Concerned That We’ve Reached Peak Sun and Peak Wind

Kidding aside, it seems clear that our days of relying on fossil fuels are numbered. That’s not a political or moral statement – it’s a scientific one. The 84 trillion cubic feet is still a lot, but getting to it is fairly difficult. Easy oil and easy gas are almost oxymoronic at this point. Getting our traditional energy will be expensive and dangerous – think digging a mile under the ocean – from now on.

I’m sure the snarky will point out that renewables have their problems – intermittency being the big one. But the challenge of how to store energy that comes and goes is solvable – more and better battery technology, for example. Or millions of electric vehicles acting as a massive, mobile power storage unit…one that is parked and plugged in at night when the wind blows on the grid.

But more importantly, I can guarantee that we’ll never run out of the heat of the earth, the sun beating down on the planet (ok, in 5 billion years we will), or the wind driven by the sun’s heat. These sources will not be harder to get to tomorrow than today. They will only get cheaper in comparison to the buried kind of energy, with a variable cost of about zero.

Those seem like some pretty solid business reasons to invest and switch our economy quickly.

December 22, 2011

Top 10 Green Business Stories of 2011

Yes, it's December again somehow: time to look back on what we've learned and oversimplify into a handy list. Here's my take on the 10 big stories in sustainability and green business this year:

lists.jpg

1. The usual sustainability drivers got stronger
Ok, this one is cheating a bit, but on a fundamental level, the top themes in green business haven't actually changed too much (see the 2010 list). So, rather than take up valuable list real estate with these perennial favorites and big-picture drivers, I'll quickly list them in one big bucket of mega-trends:

  • The rise of the consumer around the world, related to...
  • China, China, and China. From relentless demand for resources to bamboo-like 9% growth to vicious competition for the technologies and industries of the future, China will be the big story for a long time.
  • The greening of the supply chain. Big organizations keep asking more of their suppliers.
  • Increased demand for transparency and its close partners, (a) the quest to define and develop useful sustainability metrics and (b) the growing sustainability data explosion.
  • The military continues to lead the way on energy and climate.
  • The ongoing failure of policy at a global level (with the important exceptions of some successes/workarounds such as new mileage targets for cars and trucks and a carbon tax in Australia).

These drivers underpin a number of stories from 2011, but a few new themes came out as well. Here's the rest of my top 10 stories, with callouts for companies and examples that typify the trend.

2. Malthus strikes back: Coca-Cola takes an $800 million hit on commodity costs
Coca-Cola was not alone in facing increasing costs in 2011; one of my clients, Kimberly-Clark, took an earnings hit from record pulp prices. These companies are notable victims of a new reality: resources are constrained and input prices are fundamentally rising.

For over 200 years, from Thomas Malthus to the Limits to Growth gang, many people have made the case that it won't be long before we'll run out of food, energy, materials, and on and on. It's an idea that has enthralled many, but has seemed to be wrong. But this year, something felt different as we hit 7 billion hungry, striving humans on the planet. While "running out" isn't really the right phrase, it's clear that delivering many commodities to market is getting harder and more expensive (we don't dig for oil a mile under the ocean for the heck of it). And the dangerous mix of supply crunch and rising demand is only increasing, across nearly all commodities.

In January, China "seized" its rare earth metals (meaning it wouldn't export them anymore). In June, the New York Times declared a warming world hostile to food production. The best analysis of the resource scarcity mega-trend came from asset manager Jeremy Grantham. His analysis of commodity availability on a finite planet is compelling, thorough, and absolutely fascinating. Here's the gist: after 100+ years of fundamentally declining resource prices, the data show a rising trend for nearly every input into our society. Business as usual is no more.

3. Climate Change Arrives: Texas weather triumphs over (some) ignorance
Climate change is here. The list of "once-in-a-century" storms, floods, and droughts this year is too long to list. I know, I know — no single storm or season "proves" climate change. Was a year like 2011 possible in a world without climate change? Of course. But please. Was a year like 2011 likely? Not at all. In the words of climate scientist Jim Hansen, we've loaded the dice in favor of extreme weather events.

From Thailand to Pakistan to Texas, some areas are deluged with water, while others have absolutely none. Please look at the numbers for how dry and hot Texas was this summer (I'll wait). The data speaks for itself: Texas' heat was literally off the charts this year. What was once temporary drought is looking more like permanent change. For another angle on a changing "normal," read Jeff Goodell's piece in Rolling Stone on "Climate Change and the End of Australia." Finally, if the immediacy of the "look out the window" method of gauging climate change didn't work for some, at least one major climate skeptic changed his tune based on longer-term data. Richard Muller ran the models himself and discovered that, surprise, the thousands of scientists before him had gotten it right. It's probably wishful thinking, but I believe the climate debate is actually over (and a solid majority of Americans agree).

4. High-profile "failures" shake up clean tech: Solyndra has its day in the, um, sun
What can one say about the failure of solar company Solyndra? It certainly has become a media darling for clean tech skeptics. Soon after this quasi-fiasco, a few other stories seemed to indicate that corporate America was backing off of green tech. Google stopped its high-profile pursuit of cheaper-than-fossil-fuel renewables, and California utility PG&E quietly pulled the plug on its carbon offset program. In my view, none of this is all that distressing. So one technology and company failed miserably (and perhaps the government made a bad investment choice). And some initiatives didn't work out as planned. So what. Whether it's government money, venture capital, or corporate initiatives, you gotta place lots of bets to get some winners. These were all experiments, and you always learn from what doesn't work. But the real reason I'm not too worried is that...

5. ...clean tech is rising fast: Renewable investment tops fossil fuels for first time
Markets have a remarkable way of sorting the wheat from the chaff. While the overall carbon emissions news is not good, the renewable energy market is growing very fast. The sector is larger than most people realize, with clean tech investment hovering around $200 billion globally. Total investment in new power generation is a good indication of where we're headed, and for the first time renewables beat fossil fuels globally. Right now, the U.S. and China are entering a trade battle over solar subsidies, which tells me it's a real market now. They wouldn't be arguing if the prize were not very large.

5b. Nuclear on the outs

Following the nuclear meltdown in Fukushima, Japan, the once-resurgent nuclear industry is flatlining: generation actually fell globally in 2011, with Germany alone shutting down 8 gigawatts' worth. In September, Siemens, one of the world's largest nuclear power plant suppliers, exited the business. CEO Peter Loscher declared Germany's plans to move aggressively toward renewables "the project of the century."

6. Water rising — both literally and as a serious issue for business: Honda's supply chain gets slammed, Levi's gets creative
A list of floods that devastated lives, homes, and countries this year would be tragically long. So it's no wonder that business started to wake up to the serious danger that storms and shortages present to their operations, both from direct damage to property and from massive production interruptions (i.e., "business continuity"). Think back to the January floods in Australia which covered an area larger than France and Germany combined. The extreme weather seriously disrupted coal production, one of the most important economic engines in the country. At the microeconomic level, consider what Thailand's floods have done to the market for disk drives, or to supply chains for Honda and Toyota (which are dealing with a double flood hit from the tsunami as well).

On the use side of the water issue, companies with products that depend on water in production (beverages) or in use (shampoo, apparel) are also seeing the writing on the wall and getting creative. Levi's announced a low-water jeans production method, Unilever started asking customers to shorten showers, and beverage companies are working with farmers and NGOs to drive water use down throughout the value chain (see my last blog, co-written with Andy Wales from SABMiller). In 2011, the phrase "water footprint" became a lot more common.

7. Value chain and transparency partnerships growing: The apparel industry bands together
One of my favorite new partnerships is the new Sustainable Apparel Coalition, an impressive mix of powerful retailers, apparel manufacturers, and NGOs. The group is leveraging extensive data from Nike and the Outdoor Industry Association on supplier sustainability performance (energy, water, toxicity, etc.) for "every manufacturer, component, and process in apparel production." The goal: to reduce negative environmental and social impacts of the $1.4 trillion market for clothes and shoes.

The larger trend here is the continued growth of "open" — open data and open innovation, including new value-chain business partnerships and cattle-call contests inviting in any and all ideas. The movement has been building for years, from P&G opening up its product development pipeline early in the 2000s to the launch of the GreenXchange for sharing green patents early in 2010. But the trend accelerated this year, with GE's expanded Ecomagination Challenge and other coalitions and open competitions.

8. Valuing and internalizing the externalities: Puma Calculates its Environmental P&L
A few very cutting edge companies are starting to ask some deeper questions about the value they create and destroy in the world. Puma, in a surprise leap to the front of the sustainability leadership pack, commissioned TruCost and PwC (full disclosure: I have a partnership with PwC) to assess the value of its total environmental impacts from operations and supply chain, including carbon pollution, water use, land use, and waste generated. The total: 145 million euros. In a similar vein, Dow Chemical launched a 5-year, $10 million partnership with The Nature Conservancy to "value nature" (so called "ecosystem services") as an input into their businesses. It's unclear what companies can do with these numbers since externalities are by their nature, well, external to the regular P&L. But it's the beginning of something very important — companies are starting to understand the real value and costs of their businesses, to themselves and to society. Watch this space.

9. The people speak: Keystone and OWS
Speaking of getting companies and governments to think longer term about value and costs to society: against all odds and expectation, the protests against the Keystone XL pipeline from Canada — led most prominently by uber-environmentalist Bill McKibben — were successful (for now). And what can one say about Occupy Wall Street? The movement is, in part, about this larger question of value and values. Do we value the right things (equity, fairness, justice) or just promote growth and profit above all? Currently, our businesses are driven entirely by quarterly profits. Pursuing the short-term payback can cause a firm to deviate wildly from actual, long-term, sustainable profitability. This disconnect was bound to stir some passions eventually. Whatever your politics, ignoring or dismissing this movement is a big mistake. The concerns underpinning the anger out there stem from concern about what's good for the long-term, and what's truly sustainable. None of these questions are going away.

10. A path to sustainable consumption begins to emerge: Patagonia asks us to buy only what we need
Perhaps the most heartening business story of the year came from perennial thought (and action) leader, Patagonia. Its Common Threads campaign/business model questions consumption at its core. The company announced that it would take back its clothing and refurbish, resell, reuse, re-whatever. The website proposes a grand bargain - we make clothes that last, and you don't buy what you don't need. A holiday ad got more specific and demanded we "Don't buy this jacket." Patagonia is testing new ground and it's not a gimmick — it's a sign of the future.

Looking Forward to 2012 and beyond: New business models coming
Patagonia has always been at the leading edge; it was one of first companies to buy organic cotton or to turn recycled plastic into fleece. Now it's showing the way to new business models. I've written about this kind of heresy before, but the few examples out there are generally B-to-B (Waste Management, Xerox). Patagonia's move is a warning shot over the bow that the consumer-facing consumption question is coming. The near future will hold more questions about how businesses can and should operate in a resource-constrained, hotter, drier (or wetter) world. And companies will increasingly question the wisdom of focusing on quarterly profits. It won't all come to fruition in 2012, but it's on its way.

As usual, I'm sure I'm missing many great stories in my list. I look forward to your suggestions. Happy holidays and Happy New Year!

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

February 10, 2012

Walmart Broadens the ROI for Green Power

At the recent GreenBiz Forum in New York, I was surprised by an on-stage interview with Fred Bedore, an executive from Walmart. I've followed the greening of the retail giant fairly closely for years, so I wasn't expecting a lot of new information from Bedore, Walmart's Senior Director of Business Strategy and Sustainability.

Solar%20on%20Wal-Mart%2C%20Marina%2C%20CA.JPG

But amidst a seemingly scripted set of responses on Walmart's supply chain and operational greening efforts, the discussion took an interesting turn. When addressing the company's aspirational goal of using 100% renewable energy, Bedore said two noteworthy things.

First, 75 percent of Walmart's California stores now have "some kind of renewable energy system." Renewables are still providing only a tiny percentage of the company's total electricity demand, but it's definite progress. And the commitment to green energy has helped Walmart take third place on the U.S. EPA's latest list of the top 50 renewable energy buyers.

Second, Bedore spoke about how Walmart thinks about its investments in green power:

"There is an ROI calculation on all sustainability investments like on all projects, but...we look at where the investment gets us. [For example] the longer term payback on solar helps us get to scale down the road."

In essence, Bedore was saying that Walmart recognizes that it can help take the solar market to scale, thus lowering its costs in the future. It also recognizes that, in the meantime, operational managers will gain valuable experience and knowledge about how to optimize the new power systems. The company can also reap the immediate variable cost benefits of free power.

In short, Walmart has tweaked its ROI requirements for green power initiatives to reflect more of the big picture.

Of course, investing in projects with a hard-to-measure payback — such as a new marketing campaign or entry into new geographic or customer markets — is a normal part of business strategy. And making choices that do have measurable, but longer-term, strategic value should be par for the course as well. So it shouldn't be a surprise that Walmart is doing this.

But in my experience, this larger view of a company's goals has in recent years taken a back seat to a relentless pursuit of quarterly earnings. We worship internal rates of return (IRR) to our detriment.

When it comes to green projects, this narrowly-defined measure of "payback" is particularly destructive. The typical (but evolving) view is that all sustainability initiatives are either an expense and/or should only happen if they meet the strictest hurdle rate. For years I've made the case that companies should shift their decision-making and investment criteria to take into account intangible and longer-term benefits that are missed in normal IRR calculations. But only a handful of leaders do this consistently.

For their part, Walmart execs have said repeatedly (and justifiably proudly) that all their sustainability projects thus far — such as dramatically improving the energy efficiency of stores and the fuel efficiency of the distribution fleet — have met normal ROI requirements. Bedore said as much...until he added the critical caveat that in the case of green power, Walmart bean counters were looking beyond the near-term payback.

Investments in renewables are an important case where this kind of flexibility of thinking is required. The actual cash payback periods are getting shorter, but they rarely meet the typical 2-year (or so) ROI required by most large companies.

But green power initiatives yield other important benefits, from reducing risk by lowering reliance on volatilely priced resources to enhancing brand value by putting visible symbols of green commitment on stores. These paybacks are real, even if they're hard to measure, and they need to be accounted for strategically when considering the ROI on green projects.

We need a lot more flexible thinking going forward. Hurdle rates are important to provide some means of comparison between projects competing for capital. But an internal rate of return cannot be a straitjacket.

If the lords of low cost recognize the strategic value of green investments, so can the rest of us.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

September 9, 2012

Politicians Who Deny Climate Change Cannot Be "Pro-Business"

It finally seems to be dawning on many Americans that there's something to this climate change thing. The historic drought has been hard to ignore. While belief in a long-term trend because it's hot out right now is a bit ridiculous, it's a start.

You can see a shift in how the media covers weather. The statement "because of climate change..." is often stated clearly without caveats such as, "what some scientists think may be a warming planet." You see it in the UN calling for action to help the hungry cope with rising food prices "in an age of increasing population, demand and climate change."

And you see it in the growing number of mega-corporations — including America's Alcoa, Coca-Cola, Cisco, HP, J&J, Nike, and P&G — signing on to the "2 Degree Challenge Communiqué," a call for the world's governments to take strong action to slow greenhouse gas emissions.

See%20no%20evil%2C%20iStock_000000159241XSmall.jpg

Climate change is basically accepted as fact the world over. But you wouldn't know it watching our political conventions (or at least one of them). So while the world seems to be waking up to a fundamental, existential threat to our species (and not to "the planet," which will be fine with or without us), the US policy debate remains mostly deaf, dumb, and blind.

Climate change has become a political "third rail," harder to talk about than changing Social Security or Medicare. We didn't hear any mention of it at the GOP convention, except as a punchline, and we didn't hear much at the DNC convention...except for one quick, but important, remark from President Obama. Former President Clinton mentioned energy efficiency and Vice President Biden said the words "clean energy" once. But then President Obama, after duly noting the chance to create more natural gas jobs, spoke about building wind turbines and reducing dependence on foreign oil. Finally, he stepped firmly on the third rail: "Climate change is not a hoax. More droughts and floods and wildfires are not a joke; they are a threat to our children's future."

This is great, but let's not get too excited. One line does not a policy make.

Still, Obama's admission that climate change is real (a low bar for showing leadership these days) is light years from Governor Romney's dismissive attitude. His convention speech mocked President Obama for his earlier promise to "begin to slow the rise of the oceans." Romney offered instead to "help you and your family" — as if the health and state of our entire planet has nothing to do with the health of our families.

Here's what makes the general silence on climate and the mocking from the self-identified pro-business party so absurd: tackling climate change is the smartest thing we can do for both our public health and our private sector. Reducing carbon emissions from our power plants, cars, and factories cleans the air and saves a lot of money. At the macro level, the burning of coal alone costs the U.S. about $350 billion per year in health (asthma, heart attacks, and so on) and pollution costs. At the micro level, from companies down to households, the opportunities to get lean and save money are vast.

But more strategically, tackling carbon is an immense economic opportunity. Here's billionaire and entrepreneur Richard Branson on the upside potential:

"I've described increasing levels of greenhouse gases in the atmosphere as one of the greatest threats to the ongoing prosperity and sustainability of life on the planet. The good news is that creating businesses that will power our growth, and reduce our carbon output while protecting resources, is also the greatest wealth-generating opportunity of our generation. [There is no] choice between growth and reducing our carbon output."

This quest will drive innovation and create millions of jobs for some lucky companies and countries. Is this multi-trillion-dollar opportunity something we really want to miss out on? The other major economies are not sitting this one out. Germany is quickly moving its electric grid to renewables. China is committing hundreds of billions of dollars to energy efficiency and much more to the clean economy in general.

But let's say you don't buy the argument that fighting climate change keeps us competitive globally, saves trillions of dollars, and generates new wealth. Then how about the overwhelming national security rationale? Using less oil, for example, reduces funding to petro-dictators around the world. The former head of the CIA, James Woolsey, puts is very bluntly: "Your gas money funds terrorism."

On this score the difference between the parties is stark. The DNC's platform includes the words "climate change" at least 18 times and lists it as an "Emerging Threat" along with cybersecurity, biological weapons, and transnational crime. While "emerging" may not be the word I'd choose, it's leaps and bounds beyond the GOP' s party platform, which mentions climate change just once...and again, only to mock it. Their platform complains that the Obama administration has elevated "climate change" (with the sarcastic quotation marks) to the level of a severe threat to our security.

But let's be clear: it's not the Democrats or even President Obama specifically that declared climate change a national security threat. That would be the Pentagon in its Quadrennial Defense Reviewtwo years ago.

A strong plan to tackle climate change through government policy, business innovation, and citizen action is not just something that's not optional; it's preferable. Moving away from carbon to a cleaner economy makes us healthier, more profitable, and more secure.

My work is not political — I try to help companies create business value from sustainability and green thinking, so I normally avoid these kinds of discussions. But the discrepancy in party positions on this most critical issue has become too extreme to ignore.

There's blame on both sides, but let's not pretend the two parties neglect climate change equally. Yes, it's a shame that most Democrats will not stand up and proudly stand behind many of the positions in their own platform. But the GOP's denial of climate science, and all the risks and opportunities it presents, is surreal.

Their views and policies on climate won't help our businesses deal with, and profit from, the largest market shift we've ever seen. And they won't help prepare our country for the hard realities of life in the 21st century.

(This post first appeared at Harvard Business Online and on Bloomberg - see the active commentary on either.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter@GreenAdvantage)

September 28, 2012

The Supposed Decline of Green Energy

Here's a surprising new fact about energy in the United States: the percentage of our electricity coming from the greenest sources — that is, the non-hydroelectric renewables such as solar, wind, geothermal and biomass — has doubled in just four years to nearly 6 percent. (Thanks to climate uberblogger Joe Romm for uncovering this data from the Energy Information Agency).

Solar%20Jobs.jpg (Thanks 350.org for this image)

This significant win for clean energy has gone mostly unnoticed in the press. If anything, the story has been the opposite: recent reports herald the decline of wind, and for a year the media has made a big deal out of the demise of solar panel manufacturer Solyndra.

Given this negative drumbeat, it's not surprising that the business world tends to perceive renewable energy as an altruistic, rather than fiscally prudent, investment. But this view is dead wrong. The renewable energy industry is growing very fast... and not because it's a philanthropic effort.

Let's look at the plight of solar panel manufacturers again. Every growing industry experiences painful shakeouts driven by rising competition. In the case of solar, vast investments in production capacity in China have quickly brought down the cost of panels — a jaw-dropping 65 percent slide in just 18 months. This is good news for people buying solar, but it's not great for many manufacturers. By lowering the "China price," the world's low-cost manufacturer is doing to solar what it did to the apparel and electronics sectors: driving higher-cost producers (usually in the West) out of business.

Aside from China's role specifically, all of this should look familiar to any students of business history. Adam Shor studies the solar sector for the Electric Power Research Institute. As he put it to me, "Show me a mature industry with more than five big players." In the most oft-cited parallel example, a century ago there were hundreds of car manufacturers.

But all of this context misses a critical point that most businesspeople are overlooking: problems for manufacturers do not equal problems for the entire sector.

Jigar Shah, a well-known clean tech entrepreneur and former CEO of the Carbon War Room, gave me this perspective: Solar cell manufacturers account for only three percent of the roughly 100,000 U.S. jobs in the solar sector. Another quarter make other components and the rest, making up a large, growing and local job base, work elsewhere in the value chain. Thus the fastest growing players are young companies that sell, install and service solar: soon-to-be household names like SunEdison (which Shah founded), SunRun, Sungevity, and SolarCity. In a lengthy article on these solar entrepreneurs, The New York Times recently reported that Sungevity, for example, has seen its revenues explode 16-fold in just two years.

So back to this doubling of the share of electricity. Once technologies take off, doublings can happen pretty fast — just ask the investors in the Internet, mobile or social media. Will renewables' share double every 4 years? As Shah pointed out to me, the solar business is growing 30 percent per year (see the Solar Energy Industries Association site for general info in the U.S. solar market). Here's a math check: doubling every 4 years requires 19 percent annual growth.

The power of exponential growth and economic tipping points work wonders: in just three more doublings in share, non-hydro renewables would provide nearly half of our electricity needs — more than we get from coal or natural gas today.

The scale and pace of change I'm describing is not a fantasy — it has already happened elsewhere. Portugal transformed its electric grid from 17 percent renewables to 45 percent in just five years (as of 2010). And in the first half of 2012, renewables provided over 25 percent of Germany's electricity. On one sunny day this past May, Germany set a world record by generating 50 percent of its peak electricity needs solely from solar power. Shah predicts that next spring, the number will be closer to 70 percent.

It was easy to write off renewable energy as a side show at one or two percent of total electricity generation. But it isn't good business to ignore it now, as the economics get better and better. Making the assumption that solar or all green energy won't work because one company didn't pan out is absurd. In 2000, were all technology investments poor bets because Pets.com went under?

The cost of using renewable energy, either through power purchasing agreements that cost nothing up front or through direct investment, is dropping fast. This reality changes the calculus on green energy for homeowners, governments and corporations alike. Upfront costs are falling, which makes the ongoing variable cost of renewables — that is, zero — even more attractive. Better yet, zero is a predictable cost, which CFOs love.

In recent years, several corporate energy managers have told me that when they run the numbers on renewables, the payback just isn't quick enough.

I'd suggest running the numbers again.

(This post first appeared at Harvard Business Online and on Bloomberg - see the active commentary on either.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter@GreenAdvantage)

December 22, 2012

Top 10 Sustainable Business Stories of 2012

Hurricane%20Sandy%20Weather.com.jpg

It's time once again to try and summarize the last 12 months in a handy list. But before I dive in, some quick thoughts.

It was an odd year for green business, and it began with some mixed signals about how far companies were coming on sustainability. A GreenBiz report indicated that progress had slowed or even regressed, but MIT and BCG also declared that sustainability had reached a "tipping point" with more companies putting sustainability "on the management agenda."

In reality, both views were right. Corporate sustainability lost some of its sexiness from previous years, as it grew more entrenched in day-to-day business. Some parts of the agenda — eco-efficiency and resource conservation for example — are widely accepted now, and it's rare to find a big-company CEO who doesn't have sustainability on his or her radar.

The mega forces driving sustainability deep into business — such as climate change, resource constraints, and transparency — are getting stronger. We may not be keeping pace with these pressures, but leading companies continue to evolve more sustainable strategies and tactics. Let's look at some top macro- and company-level stories.

Macro Trends

1. Historic drought and Hurricane Sandy sweep away (some) climate denial
For many people this year, climate change moved from theoretical to painfully real. Mega weather took many lives and cost over $120 billion in the U.S. alone ($50 billion for the drought, $71 billion for Sandy). After Sandy raged across the eastern coast, Businessweek blared on its cover "It's Global Warming, Stupid." New York Mayor Bloomberg, a Republican, endorsed President Obama in the election, titling his open letter, "A Vote for a President to Lead on Climate Change."

As bad as Sandy was, the relentless drought across the middle of the country may prove more convincing in the long run. Corn yields per acre fell 19%, food prices rose, and water disappeared —the Mississippi River may soon struggle to support commerce. Individual companies are feeling the bite: analysts at Morningstar estimate that input costs at Tyson Foods will rise by $700 million — more than its 2012 net income.

Over one-third of the world's largest companies surveyed by the Carbon Disclosure Project arealready seeing the impacts of climate change on their business. So with life-and-death consequences and vast costs, we must have moved quickly to tackle climate change, right? Sort of...

The year ended with the failure, yet again, of the international community to come to some agreement on climate change. But country-level and regional policy moved forward: Australia passed a carbon tax, South Korea approved carbon trading, and California just began its own trading experiment.

Many countries also committed serious funds to build a clean economy: Saudi Arabia pledged $109 billion for solar, Japan declared that a $628 billion green energy industry would be central to its 2020 strategy, and China targeted $372 billion to cut energy use and pollution.

In the U.S., a backdoor approach to climate policy took over. The Obama administration issued new standards to double the fuel economy of cars and trucks, and the National Resources Defense Council (an NGO) proposed using the Clean Air Act to reduce emissions from power plants by 25%.

2. The math and physics of a planetary constraints get clearer
Arithmetic had a big year: Nate Silver's nearly perfect predictions of the election gave him the oxymoronic status of rock-star statistician. The math and physics of sustainability got some serious attention as well.

Writer and activist Bill McKibben wrote a widely-read piece in Rolling Stone about climate math — how much more carbon emissions the planet can take — and followed it up with a national awareness-building tour. Based on similar numbers, both McKinsey and PwC UK calculated how fast we must reduce the carbon intensity of the global economy (PwC's number is 5% per year until 2050).

And on the resource constraint front, Jeremy Grantham, co-founder of the asset management firm GMO ($100 billion invested), continued his relentless numbers-based assault on the fallacy of infinite resources. In his November newsletter, he demonstrated exactly how much of a drag on the U.S. economy commodity prices have become.

Nobody can really deny that, in principle, exponential growth must stop someday. Grantham, McKibben, and many others are making the case that someday has arrived.

3. The clean economy continues to explode
The rapid growth of natural gas production (the biggest energy story of the year) and the high-profile failure of one solar manufacturer (Solyndra) have confused people about the prospects for clean tech. In reality, the clean economy is winning. The share of U.S. electricity coming from non-hydro renewables doubled to 6% in the last 4 years. On May 26, Germany set a world record when it produced 50% of its electricity needs from solar power alone. In a mini political tipping point, six Republican senators publicly supported an extension to the wind production tax credit in the U.S. (which will expire in days), and got an earful from a Wall Street Journal editorial.

It wasn't just energy. One auto analyst declared 2012 the "Year of the Green Car," with more high-MPG models, 500,000 hybrid sales in the U.S., and plug-in sales up 228%. To cap the year, the pure electric Tesla Model S was selected as the Motor Trend Car of the Year.

Company Stories

This year, there were countless eco-efficiency stories about companies saving millions of dollarsand developing new tools to make buildings, fleets (Staples and UPS, for example), and manufacturing much leaner. Aside from that overall theme, the following stories grabbed me because of their connection to larger trends.

4. The green supply chain gets some teeth: Walmart changes incentives for buyers
This year, Walmart finally added a key element to its impressive green supply chain efforts. The retail giant's powerful buyers, or merchants, now have a sustainability goal in their performance targets and reviews. For example, the laptop PC buyer set a goal that, by Christmas, all of the laptops Walmart sells would come pre-installed with advanced energy-saving settings. It was by no means a hiccup-free year on sustainability issues for Walmart, with deep concerns about corruption in its Mexican operations. But the subtle change in buyer incentives is a big deal.

5. Transparency and tragedy raise awareness about worker conditions
Early in 2012, Apple took some serious heat for the working conditions at Foxconn, the giant company that assembles a huge percentage of our electronics. Later in the year, tragedy struck Dhaka, Bangladesh when a fire at the Tazreen Fashion factory killed or injured hundreds of people. The company that owns the factory serves Walmart, Carrefour, IKEA, and many others (but in fact,some companies didn't even know that Tazreen was a supplier). It's unclear if any of these human and PR disasters will affect the companies downstream, but transparency and knowledge about the lives of the people who make our products will continue to rise.

6. Data gets bigger and faster: PepsiCo and Columbia speed up lifecycle assessments
The rise of Big Data was an important theme in business in general this year, but especially in sustainability. And nowhere is good data needed more than in the onerous and expensive task of calculating a product's lifecycle footprint. PepsiCo has had great success with the method, finding ways to reduce cost and risk for key brands, but execs wanted to apply the tool across thousands of products. To make the exercise feasible and affordable, they turned to Columbia University, which developed a new algorithm for fast carbon footprinting. This isn't just a wonky exercise: As PepsiCo exec Al Halvorsen told me, "the real reason you do an LCA is improve the business, to put more efficient processes in place, and innovate in the supply chain."

7. Sustainability innovation opens up: Unilever, Heineken, and EMC ask the world for help
This new world of social media, where everyone has a voice, can be tough on companies. Consumers can gather around a green issue and pressure companies to change their behavior. Some notable change.org campaigns this year challenged Universal Pictures (about its green messaging around The Lorax), Crayola (recycling markers), and Dunkin' Donuts (Styrofoam cups). But companies can also use "open" innovation tools to generate new ideas and invite the world to solve problems together.

Unilever, which has my vote for leader in corporate sustainability right now, held an online discussion or "jam." Then the company posted a list of "Challenges and wants" and asked for ideas on solving big issues such as how to bring safe drinking water to the world's poorest regions.Unilever has received over 1,000 ideas and is "pursuing 6 to 7 percent of these with internal teams." Other notable open innovation models this year included Heineken's $10,000 sustainable packaging contest (which yielded some very fun ideas like a roving tap truck) and EMC's eco-challenge with InnoCentive on e-waste.

8. The economy gets a bit more circular: M&S, H&M, and Puma experiment with closing loops
On the heels of Patagonia's "Don't Buy This Jacket" campaign (one of my top 10 stories from last year), British retailer M&S began a program called "Schwop" that asked customers to bring back old clothes every time they bought new ones. This month, H&M also rolled out a global clothing collection and recycling effort.

Puma, after making last year's list with it's Environmental P&L, kept the momentum going andannounced a new "InCycle" collection with biodegradable sneakers and shirts, and recyclable jackets and backpacks. Remanufacturing has been around a long time, but closing loops is getting more popular every year.

9. Dematerialization gets sexier: Nike's knitted shoe shows off sustainable style
Keeping the apparel theme, um, running, check out Nike's new shoe with FlyKnit technology. The upper part of the shoe is constructed from a single strand, which greatly reduces waste and lightens the shoe dramatically. It's a great thing when a more sustainable design also coincides perfectly with customer needs. Enough said.

10. Zero becomes more the norm: DuPont, GM, and John Elkington show the way
The idea that organizations should send zero waste to landfill was once a niche idea, but it's quickly becoming the ante to enter the waste management game. Announcements on waste may not be exciting, but they demonstrate how companies can turn a cost center into a source of profit. DuPont's Building Innovation Products business reduced its landfill waste from 81 million pounds to zero in three years. GM announced that it would ramp up its already extensive waste reuse and recycling efforts, which are now generating $1 billion a year. And a plug for a fellow writer: In a new book, sustainability thought leader John Elkington made the case that the future would belong to the "Zeronauts," the "new breed of innovators determined to drive problems such as carbon, waste, toxics, and poverty to zero."

Five Questions For 2013

Some other promising stories are in the "too early to tell" stage, but bring up some key questions:

1. Can we standardize sustainability, which some smart folks began to do around rankings (GISR) and accounting (Sustainability Accounting Standards Board)?

2. Will we find a way to value externalities like ecosystem services and internalized, intangible benefits? (A focus of some of my work as an advisor to PwC US). For example, Microsoft launched an internal carbon tax and some major companies (Coca-Cola, Nike, Kimberly-Clark, etc.) pledged to value natural capital at Rio+20.

3. Will government get in the way or help, like when the U.S. Senate allowed the military to keep investing in biofuels?

4. Hertz and B&Q (Kingfisher) have delved into collaborative consumption (see WWF's Green Game-Changers report), but will the sharing economy make a dent on sustainability issues?

5. Finally, how much will we challenge the nature of capitalism, and what will that mean for how companies operate? (This is the focus of my next project.)

So many stories, so little time... on to 2013. Happy holidays and have a safe and wonderful New Year!

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

March 19, 2013

The Fallacy of the China Defense

[Note: I'm taking a small blog hiatus for a couple months to work on my next book. More on that later.]

For anyone who doesn't want to reduce carbon emissions, China seems like a great scapegoat. The defenders of the status quo argue that U.S. companies will be at a disadvantage if we tax carbon or invest in clean energy because "China's not doing anything."

Beijing%20pollution%2C%20iStock_000005196938XSmall.jpg
(Beijing pollution)

U.S. Senator Marco Rubio recently offered up a perfect example of this idea: "There are other countries that are polluting in the atmosphere much greater than we are — China, India, all these countries that are still growing. They're not going to stop doing what they're doing." And New York Times op-ed writer Joe Nocera used the China Defense last week in his latest pro-fossil-fuels piece: "the Chinese are far more concerned with economic growth than climate change."

But there are three little problems with this logic:

1) It's not true.

China recently demolished this fallacy when leaders announced they would implement a carbon tax. And when the new Premier spoke on Sunday, he belied Nocera's assertion with a speech that, in the Times words, "laid out a vision of a more equitable society in which environmental protection trumps unbridled growth." These policy shifts are a very big deal for all 7 billion of us sharing the climate. And it's just the latest in a series of Chinese commitments, which include the following:

  • July 2010: 5 trillion yuan, or $800 billion, alternative energy plan over 10 years (this is like the part of the U.S. stimulus plan that funded clean tech, but times 10).
  • August 2012: $372 billion to cut pollution and energy use.
  • August 2012: 40% increase in solar target (21 gigawatts by 2015).

Is China still growing and emitting more carbon? Of course. Is it planning to build another 363 coal plants? Yes. So the world is not black and white. But even with lots of coal and oil investment, there's no way you can say China is doing nothing on clean tech.

2) Science doesn't care.

The math and physics of climate change are getting clearer by the day. As those tree-huggers at McKinsey and PwC UK have calculated, we need to decarbonize at a rapid rate — about 5 percent less carbon per dollar of GDP every year until 2050. This has to happen no matter who goes "first," and is basically the argument put forth by Grist writer David Roberts recently. We have to try, no matter what anyone else is doing. And, by the way, the impacts of doing nothing will keep growing — Hurricane Sandy and the ongoing drought in the Midwest are just the beginning. The costs of inaction are rising, which brings me to...

3) We should want to go clean anyway.

One of Sen. Rubio's other comments, the most common specious argument against acting on climate change, was that restricting carbon would "devastate" the economy. This is, to borrow a phrase, malarkey.

Even putting aside the literally trillions available through energy efficiency, there's a vast upside from creating new industries. According to the bank HSBC, the clean economy will be a multi-trillion dollar market soon. After all, we're reinventing the world's largest industries: energy, transportation, and buildings. Most other major economies get this and are investing heavily in the clean economy. But no country has gone as fast as China, which has grown its share of solar manufacturing to 50% in avery short time (with nearly as impressive a performance in wind).

I could keep going with counterarguments — like shouldn't we lead because we're, well, leaders? But even if science doesn't care and the whole "China isn't doing it" argument is a lie, I'm partial to number 3: We make money doing it and it's good for us. That's enough for me.

(The majority of this post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

February 1, 2014

The Largest Risk (and Opportunity) Investors Are Ignoring

Tackling climate change — and thus keeping the world inhabitable — is an achievable goal, but it will become prohibitively expensive if we wait to act. This is the key message from a leaked United Nations study that The New York Times reported on last week. Journalist Justin Gillis wrote about the risk of “severe economic disruption” and “wildly expensive” solutions — ones that may not even exist — if we don’t leverage existing technologies to shift the global economy away from carbon over the next 15 years.

oil%20rig%2C%20stranded%20%28small%29%20Stock_000019312165Small.jpg

Talk of potential risk to humanity is not new. And we’ve seen more recently the actual devastation of record weather events like Hurricane Sandy and Typhoon Haiyan. But neither the scientific warnings nor the extreme storms have prompted enough action. However, now the risk we’re talking about is financial, which, along with the enormous economic upside of taking action, may finally get the investment community moving.

The day before the stark story in the Times appeared, I attended a related conference, the Investor Summit on Climate Risk, held at the UN and run by the NGO Ceres. Hundreds of financial executives gathered, including some heavy-hitters, from state comptrollers to executives from large pension funds to former U.S. treasury secretary Robert Rubin, who declared, “climate change is an existential risk.”

The conferencewas focused on the release of Ceres’ new report, “Investing in the Clean Trillion.” Created in conjunction with Carbon Tracker, the study lays out a plan for mobilizing much more capital toward building the clean economy. The trillion-dollar number is not random: TheInternational Energy Agency (IEA) has estimated that the world needs to pour $36 trillion of investment into the clean economy between now and 2050 in order to keep the planet below the critical warming threshold of 3.6 degrees Fahrenheit (2oC). That’s $1 trillion per year.

A key target for Ceres’ work, and the main audience at the conference, is the group of institutional investors who manage tens of trillions of dollars in assets for long-term performance. The core argument to compel institutional investors to change how they influence companies and where they invest their money is simple: as the world pivots away from carbon-based energy to avoid devastating climate change, fossil fuel assets, like coal plants or off-shore oil rigs, will be “stranded” — a wonky term for “worthless.” The value of the companies owning and managing those assets, the logic goes, will plummet. As Nick Robins from the bank HSBC described to the audience, in a scenario of global peak fossil fuel use by 2020 “implies a 44% reduction in discounted cash flow value of fossil fuel companies” — or in simpler terms, a decline in share price of 40 to 60 percent.

In another Ceres meeting last fall on this topic of stranded assets, Craig Mackenzie from the Scottish Widows Investment Partnership ($200 billion in assets) spoke about the “wake-up call” investors had gotten from recent shifts in the U.S. coal market. The 20% drop in coal demand was driven mainly by the incredible increase in natural gas production due to fracking technology, not from any concern over greenhouse gases. But the rapid shift demonstrated to Mackenzie and his firm the dangers of overexposure to a class of assets. So, he says, the fund “reduced exposure to pure play coal companies to nearly zero.”

It’s easy to point out a big flaw with the stranded assets discussion: uncertainty. I spoke with executives at a few big banks who said the big question for them is when will the assets be stranded. Nobody wants to leave profitable investments too early that gets you fired. But trying to time a bubble bursting is a dangerous game. How many investors got the timing right on the implosion of mortgage-backed security assets in 2008? Nearly none, and that systemic failure of vision contributed mightily to a global financial collapse.

Given what’s at stake now — not just financial system stability, but planetary, human-supporting system stability – it’s more than prudent to avoid the game of timing the market perfectly. The investment community should be much more proactive about using its weight to a) pressure fossil fuel companies to quickly migrate their own portfolios to new forms of energy; and b) dedicate significant funds to investing directly in new technologies.

With the chilling, “it’s going to be very costly” message of Gillis’ article, and the warnings of trillions of stranded assets in the Ceres report, it’s easy to miss the very big silver lining running underneath all the dire warnings: we have the technologies today to make the shift and do it profitably.

The Clean Trillion report cites the uplifting flip side of the IEA’s calculations — the $36 trillion of investment we need will yield $100 trillion in fuel savings between now and 2050. That’s a lot of money to leave on the table, and a very good investment.

(This post first appeared on the Harvard Business Review blog network.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)