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October 26, 2009

Green IT: One Path to a Green Recovery

[This post first appeared on a Climate Savers Computing Initiative site. I'll skip the general intro to the greening topic from the original...]

...Five areas of the business are ripe for quick paybacks from green thinking: facilities (heating, cooling and lighting), fleet and distribution, waste, telework, and IT. Let's look at IT specifically and why companies are still going green.

When industry analyst Gartner Group estimated that information and communications technology was responsible for 2 percent of global carbon emissions — equal to the entire aviation industry — most people outside the IT world (and many inside it) were shocked. At the core of these numbers lies the shocking inefficiency of data centers.

Of all the energy going into a modern server farm, IBM estimates, less than 4 percent actually processes something you know, what the room was built for. The other 96 percent of electrons are lost at three stages: (1) cooling the room itself, (2) cooling the stacks or "blades" of servers, and (3) keeping idle machines humming. Most of this energy is wasted and costs real money. In recent years, the share of a data center's variable cost going to energy has grown fast. What was once a tiny part of the budget is now 40 or 50 percent of the operating cost. Over the life of a server, you can easily spend twice as much on electricity as on the capital cost of the server itself.

In response, the competition has been fierce to tackle those three stages of the problem and find ways to slash the energy budget. First, look at the design of the data center itself. One of my favorite "head-slapper" strategies in all of the greening movement is the use of outside air economization — that is, effectively opening the door and letting hot air out rather than cooling it — which Intel estimates can save $3 million in a 10 mega-watt data center.

Second, companies are looking at the server hardware. They're shutting down orphaned systems — Sun discovered during its "Bring Out Your Dead" day that 4,100 of its servers were unused, but plugged in sucking energy. But sometimes, as the Wall Street Journal suggested earlier this year, "the smartest thing to do is invest in new, more efficient systems." One company, Fair Isaac Corporation, bought new, more efficient servers and cut the total number in its data processing center in half. This requires some capital expenditure, but the paybacks can be fast.

Third, software companies are vying to help handle server loads and increase the average 20 percent utilization rate (meaning, 4 of 5 servers are basically idle, waiting for peak loads). The buzzword is virtualization, or using software to create pseudoservers that run in parallel on the same physical server and use all that idle processing power.

For companies using all of these tactics, such as Microsoft, newer datacenters can use 50 percent less energy than ones built just a few years ago. And that's just the large IT systems. Many organizations are now utilizing software to control all the PCs sitting on desks, putting them to sleep overnight and often saving millions. None of this pressure to cut back on IT energy and cost is going away. Forrester reported in January 2009 that 60 percent of IT managers are using green criteria in their procurement decisions and that even in tight times more managers are accelerating green IT efforts than slowing them down.

But what's the most powerful thing you can do to reduce IT energy use? Every time I speak to tech companies or sustainability execs, I hear one theme over and over: The people who create the energy use don't have a clue how much it's costing. The prescription: Add the power bill to the CIO's budget.

November 19, 2009

Finding the Money to Green Your Business

Contrary to the popular misconception that going green is expensive, in a very large range of cases, environmental initiatives don't raise costs, they lower them — and fast. In operational areas such as facilities (heating, cooling, lighting), fleet, IT, and waste, leading companies continue to find large savings in shockingly simple actions, such as changing lighting or using outside air to cool a data center.

But even for the most head-slappingly obvious changes with super-fast paybacks, companies still need to find the capital to buy the new bulbs, optimize the HVAC system, or add auxiliary power units (APUs) to trucks. And even if one sees these initiatives as investments, not costs (which is the right way to look at it), there will still be competition for dollars. During a recession — heck, at any time — it's normal to struggle to get funds for even worthy projects. So what to do?

A few leading companies have hit on one incredibly simple solution to this problem — set aside funds for green priorities. I don't mean coming up with a new pool of money; just assign a percentage of the existing capital expenditure budget to green priorities.

In 2008, to find hidden gems of savings, DuPont set aside 1% of capital expenditures solely for energy-saving ideas. With $50MM of spending, the company found $50MM of savings per year — a one-year payback that keeps on giving. All projects still met the corporate hurdle rate, so there was no special dispensation besides making the money available for worthy initiatives managers had overlooked. Building products maker Owens Corning goes even further, dedicating 10% of capex to energy projects. This is a tool nearly anyone can use. Set aside the funds for green and you'll unleash a wave of creativity and short paybacks.

So if there are so many quick, high-ROI projects sitting around, why aren't companies jumping on them? Two big reasons. First, energy efficiency just hasn't seemed sexy. Dawn Rittenhouse, DuPont's director of sustainable development, told me, "If business units can invest in growth or energy efficiency projects, it's more glamorous to go after growth." But in tight times, saving money starts to feel a lot more exciting, doesn't it?

The second reason is the classic problem of the urgent versus the important. Most capital expenditures go to fix things that are already broken. But as Frank O'Brien-Bernini, Owens Corning's chief sustainability officer, puts it, "It's really about redefining what 'broken' means." Think about it: a process that wastes energy may not feel broken with oil at $40, or even $80, a barrel. But it may look like a money-eating disaster at $200 a barrel. In essence, when it comes to energy and resource efficiency, all companies are broken.

Of course reserving some funds could meet resistance. One of my clients pointed out that their capex budget is not one pool, but really a bunch of sub-budgets for different groups. A green set-aside would have to draw money from somebody's hard-fought budget. But DuPont only allocated 1% to great effect. So it doesn't necessarily take a giant land grab to make this operational and cultural shift happen.

So when people say you don't have the money to invest in green, show them that you do. The reality is that unless you're in liquidation, you have a capex budget, even if it shrank this year. You're spending money on things all the time; it's simply an issue of where you place your bets.

Take a piece of what you're already spending, point it in the right direction, and you will find enormous green savings to help survive these (still) hard times — and invest in the future.

[This post first appeared on Andrew's blog on Harvard Business Online]

June 24, 2010

Sony Sees the Value of Zero

Though corporate green efforts have grown exponentially in the last decade, most initiatives fall woefully short of what's necessary to meet the enormous sustainability challenges we face — from climate change to water shortages to poverty and social equity.

That's why it's so refreshing to see one large company, Sony, set a goal of zero environmental footprint by 2050. The company has dubbed this mission its "Road to Zero."

Before diving into how Sony has approached its target-setting exercise, here's a quick review of why "zero" is an idea whose time has come: In a resource and carbon-constrained world, the best scientists tell us, we need to cut emissions of greenhouse gases by 80% by mid-century (it's no coincidence that Sony picked 2050). For other pressing issues, society, governments, and the cold realities of science will demand even more dramatic changes. The word "zero" — as in zero waste, zero net water use, zero toxicity, zero child labor, zero fatalities, and zero carbon — will by necessity become a core part of business strategy and operations. (One large consumer products company is in the process of setting sustainability targets, which it calls the "Eight Zeros.")

Only one of the green-themed zeros has had broad appeal thus far in the business community — the quest to send no waste to landfills. Most people shorthand this pursuit to "zero waste" even though it's not really zero (but everything is being recycled or, much less preferably, incinerated).

Subaru demonstrated it could be done in 2004 in its Lafayette, Indiana plant (saving millions of dollars in the process), and GM has recently achieved the goal at 62 plants across the world. These are impressive feats, but we'll need even greater innovation to get to the other zeros.

Yet outside of a few usual suspects, such as perennial sustainability leader Interface Flooring or Wal-Mart's goal of using 100% renewable energy, there are nearly no companies (or countries for that matter) that have outlined a path to get to zero environmental footprint.

This spring, however, Sony made the leap. If you spend some time at the Sony site dedicated to the Road to Zero, you get the sense that executives have clearly thought this through. They seem to realize that a big goal, just hanging out there on its own, would be far too daunting, nebulous, and not very actionable. So The Road to Zero works, as I see it, because of two fundamental components.

First, the company broke up the goal into pieces, separating the discussion into four "perspectives" and six "lifecycle" stages. Sony has phrased the perspectives as ongoing actions:

- Curbing climate change,
- Conserving resources (which covers material use, waste, recycling, and water),
- Promoting biodiversity, and
- Controlling chemical substances.

The perspectives hew closely to the biggest environmental challenges we face as a species: climate change and energy, water, biodiversity, and chemicals and toxics. So while I might nit-pick and suggest that "conserving resources" is a bit too broad to be actionable, it's a good list.

The six lifecycle stages cover:

- Research and development,
- Product planning and design,
- Procurement,
- Business operations,
- Distribution, and
- Take-back and recycling.

Sony indicates that it will need to find a path to zero in each area, using different tactics and approaches. In distribution, for example, Sony describes a broad set of strategies including smaller packaging, improved loading efficiency, and shifting to more rail and water transport.

The Road to Zero site describes these all in very general terms, which reflect the reality that nobody really knows exactly how to get to zero. But what's important is that Sony is pairing this directional exercise with some down-and-dirty tactical goals as well. So...

Second, Sony set interim targets dubbed "Green Management 2015," which follow and build on its now-completed "Green Management 2010." This step is critical and the goals are both specific (reduce greenhouse gases 30% in absolute terms from 2000) and thought provoking (reduce mass per product by 10%). For some areas, such as operations and distributions, the targets are numeric and clearly understood. For others, such as R&D, they're more strategic.

The four environmental impact areas — or perspectives as Sony calls them — and the six lifecycle phases make up a matrix. Thus the company has set a climate-related goal for each lifecycle phase, chemical reduction goals for most phases, and so on.

Sony's site repeatedly refers to hitting zero "throughout the lifecycle of our products," which raises an interesting question: Will Sony be demanding that its suppliers hit zero as well? I would think that this discussion could not be very far away.

Of course, we could debate if "zero" is even good enough, since cutting-edge sustainability thinking focuses on creating products that improve the environment (such as concrete that captures CO2 in its manufacturing process or building materials that clean the air). But for the big guys like Sony — and for all of us — zero is a pretty good start.


[This post first appeared at Harvard Business Review Online]

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October 27, 2010

Some Gems From Seth Godin

Business guru Seth Godin is on a bit of a tear lately on issues related to sustainability.

Three posts that grab me...

Efficiency is Free -- makes the case that, as always, efficiency is the cheapest path, and it mentions 'heresy', which I'm obviously a big fan of!

What Does Pro-Business Mean? (Hint: it's not about maximizing shareholder value only).

Deliberately Uninformed, Relentlessly So [A Rant] - Ok, to be fair this is about general ignorance, but it certainly applies to the discussion of green and climate change science, which has been the target of one of most organized and powerful disinformation campaigns in history. I'll have a post on my Harvard Business Review blog next week related to this topic...

Enjoy Seth's wisdom...


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February 8, 2011

The Fundamentals of a Corporate Sustainability Program

I attended a Executive Sustainability Summit last week at Xerox's request and I'm writing a few blogs about what I saw and heard. This first one is on Xerox's site and I comment on a framework proposed by Xerox's long-time VP of EH&S, Patty Calkins. I think she provides a good set of principles for a sustainability program, including a quantitative focus and value chain perspective.

There's also a quick "top ten reasons to act sustainability," and a short video of me talking about green strategy (which is also up on YouTube here).

Check out the blog here.

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February 23, 2011

What is "Zero Waste" - And Why Should You Care?

My monthly (or so) e-letter is out. If you don't receive it, here's a quick summary and link to the latest...

What is "Zero Waste" - And Why Should You Care?

If we’re to believe the flurry of press releases over the last year, organizations of all stripes are trying to drastically reduce the waste they send to landfills. In the years since Subaru announced a “zero waste” facility in 2004, the pace of announcements has risen, and they’ve come from a broader range of organizations.

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For this e-letter I interviewed a number of sustainability execs and waste leaders from GM, Pepsi, Interface, Waste Management, and others. I ask (and I hope answer) a few key questions:
1. Why are companies doing this?
2. What does zero waste mean?
3. How else can we think about waste reduction?

See the full post here...

March 6, 2011

Cloud Computing is Greener

Cloud computing is all the rage. In its simplest terms, it means outsourcing your company's information technology (IT) needs, from data and storage to software. All the servers and applications sit elsewhere in the Internet "cloud," but more literally in a data center or centers.

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A recent study from Microsoft (with Accenture and WSP), "Cloud Computing and Sustainability", compared the environmental footprint of running business software internally or with an outsourced provider (in this case, Microsoft). The study showed that, compared to running their own applications, by outsourcing companies can reduce the energy use and carbon footprint of computing by up to 90 percent!

This is very good news. IT is one of the fastest growing energy hogs, accounting for at least 2 percent of global energy use. In my last book, Green Recovery, I focused on IT as one of five operational areas where green initiatives help companies save money quickly (the others were facilities, distribution, telework, and waste).

In the book, I cited statistics from IBM showing that less than 4 percent of the energy going into a data center is used to process something.

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While the IT world has gotten a lot more efficient lately, there's still much room for improvement. And apparently moving your applications to the cloud can help immensely.

According to the Microsoft report (see page 6), cloud computing drives energy reductions in four related ways, which boil down to a few key leverage points:

  • Reducing excess capacity
  • Flattening peak loads
  • Employing large-scale "virtualization" software
  • Improving data center design.

Using the cloud addresses all three of the major energy loss areas in the IBM chart: data center design tackles room and server cooling, while the other scale benefits mainly address the absurd waste, in percentage terms, from server underutilization (the far right bar).

Rob Bernard, Microsoft's Chief Environmental Strategist, likens the cloud to mass transit: "A data center essentially gets computing applications to carpool or take the bus instead of sitting in their own individual servers...but unlike mass transit vs. private vehicles, there is no tradeoff for convenience and on-demand availability."

So all of this is pretty logical. Scale is more efficient and allows for better resource planning. But I'd offer a few points worth thinking about, and one note of caution.

  1. The centralization of computing power should look familiar. To get some perspective on the study, I spoke with Mark Monroe, the new Executive Director of Green Grid, an organization dedicated to making IT more energy and carbon efficient. He compares the cloud to the electric grid, citing Nicholas Carr's book, The Big Switch, which Monroe says "compares utility computing development to the emergence of centralized electrical generation in the early 20th century." Like electric plants, Monroe says, central computing "utilities" benefit from scale and high utilization.
  2. In this case, outsourcing is another word for "servicizing," or turning a product into a service offering. In theory, a service provider will strive to keep its costs down, thus using as little energy and resources as possible. Cloud computing fits this model well (and fits a general transition to helping customers use less). As Monroe says, "Cloud providers want to provide an hour of CPU time, a Gigabyte-month of storage, a CRM transaction, an email, or a web page for as little cost and as high a margin as possible. That just has to lead to higher efficiency than someone focused on delivering a feature internally."
  3. Small companies get the biggest bang for their cloud bucks. The study's most fascinating finding is that the larger IT users get less benefit out of working with Microsoft's cloud. For organizations with over 10,000 users, the reduction in GHG emissions is healthy 30 percent. But that pales in comparison to the 90 percent reduction firms with just 100 users can attain.
  4. Smart outsourcing, scale, and technology can help other parts of the business be more efficient also. For example, I talk in Green Recovery about the benefits of telecommuting and telepresence, and in distribution, larger carriers can ensure fuller, more efficient trucks, rail cars, and ships.
  5. But, keep one thing in mind when outsourcing an energy-using function: the footprint is still yours. Technically, a company's main footprint includes only its own facilities (in wonky terms, that's "Scope 1 emissions"). But I believe that anyone doing contract work for you — which is not really the same as traditional suppliers - should count toward your footprint.

In short, finding providers and partners that can take some of your energy-using operations to scale, and manage them in a shared capacity, is good for your footprint and your bottom line.

(This post first appeared at Harvard Business Online.)

March 16, 2011

Will Employees Choose the Greener Options for Office Printing?

Just a quick link and note about part 3 of my "series" of blogs on my trip to the Waste Management/Xerox Executive Sustainability Summit a few weeks ago. Xerox asked me to attend and cover the event. My final piece discusses an interesting presentation there from an IDC analyst and paper/print industry expert.

Survey data shows that people have high intentions to act green around the office, but a much smaller percentage will actually print less. I discuss also the challenge of defining "green" in a digital vs. paper world (there's a footprint to both forms of media), and lay out some topline ideas on using less paper at the office.

See the full post...

Will Employees Choose the Greener Options for Office Printing?

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July 28, 2011

A New Green IT Report from CDP

Just a quick heads up about a nice, pithy report on how cloud computing can reduce the large, and growing, IT energy footprint.

"Cloud Computing - The IT Solution for the 21st Century" comes from one of my favorite agitators for transparency and climate action, the Carbon Disclosure Project.

Fyi, there's a short piece I wrote in the report, most of which is taken from this blog from earlier this year, "Cloud Computing is Greener."

Enjoy...

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August 22, 2011

Excess Inventory Wastes Carbon and Energy, Not Just Money

Inventory. For those of us not in operations, supply chain, or logistics, it's a vaguely familiar line item we learned about in finance class. We know it's important and that we're supposed to reduce it by increasing "turns."

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But inventory is not a minor issue. By some estimates, the world is sitting on roughly $8 trillion worth of goods held for sale, and nearly $2 trillion in the U.S. alone, according to a report by the Council of Supply Chain Management Professionals (note: the full report requires membership, but this number is mentioned about 9 minutes into the video at the CSCMP site).

That's a lot of capital tied up in warehouses. It also represents a tremendous amount of environmental footprint "embedded": logic suggests that this inventory stock, since it represents a healthy percentage of our economic output, required a good percentage of our energy and water to produce (so billions of tons of carbon emitted, for example). If we could permanently reduce the amount of product sitting idle, we'd save money, energy, and material.

So managing inventory well is both a financial win and a sustainability victory.

Perhaps the most powerful lever over inventory levels is predicting how much product customers will want, or what's called "demand planning." I recently delved into this meld of art and science when I spoke at a meeting held by Terra Technology, a relatively new and successful player in the "demand sensing" world (the difference between "sensing" and "planning" is about gathering data as close to real-time as possible and feeding it back up the supply chain quickly).

While I know little about the field of demand estimation — or what tools companies are using — my interest was in learning about anything that helps companies save money and reduce their environmental footprints. (Full disclosure: Terra Technology was my client for this event.)

At the meeting were representatives from many of the world's largest consumer product (CPG) companies. The giants in the field, such as P&G and Unilever, spend a lot of money on demand planning, each employing hundreds of people, many with advanced math degrees...and for good reason: P&G's 2010 total inventory, for example, was valued on the balance sheet at $6.4 billion.

Even though predicting the future is devilishly hard, I figured that the explosion of point-of-sale and operational data over the last 20 years, would give companies a good handle on how much of something they'll sell. I was wrong.

As I learned at the conference, according to Terra Technology's benchmarking study, the error rate for CPG companies on estimated vs. actual sales is shockingly high. Even with the fastest-selling, most predictable products, the estimates are off by an average of more than 40 percent. Imagine that a CPG company believes that 1 million bottles of a fast-turning laundry detergent will sell this week. With 40 percent average error, half the time sales will actually fall between 600,000 and 1.4 million bottles. And the other half of the time sales will be even further off the mark.

The repercussions of all this uncertainty are dramatic in terms of cost and material use. Companies have to keep much more inventory, since going out of stock is really unpleasant to explain to consumers, your CEO, or, say, Wal-Mart. The buffer is called "safety stock," and its sole purpose is to mitigate this risk. There's a lot of safety stock out there — nobody knows exactly how much, but what stock level would you keep on hand if you didn't know whether sales would be 1 or 2 million units?

As we've found so many times before, data and software can play a critical role in making operations more efficient and sustainable. For example, using both demand sensing software and good management practices, P&G has cut 17 days and $2.1 billion out of inventory. All that production avoided saves a lot of money in manufacturing, distribution, and ongoing warehousing. It also saves a lot of carbon, material, and water.

Like many companies that realize there's a green element to their offerings, Terra Technology is now making this footprint-reduction case as part of its pitch for better demand prediction. As Robert F. Byrne, the company's CEO, puts it, "I want people to think of inventory as not just piles of cash, but also piles of carbon and piles of water." It's smart positioning, especially because it's true.

The definition of what makes a "green" initiative is broadening, and that's a good thing. Companies would certainly include a lighting retrofit at a warehouse in their list of sustainability or eco-efficiency projects. But until recently, it probably hadn't occurred to logistics execs that reducing the inventory itself could be the greenest thing they do.

(This post first appeared at Harvard Business Online.)

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October 29, 2013

Two Critical Questions About Carbon Budgets

A few weeks ago, the Intergovernmental Panel on Climate Change(IPCC) put out its Summary for Policymakers, the latest, best estimate of our climate problem.

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It's not a pretty picture. The IPCC is brutally honest about where it can't provide certainty, such as the exact extent of specific kinds of extreme weather in the future. But the report expresses "near certainty" that humans are causing climate change – that's science-speak for "we know this" – and that we're heading for devastating consequences.

The IPCC provides some guidance on what we need to do, broadly speaking. The key idea is the carbon budget (which Climate Centralrecently summarised nicely). In short, we humans can "safely" put only so much carbon into the environment and maintain decent odds of holding warming to 2 degrees. I credit activist Bill McKibben for making this idea mainstream by writing a powerful piece in Rolling Stone last year.

The latest budget numbers this month are not good news. Here's the crucial paragraph with data on how many gigatons of carbon (GtC) we have left:

"Limiting the warming caused by anthropogenic CO2 emissions alone with a probability of >33%, >50%, and >66% to less than 2°C… will require cumulative CO2 emissions from all anthropogenic sources to stay [below] 1,560 GtC, 1,210 GtC, and 1,000 GtC [respectively]. An amount of 531 GtC was already emitted by 2011."

So to boil this down, if we want a 66% probability, we have about 469 GtC left. And the budget is even smaller if you also consider what IPCC calls "non-CO2 forcings" which Michael Mann – he of The Hockey Stickfame – described to me as "other human-produced greenhouse gases, including methane from agriculture/livestock and potentially now from leaks during [gas] fracking."

McKinsey and PwC have both taken previous IPCC estimates and translated them into annual targets. Basically, we need to improve our carbon intensity – the carbon we emit per dollar of GDP – by about 5% per year. These new IPCC numbers imply we have to go even faster.

All these numbers raise many questions, but let me pose two important ones:

1. Why aren't we trying to limit warming with a probability of 90%?

For a two-thirds chance of staying below the 2 degree threshold, we only have 469 GtC left. So how small would the budget be if we wanted a much higher probability? The next paragraph in the IPCC report provides some guidance: "A higher likelihood of remaining below a specific warming target, will require lower cumulative CO2 emissions."

What I suspect – and this is scary – is that there is no realistic number that gets us to a 90% or 95% chance of holding to 2 degrees. Meaning, we've already emitted enough to lock in substantial warming. The report backs up my suspicion by declaring, "a large fraction of anthropogenic climate change resulting from CO2 emissions is reversible on a multi-century to millennial timescale."

So we're rolling the dice here and only have a two-thirds shot, even with aggressive reductions.

2. How should companies think about the carbon budget concept?

We have to break down the global budget into smaller bites. The reasonable starting point is for every organisation to set a goal of moving at the required pace, which means reducing emissions intensity by roughly 5% per year.

Of course it's much more complicated to set equitable targets by sector or company, and it's a fair question to wonder if companies can take this on given their short-term focus. Meaning, why should a company do more on carbon than it can easily justify with regular investment hurdle rates?

It's a very tough issue to reconcile. The short answer is that companies should accept the budget logic because, as many have said, business can't succeed in a world that fails. Climate change threatens society, of which business is a subsidiary.

But the macro logic is hard for companies to act on in a quarter-driven economy. So we need to slash carbon in ways that pay off in traditional terms with one major caveat – we should expand our thinking about what payoff means and include all the business value that we can create from clean economy strategies, value that we don't currently measure well (like reduced risk and brand value).

But will voluntary efforts get us there? Unlikely. We'll need an actual mechanism for driving carbon emissions out of our economy fast enough. And that means government help. So companies are also going to have to get off the sidelines, pivot from the normal "all regulations are bad" attitude, and then actually lobby for carbon pricing and limits.

Logic and survival instinct dictate that we work backwards from the budget scientists give us. Our current path – cutting emissions where we can do it cheaply – is not much better than doing nothing. When 5% a year is the best estimate of what's required, holding carbon emissions flat or cutting a little is nice; but it's like taking one pill in a 10-day course of antibiotics.

It'll seem cheaper and easier at first, but you won't actually solve the problem or feel much better.

Note: This post has been corrected for one error related to carbon budget math -- see following blog.

(This post first appeared at Guardian Sustainable Business.)

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