Climate Change Archives

April 22, 2008

Do You Need to "Believe" in Climate Change?

[originally posted on huffingtonpost here]

Another Earth Day is here (and gone). It's probably trite to say, "Hey, every day is Earth Day, but I'll give it a go. Yes, we need to worry about Earth stuff every day, but not just because the planet is in peril — which is a pretty good reason. Think of it this way: the Earth is often metaphorically compared to our home and, as a fairly recent homeowner, I can tell you that your home needs care and feeding much, much more than once a year (my small lawn of non-pesticide laden, eco-cared-for grass and natural weeds grows really fast). It's a constant battle to keep a house running smoothly and providing for you and your family.

But let's take a business perspective. Minding your costs, taking care of your assets, figuring out and fulfilling customer needs — all part of green value creation — are best done consistently and aggressively, not just in big flashy moments of marketing excitement. The days of "plant a tree" Earth Day celebrations being the only thing companies do are over. But many execs still see green as a checkbox exercise, not a corporate mandate and core strategy — do a few things such as retrofitting a facility or putting together a CSR report and move on.

But the environmental work we have ahead of us will be hard and ongoing. Luckily, it should get easier over time. Like the "flywheel" analogy from the bestseller Good to Great, you keep pushing away, and you start to get some real momentum.

All this relates to a question I've been struggling with lately: Does it matter if a company or its execs believe in climate change and other environmental imperatives? What got me started on this weeks ago was GM Vice Chairman Bob Lutz' comment that "global warming is a crock of s***." And at nearly every talk I give on green business, people at all levels in companies from CEOs down inform me that climate change is not real.

My approach in these moments has generally been to stay quiet or point out that it doesn't really matter whether you believe it or not, as long as you buy that going green is good for business. If you're still pursuing green value through, say, eco-efficiency or product innovation, then who cares what you believe. This is basically what Lutz went on to say after his more colorful remarks ("My thoughts on what has or hasn't been the cause of climate change have nothing to do with the decisions I make to advance the cause of General Motors"). This general idea that you don't really need the first half of the Green Wave (made up of natural forces/pressures and stakeholders), is a key point my co-author and I make in our book Green to Gold.

But I'm beginning to wonder.

Yes, in the short run, you can go down a profitable green path with the conviction that if enough of your stakeholders care, it's good for business. But what about in the longer-run, as the excitement that's swept the business world quiets down and we have to make this new green way of doing business work?

Innovation is hard. Creating new products and services and finding new markets for them is hard. Handling what may be a permanent rise in the cost of all commodities and thus the cost of doing business is extremely hard. Won't all these pursuits go a lot easier if there's a bit more on the line than "well, we just have to do this because our competitors are doing it and customers are asking for it"? Won't employees drive harder if they and their bosses believe the underpinnings of why it's good for business? When Shell CEO Jeroen van der Veer said recently that dealing with climate change "will be hard work and there is little time," I believe his employees appreciated the blunt honesty and could set their nose to the flywheel/grindstone.

So does belief matter? I don't have the answer, but I have my suspicions. The now oft-told green business success story of the Toyota Prius still speaks volumes — the company set out to make an environmental car. It wasn't just an efficiency pursuit, but a real belief that the 21st century needed a form of transportation that reduced environmental burden. Going forward, GM may have trouble matching Toyota's innovations if attitudes remain so different.

In the end, doesn't it hurt morale, creativity, and productivity to hear your boss say one of the biggest drivers for action is a crock?

June 21, 2008

Free Market Double-Talk

[First published on Huffington Post]

The U.S. Senate's latest attempt at tackling climate change, the Warner-Lieberman bill, went down this month...again. The complaints of the opponents ranged from fear of higher energy prices to concerns about how the government will use the money collected when permits to emit carbon are sold. But the biggest concern seemed to be the bill's scale and supposed lack of forethought about how it will affect the economy.

Granted, enacting a giant government initiative with no real planning and no consideration for those hurt by it isn't just for invading countries. But how much of an intrusion on the economy is cap-and-trade? It's a fair question and vital to answer since even most critics admit that we will pass something under the next President (given statements made by both Senators McCain and Obama).

If we don't understand the concerns of the few, strong voices that helped sink the bill, we'll never make 60 Senators happy and get a good piece of legislation passed. The usual suspects - the conservative media (often the Wall Street Journal on this topic) and Republican Senators - have focused on the trauma the bill would cause Americans.

Let's look at their attack points.

First, energy prices will likely rise, a regressive impact. The loony Senator Inhofe - who claims global warming is a "hoax" without explaining why thousands of scientists would be in on the big con - is now lamenting a "tax on the poor" (it's nice to see the Senator worrying about those living paycheck to paycheck). The GAO did estimate that gas prices would rise 52 cents...by 2030. Two cents more per year, compared to the price increases we're already seeing from normal market forces and oil supply constraints, is not very impressive. Of course for many people, even that much is financially challenging, which is why lawmakers wanted billions sent to those hurt the most. Confusingly, the critics decried this plan as well.

So, the second line of attack. Dripping with sarcasm, the conservative press decried the hundreds of billions that will go to relief for the poor, payments to fossil-fuel industries, investments in alternative energy, and international aid. If pricing carbon causes some pain, then getting money into the hands of the people most affected, helping carbon-dependent industries "transition," and investing in alternative energy makes political and economic sense. The last, foreign aid, is about rich countries helping poorer countries adapt to the effects of treating the atmosphere as a dumping ground for carbon for decades. These spending priorities are dead on and actually answer some of criticisms as soon as they're out of skeptics' mouths.

Finally, the third major line of attack: the larger concern about messing with the economy. The whole point of cap-and-trade is to fix the largest market failure the world's ever seen - the current pricing of carbon and its impacts at zero. So of course it's an intrusion, but it uses free market forces to solve the problem. Free markets are wonderful, but there is no such thing as a large-scale market with nobody minding the store. Would the stock market work without the SEC, FASB, and some governing rules? To be fair, there's a better way to deal with the externality of carbon - tax it. But just imagine what conservative critics would say about a new tax. So cap-and-trade is the next best thing. We set the total amount of pollution, step back, and let companies compete to get rid of carbon - the cheapest, most innovative solutions win. Isn't that free enterprise at its best?

The critics are also upset that the government will auction off some of the permits instead of giving them all away. This complaint confuses me: selling the permits is much more hands-off than the government picking segments of the economy that "deserve" to pollute. In fact, not auctioning the permits penalizes the companies that already cut carbon (like DuPont, which has reduced emissions 75%). Punishing the most forward-thinking, innovative, and leanest businesses in our economy is a horrible idea. And it certainly doesn't help our national competitiveness any either.

In total, all of the opposition smacks of being ticked off about losing the "debate" on the science of climate change. Aside from ignoring that we're running out of options, they're suggesting that the shift we need will only cause harm, disregarding the companies that will make billions selling solutions to our problems (like GE or Johnson Controls) and ignoring the strong research and analysis from non-partisan sources like Lord Nicholas Stern from the London School of Economics. The Stern Review concluded that taking action on climate change is much less expensive than the damage to world economies from not taking action.

Cap-and-trade is a great way to start. But it seems that critics don't actually love, or understand, free markets as much as they say they do.

October 14, 2008

Do "Quality" Carbon Offsets Exist?

Everybody wants to reduce their carbon footprint these days. But many companies have looked to the quick fix of buying carbon offsets. While this practice may slow down as the recession continues, the debate will continue to rage about what makes a quality offset, and there's the rub.

Ideally, you want something that is measurable and legitimately reduces the amount of carbon going into the atmosphere (especially during tough times -- why spend money on something that may not accomplish what you hoped?). A number of problems crop up, though, particularly "additionality," which boils down to whether that project -- saving some land, building a wind farm, capturing methane from a pig farm, and so on -- would have happened anyway. You don't want to pay people for things they're already doing.

A group of NGOs has recently formed the Offset Quality Initiative to tackle this thorny question - that answer is still in the works. Environmental Defense Fund (EDF) went a step further and just launched a new resource for companies or individuals looking for high quality projects to invest in today. Their Carbon Offset Project List is fascinating. They've selected only 12 projects, far less than other respectable lists, such as the "Gold Standard Registry," backed by the World Wildlife Fund and the UNDP, which lists 200 projects around the world. So EDF must have narrower criteria.

So what's really interesting is what projects they do have. Except for one project, all are focused on methane capture, and 10 of the 12 are landfill projects (the lone holdout is a truck stop electrification project so truckers don't have to idle - very cool). Many common options are not on the list - wind, solar, retrofit projects (basically changing lightbulbs), planting trees, and so on.

I asked EDF why the methane obsession. In short, they were a) looking at the longest-standing projects with solid track records and and b) focusing on measurable and verifiable proof of reductions. They felt that "grid-connected" projects such as wind power represented a different category of renewable projects, not offsets exactly.

All of this debate demonstrates how hard it is to really define an offset...which makes claiming credit for it and declaring yourself "carbon-neutral" very dicey. Reducing carbon to "zero" is the ultimate goal here, but there are no shortcuts.

Companies can tackle this problem with a basic hierarchy of priorities. Much like the "reduce, reuse, recycle" mantra for waste, we need a simple plan for addressing carbon in business. First, cut emissions directly through efficiency and smart redesign of processes and products (and this will reduce costs directly, a good thing in tight times). Second, buy renewable directly for your facilities, including solar, wind, geothermal and, yes, local landfill gas - whatever works in your region and climate. Then, as a last resort, look for quality offsets.

Some companies are following this prescription already. Dell recently announced that it hit its carbon-neutrality target (for its offices and employee travel). The company reduced emissions, bought direct renewable energy for its headquarters from a Waste Management landfill project, then made some investments in renewables elsewhere to offset the rest.

I'm searching for a catchy three-word slogan for this path. How about Eliminate energy waste, generate your own Electrons from renewables, and Equalize your emissions with offsets? Or Bring down energy use, Build your own, Buy offsets? (Clearly, it's not easy to come up with a Tom Friedman-esque shorthand for something...send me ideas...)

In the meantime, at least the information on what makes for a quality offset is getting better. Very smart people are exploring the problem, which will only get more acute as more carbon markets spring into being. When there's a price on a reduction, you can bet someone will want to define it. Nonetheless, start now by bringing your own emissions down and building your own renewables; these are cleaner options.

Because not creating carbon to begin with is the highest quality "offset" around.


This post first appeared at Harvard Business Online and at Huffington Post.

April 27, 2009

Is Bjorn Lomborg Dangerous or Helpful?

The beginning of this post is here, the rest is on Huffington Post here...

This weekend, the New York Times gave Bjorn Lomborg -- the self-proclaimed "skeptical environmentalist" -- more air time. Lomborg wrote an op-ed that railed against those who want to cut greenhouse gas emissions dramatically. He offered his opinion on a better solution: "make low-carbon alternatives like solar and wind energy competitive with old carbon sources."

As usual, Lomborg sets up a false straw-man to knock down. He says "we are often told that...we must cut emissions immediately and drastically." Then he worries that people just don't get that we actually need to make renewables cheaper. Really? So none of the major environmental NGOs, or country delegations to global climate negotiations, have thought of that? So to tackle obesity we shouldn't just talk about weight, but also about exercising more and eating right? So insightful...

Lomborg has a long habit of tilting at windmills that he mostly imagines. His most famous argument is that we shouldn't prioritize climate change over other pressing social priorities like poverty alleviation -- as if they're all separate. The poorest people in the world are energy poor and don't have access to clean water -- the two biggest environmental challenges of our time. He's always setting up false tradeoffs to establish his more "reaonsable" middleground.

I will say that one overarching aspect of his arguments is important. Of course we should constantly ask ourselves, "What's the cheapest way to solve that problem, and where should we allocate scarce resources?"...

More on HuffPo -- please go there to comment...

May 20, 2009

Why Business Leaders Need to Get Over Al Gore

[A new post on my Harvard Business column -- some interesting commentary there]

I saw an interesting piece by Michael Graham Richard on treehugger titled, "Let's Put This Meme to Rest: Global Warming — Al Gore" (thanks to Will Sarni for tweeting it to me). It seems like a perfectly obvious point, but one that I agree needs to be repeated. And it's a point that I've been making in subtle, and not-so-subtle ways, everywhere I can in recent months.

I speak to business people from a very wide range of sectors and quite often to groups that are self-identified as conservative. I find myself facing real skepticism on climate change (and real dislike of Mr. Gore). I don't really spend time debating or presenting the science, though. I just try to impress on business people to accept one irrefutable point: climate change is now a political and business reality, regardless of what you think about the scientific merits. (By the way, it is actually a reality reality also — see this unheralded story about some of the first climate refugees but never mind.)

Unfortunately, in the United States in particular, the discussion on climate change has gotten wrapped up in political affiliation. And that's due in large part to the role Al Gore has played. He's done more than anybody on the planet to raise awareness of this serious issue. But for many Americans who don't like Gore or his political party, his role as the unofficial spokesperson for climate change has tainted the discussion. It's something I understand, but wish people could get past. Why are we unable to separate the medium from the message? After all, Attila the Hun could give the Gore's Inconvenient Truth presentation and the information presented would still be true.

But at any rate, from a strategy perspective, none of this really matters — and that's what I'm consistently trying to convey to business people

See the rest of this column here

September 21, 2009

Why the Military Is Going Green

[This post originally appeared on Harvard Business Online here]

In recent months, which radical, tree-hugging group has upped the volume on pushing for action on climate change? I bet you wouldn't have guessed American military leaders. Apparently, the people standing on the proverbial (and actual) walls defending our freedoms are very concerned about the dangers our soldiers face in an uncertain, physically changing world. It's something that businesses need to pay attention to, since the military's top strategists are now getting involved in developing solutions that may well be useful to — or even critical to — individual companies' success.

Generals and admirals are now making the case that climate change is a threat to our national security. Changing regional climates, more natural disasters, and displaced peoples will force us to put troops in harm's way more frequently — and the military must be prepared.

For the leading thinking on climate and security, look no further than CNA Corporation, a think tank funded by the Pentagon, which has, in the words of the New York Times, spoken "ominously of climate change as a 'threat multiplier' that could lead to wide conflict over resources."

I recently spoke at an event in DC and sat at lunch with retired Vice Admiral Lee Gunn, the President of both CNA's Institute for Public Research and the American Security Project (ASP). In his powerful keynote address, Vice Admiral Gunn spoke about the risks global climate change presents to America. His view on the science was simple: "Some are still not convinced about the science on human-induced climate change — I am."

The Admiral laid out three large shifts in military practice and strategy that climate change will bring about:

1. Why the U.S. fights, gives aid, and responds to disasters: Natural disasters, water shortages, and the weakening of some states mean "we will deploy more often to more places."

2. How logistics patterns will change: One of our primary military bases in the Middle East, Diego Garcia in the Indian Ocean, is only a few feet above sea level. The physical shifts and the changes in force structure related to #1 and #2 will all be expensive.

3. What will happen to international relations: The loss of sea ice is changing commercial and military sea patterns. The Arctic represents a new area of resources for countries to potentially compete over (remember Russia planting a flag last year on the North Pole sea bed?).

[Please see the rest of the post here]

November 2, 2009

The U.S. Chamber of Commerce Is Hurting U.S. Competitiveness

What do Exelon, Pacific Gas & Electric, PNM Resources, Apple, and Nike all have in common? In the last month they all dropped out of the U.S. Chamber of Commerce over the group's stance on climate-change legislation.

Sadly, the Chamber's COO told the Wall Street Journal that these defections will not change the Chamber's misguided positions, including constant carping about the potential costs (almost always overstated) of climate change and calling for a mock "trial" on the science of climate change.

Here's why the Chamber is out to lunch. First, tackling climate change is good for business and improves the competitiveness of our industries and the country as a whole. And, oh, on a related note, the Chamber is increasingly out of step with its own members — because they do see how going green will help their businesses.

As so many companies already know, climate legislation will help our nation's businesses stay competitive on the global stage. But don't listen to me, listen to mega-venture capitalist John Doerr and GE's Jeff Immelt. The two staunch capitalists wrote a powerful op-ed in the Washington Post that laid out the series of crises we face: economic, climate, energy security, and now a "competitiveness crisis." As they put it, "this crisis is particularly evident in America's worldwide standing in the next great global industry, green technology."

Their evidence: One in ten of the world's biggest solar and wind companies are based in the U.S. We're falling behind China, Germany, and others fast. Their solution, in part: "Send a long-term signal that low-carbon energy is valuable. We must put a price on carbon and a cap on carbon emissions." With the right price signals, we invest, innovate, and move off of fossil fuels (and stop sending $700 billion every year in oil payments to countries that don't like us — but that's a separate story).

And with the right policy in place around the world, according to HSBC, climate change-related products and services will be a $2 trillion market by 2020. That's a big pie to compete for. But without the right price signals here in the U.S., we can't compete. It's as simple as that.

[See the rest of this post, and the always interesting comments whenever climate change comes up, here on Harvard Business Online]

November 5, 2009

Missing the SuperFreaking Point (and Ignoring the Business Case for Green)

Stephen Dubner and Steven Levitt's SuperFreakonomics has certainly gotten a lot of people worked up in short order. The point of contention is a chapter about global warming which makes the case that Al Gore and others are too worried about the climate problem because the only way to solve it is to convince people to "put aside their self interest and do the right thing even if it's personally costly."

The authors go on to explain their solution -- geoengineering -- which purportedly isn't going to require us to cut back on our energy use or rethink the way we do business. But what they have completely failed to address -- and what the (ahem) lively discussions on the topic have missed as well -- is what the benefits of tackling climate change might be, instead of just the costs.

The authors have missed a major economic issue: the process of shifting to a low-carbon economy has enormous upsides completely aside from the benefits to climate balance.

I'm not going to try and take apart their arguments or judge the soundness of their climate science as a whole; there are some others who are already doing a detailed job of that. If you like your climate discussions hot and sarcastic (which can be entertaining), see Joe Romm's posts on his Climate Progress blog. Or if you like the cool, dispassionate analysis, I'd recommend the Union of Concerned Scientists or the well-respected journalist Eric Pooley's take on how the authors -- who he says are friends of his -- "flunk" the science.

There's also been a fascinating back and forth which includes the authors and Nobel laureate economist Paul Krugman. In short, Krugman is not pleased and he lays out some devastating concerns about the mental exercise the authors have undertaken ("We're not talking about the ethics of sumo wrestling here; we're talking, quite possibly, about the fate of civilization. It's not a place to play snarky, contrarian games").

The brouhaha is truly unfortunate on many levels. It's not that having a discussion of geo-engineering is a bad thing -- we should explore and assess many options. But the real problem is that the authors of SuperFreakonomics -- and even the big critics who have gotten sucked into it -- seem to have taken too narrow a view of the problem. Although the authors clearly believe that there is too much climate-change hype, they seem to agree that there's a warming problem (or why propose a solution -- the main point of the chapter -- at all?). But the focus of the discussion is entirely on a way to counteract the effects of greenhouse gases, as if there are no other issues related to our reliance on fossil fuels.

Instead, let's just think about the business benefits of changing our products and processes to reduce carbon emissions, regardless of the atmospheric benefits. How will changing to a lower-carbon economy help companies? Well, there's real money involved here -- energy and other resources are getting fundamentally more expensive over time as demand around the world rises and supply gets harder to find. Oddly, the SuperFreakonomics authors acknowledge this Econ 101 supply problem in passing with the statement: "In just a few centuries, we will have burned up most of the fossil fuel that took 300 million years...to make." So why wouldn't we want to move away from a declining resource?

Put really simply, it saves money to reduce greenhouse emissions. It makes businesses more competitive to use less energy and to help customers do the same. It also creates jobs in a wide range of industries that help build a low-carbon economy -- from the obvious solar panel builders and installers to the less sexy home weatherizers, electric vehicle manufacturers and mechanics, and building efficiency consultants and experts.

The countries and companies that decouple themselves from fossil fuels will slash their costs and increase profits mightily. In fact, as Robert Kennedy, Jr. pointed out in a speech recently, the countries that have already reduced their reliance on fossil fuels -- such as Iceland, with its geothermal energy, and Sweden, with a carbon tax driving down energy use as the country grew -- have made their economies richer and more stable. (Yes, Iceland then bet its wealth on bad investments at the heart of the financial crisis in 2008 and bankrupted itself, but that's another story.)

As many have repeatedly argued, we also place ourselves at great risk globally by continuing to pour money into oil markets. We send hundreds of billions of dollars a year to parts of the world that tend to include our enemies (and is a waste of money no matter whom it goes to). And we place ourselves at personal risk -- the National Academy of Sciences just estimated, conservatively, that fossil fuels cost $120 billion per year in health costs and cause 20,000 premature deaths (that's more than six 9/11s if you're counting).

So while we find new ways to pour attention on "contrarians" and have a debate that most of the rest of the world has already stopped having, we risk our health, fall further and further behind the countries we compete with (China and Germany, for example, in renewables), and become more indebted to countries that may not be friends.

Solving climate change is not really about asking people to hold hands and sing "Kumbaya," but about political will and making it easier for business to create the low-carbon solutions we all need. Regardless of the climate science, the benefits of action and the costs of inaction for business are astronomical -- and worth superfreaking out about.

[This post first appeared on Harvard Business Online and on HuffPo -- see the comments...]

November 25, 2009

It Certainly is an Impressive Hoax: Making the World's Glaciers Melt

The anger and energy of the climate skeptics is at a fever pitch lately. The breaking story that the Wall Street Journal loves so much is about one climate research center in the UK that may have been unwelcoming to contrary opinions. So the conspiracy theorists are all over this and are making the case that there's a global scientific hoax. I can't stomach diving into whether one research center in the entire world acted somewhat inappropriately to shut out opposing, angry views.

But I do always find the "debate" on warming totally surreal since you don't have to buy the complicated climate models to just look out the window (proverbially). Glaciers all over the world are melting, noticeably, and quickly.

See this little video and discussion of the decline in Himalyan ice (a water source supplying over a billion people) on Climate Progress here.

I'm unclear on what people think is going on. If you put a glass of ice water outside and the ice melts, you know it's warm out there. It's really not much more complicated than that.

And yet the anger at people who want to do something about this serious problem, and even (gasp) profit from the shift, continues to rise (I've even received hate mail for fairly innocuous commentary on how good it will be for business and national competitiveness to wean ourselves off of oil and carbon).

I prefer to think that the level of animosity is a sign that the debate really is fundamentally over. This is the death throes of an outdated perspective. Let's hope it dies quickly. Let the angry, bizarre commentary begin...

December 10, 2009

News Flash From Bjorn Lomborg and the WSJ: We Should Help Poor People

For some reason I can't understand, Mr. Skeptical Environmentalist Bjorn Lomborg keeps getting space in places like the Wall Street Journal and Time to peddle his drivel. The Journal has given Lomborg a weekly op-ed for about 6 weeks to talk about how we shouldn't really tackle climate change.

Here's how each of these weekly missives work. Lomborg picks out one person in a country to talk to and asks them how much they care about climate change. Yesterday, he told us that a very poor person living near Mt. Kilimanjaro doesn't care so much about melting glaciers, but cares more about education about HIV. Last week we learned that a very poor person living near Himalayan glaciers that are melting, which will create vast water and food shortages, also cares more about pressing daily issues of local poverty. Earlier, a very poor person living in Africa told Lomborg we should tackle malaria directly rather than take on climate change. Wow, these are real surprises.

Lomborg's sole purpose in life seems to be creating false arguments that nobody is really making and then knocking them down. In the malaria article, he makes it sound like all the government, NGO, and business work to battle climate change is intended solely to stop the spread of malaria (which may become more prevalent as warmer weather makes things more hospitable to mosquitoes at higher latitudes). So, he says, the potential investment of trillions of dollars to create cleaner, more efficient economies is an expensive solution for malaria. Treated bed-nets are much cheaper.

Well, yeah, no kidding, Bjorn.

As if anyone is saying that reducing carbon is just about malaria, or water supplies in Asia, or only any one of the many specific issues Lomborg splits up into little targets and compares to the whole (inflated) price tag. And, by the way, who said that tackling climate change is separate from helping the poorest among us? The issues are all integrally related and the poorest are being hit hardest by climate changes already. Lomborg always seems to be arguing against some phantom Birkenstock-wearing Greenpeace activist chained to the bulldozer of progress...in the 1970s.

The logic and arguments for decoupling our economies from carbon have evolved tremendously and include national competitiveness and job creation, healthier air, eliminating reliance on fuels from parts of the world that fund terror, and reducing dependence on volatilely-priced, and declining, resources that will raise the cost of doing business over time. This is why many important capitalists such as Jeff Immelt at GE (but not the US Chamber of Commerce of course) are making the business case for climate action.

You'll notice that none of these other reasons actually depend on believing fully in the science. And they make for more prosperous economies, which can help the poor the most. And guess what, we have to walk and chew gum at the same time -- we have to think holistically and tackle issues in a synchronized way.

But overall, what I really love is Bjorn Lomborg taking his argument for helping the poor to the skeptics of the world and going through the Wall Street Journal -- as if this is the crowd lining up to send development money to countries for food, water, and bed nets. Who is he speaking to?

Perhaps the real question here is this: What the heck is wrong with the Wall Street Journal? Today, they pick up Lomborg's arguments hook-line-and-sinker and offer an assemblage of greatest hits on not taking action. But yesterday was really hilarious.

They printed one op-ed -- in a series of daily, relentless lamenting about climate science -- laying out how climate skeptic bloggers (who almost all have no climatology or geology or any -ology background) have dismantled the idea that the actual measured data show an increase in GHG gases (the famous "hockey stick" chart) or any warming at all. Yet, in the same issue of the paper, the WSJ printed a truly helpful, excellent article looking at the main arguments/myths from the skeptics and comparing them to what the scientific community is really saying. The very first comparison is this one...

WHAT THE SKEPTICS SAY: The Earth isn't warming -- at least not to any extent that could actually be called a "crisis." And some data even suggest that the Earth is getting colder. The planet may have grown warmer over the course of the 20th century. But that warming stopped more than 10 years ago, and since 1998 the trend shows less warming or even cooling...

THE RESPONSE: It's true: By most measures, average temperatures this decade seem to have plateaued. But this isn't evidence of a cooling planet. Partly, it's a result of picking an exceptionally hot year -- 1998 -- as a starting point..the long-term trend since the mid-1970s shows warming per decade of about 0.18 degree Celsius (about 0.32 degree Fahrenheit)...The '00s still have been exceptionally warm: The 12 years from 1997 through 2008 were among the 15 warmest on record, and the decade itself was hotter than any previous 10-year period. While 2008 was the coolest year since 2000 -- a result of the cooling counterpart of El Niño -- it was still the 11th-warmest year on record. And 2009 is on track to be among the five warmest.

The Journal is as schizophrenic as the population I suppose, but the op-ed pages are totally out to lunch. We need good reporting now about what we know, and what we don't -- not ideological blustering. And we need to stop creating false tradeoffs between helping the poor and helping the planet, as if the poor -- and all of us -- don't live and breathe on that planet.

This first appeared on Huffington Post.

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December 14, 2009

Copenhagen and Beyond: 4 Scenarios for Business

Just a quick link to my monthly e-letter. This one is a bit different. I look at four (of many possible) scenarios for business after the big climate talks in Copenhagen. For each I give a quick rundown of what the world will look like and how business might need to respond.

http://www.sustainablelifemedia.com/files/webform/documents/ecoadvantagestrategies12072009.htm

Also, a note on my last post. I think many of you did not receive it as I changed the name of the RSS feed and didn't realize it would mess up delivery. I've changed it back until I figure out a better way to migrate the name. To sign up for my blog via email, click here.

So here's the link to my last post on some of the absurdity in the climate discussions lately.

NEWS FLASH FROM BJORN LOMBORG AND THE WSJ: WE SHOULD HELP POOR PEOPLE

January 22, 2010

Top 10 Green Business Stories of 2009

Happy New Year all (ok, I'm a bit delayed, but I entered the new year and promptly got really sick -- lost over a week in there). So let's start fresh now!

Anyway, I took a bit of time at the end of 2009 and early 2010, with a couple weeks' perspective, to think about the stories that really grabbed me in 2009. The top 10 is below, but see my brief write-ups and logic on each at my e-letter site here.

1) Copenhagen fails or does it?
2) The debate over climate science rages on (in the U.S. at least)
3) The EPA steps in
4) Wal-Mart keeps the pressure up (and saves the rainforest?)
5) Domino's employees deliver a new kind of openness.
6) IBM starts building a "smarter planet"
7) GM goes bankrupt
8) Some of our biggest capitalists get serious about carbon
9) China emerges as a green tech leader and the world's biggest emitter
10) The bottom of the pyramid becomes a source of innovation

And the bonus, theater of the absurd, wacky story...
10 1/2) Forbes names Exxon green company of the year

February 2, 2010

Adapting to a Warming World

[A post from December from Harvard Business that i forgot to post here...but it's still timely!]

No matter what happens in Copenhagen, or in the follow up meetings in Mexico and elsewhere, the world is warming. It's happening today, and even the majority of skeptics seem to agree on that point (often the debate is whether humans are behind it and how much money we should invest in "fixing" the problem). But the very real changes we're already seeing are prompting many in the climate-watching world to talk about not just reductions in emissions but "adaptation."

What used to be seen as a dirty and defeatist word is now a central discussion point, even in Copenhagen. The G77 (the developing world) is demanding significant aid from the rich countries not to help them combat climate change, but to help them adapt to it. Just a couple weeks ago, President Obama said he sensed some consensus around mobilizing "$10 billion a year by 2012 to support adaptation and mitigation in developing countries."

Given the cold reality of a warming planet, adaptation is now a strategic issue for countries and companies alike (whether or not they realize it). The changing climate can mean many things, but includes, according to an important report from the state of California, threats to ocean and coastal resources and land, water management challenges, major changes to agriculture, and stress on transportation and energy infrastructure. In California alone, $2.5 trillion of assets will be exposed to extreme weather and wildfires, costing many billions a year.

For companies the same basic issues apply. Specific industries, such as agriculture, face massive change. But all companies will find impacts up and down their value chains from weather, changing water availability, and temperature shifts. But just laying out doom scenarios and risks doesn't help much. So let's look at a couple of excellent (and short) reports on adaptation and business.

Some big institutional investors, with the guidance of the consultant Acclimatise, recently released "Managing the Unavoidable" (register for free to download it here or get the similar 2008 report on similar topic here). A few key findings struck me as dead on and important:

1. Climate change adaptation is starting to receive more management attention but management systems and processes are much less developed than those for climate change mitigation. Basically, most companies are not thinking about this, with a few exceptions — Coke comes to mind since it's been mapping water availability for years. But they are in the minority.

2. There appear to be significant weaknesses in companies' risk assessment processes. They say that "incremental changes are being under-emphasized" (we all focus on extreme weather events rather than 'creeping' changes) and "indirect impacts on business models are being neglected" (we focus on risks to our own fixed assets and haven't looked at supply chain disruptions). Meaning, even if you don't think you rely on water in an arid region, someone in your supply chain might.

3. Companies are more concerned about risks than opportunities. While it may seem cold to talk about how to profit from a warming planet, it's a reality that there will be winners in this. More importantly, we actually need companies to pursue solutions to greatly reduce human misery. And, yes, there will be profits.

And this brings me to the second report that's worth a look. "The New Adaptation Marketplace" from global NGO Oxfam lays out some helpful categories and sample companies that stand to profit from the changes to come. These include, water management (Pentair, Siemens), energy supply (GE), insurance (Swiss Re), climate change information and consulting services (ICF International), and of course agriculture projects (CH2M Hill).

On the last one, consider one of my clients, Bayer, which has a sizable crop sciences business. In its last annual report, Bayer identified drought-tolerant plants as a major investment opportunity. Clearly, the world needs to keep food volumes growing, even on a dryer, warmer planet. The companies that can solve this kind of problem will grow and win share.

Or think of the more extreme needs that might arise and the entrepreneurial opportunities. As some smart people have pointed out, cutting carbon won't be enough — we'll need to drag it out of the sky. Imagine what new technologies we'll need to do that.

From my conversations with Oxfam, clients, and other corporations, I can tell you that most organizations — including ones that already have products that will help with adaptation — are not yet thinking clearly about the risks and opportunities from climate change. Are you?

February 8, 2010

Failure at Copenhagen Doesn't Mean Businesses are Off the Hook

It's been a couple months since the global climate negotiations in Copenhagen. Whether you're a fan of a global cap on carbon emissions or not, it's important to think about what COP15's failure means (that a global agreement is going to be unlikely in the near term) and what it doesn't mean for business (that companies will be off the hook for tackling carbon emissions).

The climate negotiations brought together committed activists and world leaders, but led almost nowhere; instead, the gathering only highlighted and revealed some major structural hurdles getting in the way of a multinational agreement.

So it might seem that near-term regulatory or policy pressure on companies is unlikely. But actually there are some significant sub-national initiatives affecting business as usual that every company should know about. The pressure to measure, be transparent about, and reduce carbon is still on.

First, even without a global carbon trading system, other major multinational cap-and-trade systems are in place or in the works, including the EU's trading program, which has already been running for a few years. In North America, three separate carbon trading programs are in the process of setting regional caps covering states that include half the U.S. population (and provinces with three-quarters of Canada's). And city-level initiatives like the Mayors' Climate Protection Agreement are driving new local rules and fomenting competition among municipalities to cut emissions.

Second, within the U.S., the Environmental Protection Agency is not sitting idly by either. The series of climate-related rules that the powerful EPA has announced in the last year began with the National Climate Reporting Plan, which forces the largest 10,000 facilities in the country to measure and report their carbon emissions. This new system has much in common with the Toxics Release Inventory (TRI), a very public, and mandatory, database of toxic pollution by facility mandated by the federal government in the 1980s. TRI raised awareness within companies about their own footprints and drove aggressive efforts to reduce toxic pollution (along with cost and risk) that continue to this day. The same awakening about the carbon pollution companies cause -- and the financial costs of this form of waste -- even without an agreement from Copenhagen..

Going well beyond the regulated transparency of the reporting plan, the EPA recently declared greenhouse gases a public health threat. After a 2007 Supreme Court ruling that basically said CO2 could be regulated, the EPA's "endangerment finding" was no surprise. What's still unknown is what it will mean for business.

So far, virtually all the action -- from the regional trading schemes to new EPA rules -- has been aimed mainly at utilities and the biggest factories. What does all this activity mean for the average company?

The caps and efforts to reduce utility emissions could result in higher energy prices. Any business that, well, uses electricity will be affected. And the EPA's intentions for the longer term, while up in the air, are getting clearer. There is almost no chance that forced transparency for the big guys is the end of what the EPA will do. One glimmer of what will come: rules newly proposed in 2009 (in conjunction with the Department of Transportation) to reduce emissions from light-duty vehicles.

The bottom line is that business must still plan for rising restrictions on greenhouse gases by legislative means or by regulation. Despite the confounded state of international climate policy negotiations, companies will continue to face new mandates to measure, report, and reduce their carbon emissions.

[This post originally appeared on Harvard Business Review]

February 11, 2010

I'm Cold Today...So There's No Global Warming

What do you call a group that uses large snowstorms to deride the scientific evidence for climate change? Fox News I guess.

The absurdity of pointing out that there's snow in the winter -- in one part of the world mind you -- and using that to say that climate change is a hoax is breathtaking.

Especially when, at the same time, Vancouver is shipping in snow for the Olympics...you see, some places get more snow, some get less. That's weather, not climate.

Anyway, if you don't laugh, you cry. Only comedy can do justice to this insane line of logic.

The Daily Show points out that it's hot in Australia...


...and Colbert make the logical extension that when it's dark, the sun must have been destroyed.



March 10, 2010

Extreme Denial - My Karmic Purgatory Tonight

I must have done something wrong to someone today because I feel like I'm in some kind of surreal dream. The day started well with a great event hosted by Xerox in Dallas, talking sustainability with some leaders in the field. Then I ended up in two bizarre conversations during my travels home. This post is my personal therapy session to work it out.

First scene: In a car to the airport with a senior exec from IBM who basically leads the company's very successful "Smarter Planet" projects with customers (helping companies and cities with traffic flow, water management, carbon reduction, etc, etc).

The car service had provided us Ford Excursion -- from a sustainability event -- so that should've been my first tip on something being awry in the universe. Anyway, my colleague and I are talking about green, climate, the inexplicable vitriol and anger of climate deniers, Al Gore, etc. And the driver looks in the rear-view mirror and intiaties this conversation.

Driver: (Laughing): You guys don't believe this climate hoax do you?
Me: (Also laughing) Are you kidding? You're kidding right?
Driver: No, you know, it's a hoax
Me: (Not laughing) Why do you think that?
Driver: There's no evidence.
Me: Actually there's massive evidence, decades of it in fact [see a cool video on the basics of the incontrovertible science and physics of it all here...]
Driver: (Arrogantly) What about those climate emails? Those didn't happen?
Me: Yes, they happened, but they didn't disprove the decades of science.
Driver: They falsified records
Me: Actually they didn't. You should read some of the emails — they didn't falsify records at all.

End scene.

I really had to wonder what kind of small, tiny bubble of friends and media consumption you have to live in to find it astonishing to meet people who believe the 95% of scientists that see climate change as a real problem. Disagreeing with that view is one thing, but laughing at people like they're aliens is another and shows me just how divided we've become where we can surround ourselves with echo chambers...

On to conversation #2

I'm minding my own business on my flight home and right when we're getting ready to land (I almost made it), my seat-mate decides to strike up a conversation (it's always dangerous when they make you turn off electronics — so much silence to fill). Here's conversation #2.

Guy on Plane (I'll shorten that to GOP): What do you do?
Me: Work with companies on environmental issues, speak, write, consult, helping them with green business strategy (ya da ya da)
GOP: You mean recycling? (my first clue this was not going to go well most likely)
Me: No, a whole range of things from product development and innovation to c-level strategy to executive education and training what do you do?
GOP: I'm in the energy business. Private equity investments.
Me: Oh, what kind?
GOP: Oil, gas, coal — really diversified
Me: No renewables investments?
GOP: No, we don't invest in things that need government subsidies. Wind and solar and such are so uneconomic. [here's where I want to point to an article I just saw today about governments spending $500 billion on fossil fuel subsidies]
Me: Huh.
GOP: We do some work educating. We have a site, plantsneedCO2. We educate government people on what CO2 is. [It's here where I discovered that at 10pm after a long day I didn't even have the energy to ask, "oh, what does CO2 do?" — but check out the site. It's real and informs us that we need MORE CO2 not less.]

The conversation went on, but that's about all I can stomach to convey. I seem to have run out of steam to have a discussion with people who are this far gone. Bring on legitimate debate about what to do about the challenges we all face, or about the right policies and government action (or whether government or markets alone should do it). But people like this cannot have a real conversation. I just wonder what I did to deserve running into two in short order.

Thanks for listening. Deep breaths.
Onward...

March 26, 2010

The Coming Policy Debate Even Uglier Than Health Care

We are coming out of our long, national nightmare. One of the dirtiest political fights in memory is over (sort of). But if you think the health care debate got rough, wait until President Obama and Congress turn to energy and climate -- which they're most definitely going to do.

You see, the worst claims about health care -- that it's a huge expansion of government power or, okay, let's say it, a plot to kill Grandma -- were never based in reality. What we've ended up with is actually a fairly mild bill, including access to coverage for millions more people and restrictions on the harshest practices of insurance companies. But it's not remotely a government program. The so-called "public option" did not even end up in the bill. There is no new giant government health care program beyond the existing giant government health care programs that people seem to love (like Medicare).

But putting a price on carbon and changing our energy mix over the next generation? That kind of law will be a large program by definition. To tackle an economic externality -- those pesky costs to society that are not currently priced into markets -- you do have to get muddy, and it most likely will entail an awful lot of mud-slinging.

So many of the complaints about a cap-and-trade law that we will hear over the coming months will be different from the health care claims in one very important aspect: they will actually have some basis in reality. A cap will affect the cost of all energy and thus all aspects of our lives. It will, for some, raise the cost of doing business. There will be winners and very definable losers in a new energy and carbon regime. When it comes right down to it, there will be blood.

Those who produce mainly fossil fuels could be in trouble. Businesses that operate inefficiently will see their costs rise -- fast -- compared to the competition's. Companies that stick with a portfolio of less sustainable, more energy-intensive products -- anywhere in their value chain -- will face life-threatening challenges (think GM in 2008 when oil hit $145 a barrel).

I believe strongly that decoupling our economy from carbon will benefit us greatly (regardless of the debate on climate change). The benefits include...

  • lowering our costs and increasing our profitability and resilience
  • costing much less than inaction on climate (see the famous Stern Report for the macro-economics on this)
  • reducing our reliance on fuels from parts of the world that fund our enemies
  • making us healthier as we reduce air pollutants
  • making us more competitive globally in the great race to multi-trillion-dollar environmental technology markets

Those impacts will not be felt equally across all aspects of the global economy. As we invest in efficiency, the sector that provides our energy will not fare well if it doesn't adapt. But the general position of organizations like the U.S. Chamber of Commerce that climate action is bad for business is absurd; these groups are placing the interests of one sector -- albeit a large and powerful one -- against the interests of all the others that will benefit from higher efficiency and lower operating costs.

So, in the place of death panels killing grandma, we'll have stories of how high energy prices will make heating homes in winter expensive... and, you guessed it, kill grandma. These arguments will ignore the countervailing levers of energy efficiency, retrofits, and weatherizing that will lower energy costs overall. And instead, we will hear (mostly made up) stories of businesses that will go under from new carbon laws.

But in this case, unlike with health care scare tactics, there will be some gems of truth hidden in the argument. So, yes, it will get ugly, but I have hope today that the forces of reason -- and the voices of the companies representing literally trillions in revenue that want climate action and more regulatory and market certainty -- can win out.

[This post originally appeared on Harvard Business Online]

April 1, 2010

Can Anyone Explain This Offshore Drilling Decision?

On the heels of one of the most active weeks in Presidential history, President Obama has confounded his supporters on the green side of the spectrum and opened up major areas of the U.S. coastline to offshore oil drilling.

The reaction to the decision has been in some cases predictable, but often surprising -- the New York Times came out in favor today. Of course key environmental leaders are dismayed (see this helpful, quality debate on the Times blog featuring varying perspectives from leading thinkers).

But I've been scratching my head and I'll admit that I'm completely confused by this decision, or at least by its timing. I can only come up with a few plausible reasons the President would support this, but none make real sense to me. Please comment and offer other reasons. Here are some lines of logic that some may support...

Answer One: President Obama, like all politicians, is 'in the pocket' of big oil and big industry.

This is way too easy an answer and is just part of the 'a pox on both your houses' attitude that's growing in the country. Yes, all politicians are beholden in different ways to different donor groups, but I don't think anybody can say with a straight face that Obama has tried to do just what some industries and donors want.

Answer Two: This is a political maneuver to buy Republican (and energy-state Dems) to the coming climate and energy bill debate.

This answer has the most currency right now. But I have two problems with its logic. First, the timing is odd. Why announce you're giving up one of your better negotiating positions before the real climate debate heats up? Why not hold that in reserve to get those votes you need? Or -- if can go out on a naive imaginary limb here -- why not hold it over the oil companies' heads to get some concessions -- like much higher fees for access, reduced subsidies elsewhere for fossil fuels, or demanding that they stop spending money on undermining climate science.

The timing just seems oddly nonstrategic, but, as environmental strategist Will Sarni pointed out (via a mini Facebook debate amongst my colleagues), it's just like the public option in health care -- Obama gave it up early on.

Second, and this should be obvious given the way health care went, Obama is not going to get any Republican votes on anything -- Senator McCain made that pretty clear by stating recently, "There will be no cooperation for the rest of the year." So maybe Obama is looking to shore up weak support for cap-and-trade in the Democratic ranks -- that makes some sense.

(As a funny side note on politics, has anyone noticed that he's opened up drilling pretty much around Republican stronghold red states? It's as if he's saying, "ok, you want a world of 'drill, baby, drill'? Then you can have it on your coastlines.")

Answer Three: The President and his Interior Secretary Ken Salazar actually believe this is a good decision and will help us achieve a measure of energy independence.

This answer actually seems the most believable to me, but it seems even more odd. I'm going to vastly oversimplify the economics and market structure of fuels here, but isn't oil fundamentally a fungible, global commodity? Meaning, even if we dig off our own shores, it's not exactly like it comes only to us. We're not operating a state-run oil company. If ExxonMobil digs up the oil, it basically enters the global market, continuing our addiction to oil and propping up what Thomas Friedman calls the "petro-dictators" around the world.

And even if the oil only came to our refineries and cars, there's nowhere near enough oil out there to make us independent anyway. True energy independence -- if that's even a worthy goal -- is only feasible through distributed generation, meaning a solar panel on every roof and wind turbine in every neighborhood. That's the energy shift we need to be moving toward as fast as possible, so I hope we use the rights and tax revenue to help support renewable energy.

In the end, I suppose this decision came from a bit of all three (and mostly the latter two). I welcome your comments on other plausible reasons, and please let me know if my Econ 101 assessment of global oil markets is fundamentally off-base.

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April 23, 2010

"There is No Planet B" and Other Things I Heard on Earth Day

Earth Day week is filled with announcements, events, and parties -- way too much for any one person to follow. I spent the week in DC, speaking at the EPA, moderating a plenary session at the Creating Climate Wealth event (from the Carbon War Room), and then ending my time with a White House reception for Earth Day -- which was awe-inspiring, frankly, as I had never been to the White House and that whole "leader of the free world thing" is fairly impressive.

I wanted to share some random snippets of interesting things I heard along the way...

- In preparing for the EPA speech, I read EPA Administrator Lisa Jackson's speech from last month at the National Press Club. Please read it. It's about innovation and a new kind of regulatory approach. Key quote: "I'm done with the false choice between the economy and the environment."

At the Creating Climate Wealth Conference...
- Kathleen Rogers, President of Earth Day Network: "the theme of the 40th anniversary of Earth Day is green business"

- Jigar Shah, CEO of the Carbon War Room: "Energy waste and illogical decision-making are huge wealth-creating opportunities", "Climate change is not a sacrifice...it's not like the 70s where we ask, 'what are we willing to pay for clean water', but it's now 'What are we willing to do as a species [to build a better world] for our children and grandchildren?'"

The panel I moderated included Sir Richard Branson, former Costa Rican President Jose Maria Figueres, Waste Management CEO Dave Steiner, Pegasus Capital founder Craig Cogut, and Sara Greenstein, a top exec from Underwriters' Laboratories...

- Sir Branson: "Protecting natural resources and reducing carbon emissions are the greatest entrepreneurial opportunity in history"; "We can't rely on 'the end is nigh' language...it's not nigh if we all work together to scale up low-carbon solutions"

- President Figueres: "There is no planet B!". In politics, he said, "The long-term perspective is the next election. The short-term is the next poll." In Costa Rica, he had a single term, by law, so he was able to pass a carbon tax in the 1990s! And on land-based carbon assets..."As long as the price of a tree standing is less than the price of a tree cut for timber, we won't save the forests."

- Dave Steiner described the 4.5 lbs of waste we each produce...every day. He said it's all carbon really as it breaks down into methane. Waste Management now powers 1 million homes with methane gas.

- Craig Cogut described one seemingly 'boring' business he's invested in that replaces shipping pallets with more sustainable alternatives. Some of the biggest food companies and retailers are signed on.

- Sara Greenstein explained the role UL plays in setting standards around the world (every U.S. home has 100+ UL labels on products). The company began by setting a standard for how light bulbs should work at the World's Fair they were introduced at (in the 1890s). In essence, it's going to be hard to launch and scale new technologies -- like a smart grid -- without some agreement on standards and certifications to ensure the whole system works

At the evening event at the conference, Branson spoke again, but we also heard from the former President of Ireland, Mary Robinson, about climate justice, as well as speeches from the founder of Earth Day, Dennis Hayes, and the Secretary of Commerce, Gary Locke. A couple gems...

- Dennis Hayes told us that a National Academy of Sciences study said there was enough evidence of climate change to start working on constraining CO2 emissions...in 1979. Sigh.

- Secretary Locke: "The Chinese are spending $9B a month on the clean economy...the longer we wait, the further behind we fall to China, Spain, Germany."

Another panel on the 2nd day of the conference featured Reed Hundt, former head of the FCC; Reid Detchon, VP of Energy and Climate at the UN Foundation; and Sunil Paul, a leading cleantech venture capitalist and founder of Spring Ventures. Some very interesting stats from them...

- Reed Hundt talked about the investment in and creation of mobile and data networks. Between 1997 and 2007, the private sector -- without any government money -- spend nearly $1 trillion. Hundt said that "if we spent the same amount in the same time period [on clean energy], we'd have a 100% clean grid." He also talked about the need for long-term low-cost financing (this is where govt can help) and his Coalition for Green Capital.

- Reid Detchon, talked about California's holding flat the energy use/person over years vs. the constant rise everywhere else in the country. The 'wedge' between those two trends "is expense and cost."

- Sunil Paul had a bunch of great stats on scale of the challenge to take billions of tons of carbon out of the atmosphere (and he launched the Gigaton Throwdown to tackle the problem). By his calculation, we need about $8.4 trillion investment in the next 10 years to reach the climate stabilization goals scientists tells us we need. And the capital has to come from the private sector which has $125 trillion in assets (vs. $300 billion in philanthropy and $18 trillion in government). And finally, from Sunil, a thought on making new technologies easy and scalable..."saving the world should be mundane."

Overall, Creating Climate Wealth, and much of the discussion I heard around Earth Day in D.C. was about business and growth. Clearly Earth Day has expanded its reach from being a personal protest mission for millions of Americans to being a chance to step back and think and talk about what kind of world we want. Let's hope the conversation continues.

April 26, 2010

What Does Sen. Graham's Recent Move Mean for Climate Legislation?

In case you missed it, Senator Lindsay Graham, who has been a lone voice of reason on climate from the right side of the aisle, has threatened to derail the climate discussion and the bill that's supposedly coming out this week (some elements of the bill, as described by Senator Kerry, here). His problem is the Democrats' sudden interest in putting immigration issues in the forefront.

So, is he brave because he's saying, "Enough delay on climate, let's get going on legislation"? Or is he being an arse (in nicer British terms) by putting his feelings/agenda first and threatening an entire legislative discussion that the world is depending on?

As my colleague Will Sarni says, Graham's "brave to balk, an arse to withdraw."
I tend to agree -- it's a bit of both. But I'm (naively and optimistically) leaning toward brave. The fact is, I sort of agree. The administration has put health care, financial reform, jobs, nuclear disarmament, and a few other things ahead of pushing through an energy and climate bill. Those other priorities are all important, but we missed the international deadline in December which derailed the Copenhagen meetings. It's time to act now before the 2010 election.

Who knows what all this maneuvering means for business. I think most companies are still expecting climate regulations in the coming years, but the timing and specifics continue to be up in the air.

Your thoughts?

May 12, 2010

Oil Spill, CO2 Spill

Al Gore wrote an article in the New Republic this week making an interesting connection between the oil spill and the continuing polluting of our atmosphere with carbon dioxide (thanks to Jason Scott for sending me the link).

I suggest everyone read this piece. It's an important wake-up call. Here are a couple of the most cogent quotes. First, comparing the spill to the CO2 "spill" into the atmosphere...

The continuing undersea gusher of oil 50 miles off the shores of Louisiana is not the only source of dangerous uncontrolled pollution spewing into the environment. Worldwide, the amount of man-made CO2 being spilled every three seconds into the thin shell of atmosphere surrounding the planet equals the highest current estimate of the amount of oil spilling from the Macondo well every day. Indeed, the average American coal-fired power generating plant gushes more than three times as much global-warming pollution into the atmosphere each day—and there are over 1,400 of them.

Second, the reason we have so much trouble understanding the climate issue...

One important difference between the oil spill and the CO2 spill is that petroleum is visible on the surface of the sea and carries a distinctive odor now filling the nostrils of people on shore. Carbon dioxide, on the other hand, is invisible, odorless, tasteless, and has no price tag. It is all too easily put “out of sight and out of mind.” Because the impacts of global warming are distributed globally, they often masquerade as an abstraction. And because the length of time between causes and consequences is longer than we are used to dealing with, we are vulnerable to the illusion that we have the luxury of time before we begin to respond.

I also read last night the first chapter of Bill McKibben's very important new book, Eaarth. It's a long look at what's happening to the planet today. As McKibben says, climate change is not a future threat, or a threat of any kind...it's reality. We're living on a new planet, he says, and it's not one we're used to. I can't do justice to all the facts he throws into the ring, so I'll just say, please read this book. I'll likely come back to this when I finish the whole thing (which I sure hope will get more positive).

We all need to get more educated on the nature of the challenge and look facts in the eye...

May 26, 2010

Greening Pepsi, from Fertilizer to Bottles

[This appeared first on my Harvard Business Review blog]

Pepsi recently demonstrated its commitment to reducing its environmental impacts up and down the value chain with two rapid-fire announcements about new initiatives. The old-school approach to greening is to focus on operations within the proverbial "four walls." But Pepsi, like other leaders, is approaching sustainability more holistically, with much greater impact.

I recently spoke with Tim Carey, Pepsi's Director of Sustainability for Beverages in the Americas, about two big initiatives in which he's playing a key role.

First, on the downstream side, Pepsi looked for ways to raise the recycling rate of beverage containers from a relatively paltry 34% to 50% or higher. Working with GreenOps, a division of Waste Management, Pepsi launched a new program called "Dream Machine." These "reverse" vending machines, now being placed in high-traffic areas such as gas stations and stadiums, take back those often-abandoned and often-unrecycled empty bottles and give users points toward rewards from sponsors or local merchants.

But Pepsi has gone beyond those relatively minor incentives to add on a social mission. The program will also help fund Pepsi's donation to a group called Entrepreneurship Bootcamp for Veterans with Disabilities (EBV), which trains vets at business schools around the country. Pepsi expects that the combined immediate points and larger mission will drive new, greener customer behaviors — and help solve one of the beverage industry's most intractable value chain problems.

Second, Pepsi has embarked on a very unusual supply chain effort to reduce the carbon emissions associated with its Tropicana orange juice. After conducting a full life-cycle analysis of the product line, the company was relatively surprised to find that the biggest portion of the carbon footprint was found not in manufacturing, or distribution, but actually back in the agriculture stage — primarily the result of the heavily natural-gas dependent process of making fertilizer (see chart).

Slide1.jpg

The analysis showed Pepsi execs where the largest impacts were, and thus where they'd get the biggest bang for their buck on carbon reductions. The company started working with suppliers and farmers to find new ways to make and apply fertilizer. For example, instead of using natural gas from as far away as Russia (which then requires shipping heavy fertilizer across the world), Pepsi is using biomass from closer to home. Wood waste and agricultural by-products are two sources, but execs are hopeful they can also use the large number of their own orange rinds left over in manufacturing, which would fully close the loop.

The company is also working with scientists on the root chemistry of orange trees, applying fungi and bacteria to increase the uptake of nutrients. All that techno-speak means that the trees will need less fertilizer in total, which means less manufacturing and shipping of that fertilizer and, voila, a smaller footprint.

A 100-acre test run of these new methods of working with new, low-carbon fertilizer is underway. A few years from now, Pepsi and its suppliers will know what's working and what isn't.

But here's the best part: the cost of these changes to consumers and growers will be about zero. And it had to be. Let's face it, this kind of carbon reduction isn't easy to convey to consumers, so the market benefit may be small for now. So the sustainability team needed to find ways to lower the fertilizer footprint without causing any additional cost to suppliers or farmers. How did they do it?

By focusing its efforts on the real footprint — identified through a solid lifecycle analysis and good data — Pepsi found the approach with the highest payback. As sustainability exec Tim Carey put it, "It's not unusual to spend tens of millions of dollars removing some carbon from a manufacturing process at returns that can be 10% or less...or we can take 15% of total carbon out in the fertilizer step without costing anything."

The impacts of these tests — and future rollout — will not be small; Pepsi buys a fairly shocking one-third of the Florida orange harvest. And the recycling work could shift millions of bottles out of landfills. Pepsi's full value chain view on sustainability is deep green stuff — this is how you implement green thinking.

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June 16, 2010

Obama's Speech: An Enormous Wasted Opportunity

I'm really not one to pile on the President for perceived failings. God knows he has a tough job. And after all, let's remember what the alternative to Obama could be, or what came before.

But tonight's speech on the oil spill was a real disappointment for those who believe a clean energy future is perhaps the only path to job growth, public health, national greatness, and freedom (from dependence on a ecologically and economically destructive fossil fuels).

The President showed that he gets how big a mess the Gulf is and he's changing leadership at the agency that oversees the industry. That's all well and good.

But when it came to reducing the future risk of these kinds of catastrophes, the prescriptions were in short supply. Obama called for accelerating the transition to a clean economy. That's fantastic. But how can we possibly move fast without a price on carbon? (Uber-capitalists John Doerr (Kleiner Perkins) and Jeff Immelt (GE) said it best in "Falling Behind in Green Tech")

How could Obama not use this opportunity to call on us to do some hard things? Imagine if he had asked us to use less oil, accept higher prices for fossil fuels, support legislators that make the hard calls (raising people's gas prices is about the hardest thing a politician can do).

After 9/11, it's been said many times, President Bush only asked us to shop...and nothing else. Obama seems to be making the same mistake.

He did suggest we need a moon shot to get to clean energy and get off the oil. And he harkened back to America's ability to build tanks and planes in WWII. But those examples of American success are 40 and 70 years ago.

What's scary about the speech tonight is that it almost could've been any President in the last four decades. They've all sat in the Oval Office and said 'never again' and 'we're going to find a new energy future.' And yet, here we are, using more fossil fuels than ever.

In the end, the President suggested we all "pray" for courage and the people of the Gulf.

It's truly a shame that that's the only thing he asked us to do.

August 6, 2010

Why What you Drive Affects the Price of Bread

Russia is in the middle of the worst heat wave in its recorded history. The droughts have destroyed millions of acres of wheat. Russian farmers will harvest about 70 million metric tons of grain this year, down an astonishing 27 million tons. Yesterday, as the New York Times reported, Russia banned all exports of wheat.

According to the Times, Russian exports represent 17 percent of the global grain trade. Wheat prices have already leapt 90 percent since June, and this sudden restriction in supply won't help.

When I think about the forces making the pursuit of sustainability unavoidable, I often try to categorize or separate them to get a handle on what's going on. I think about climate change, water issues, natural resource constraints, greening the supply chain, and on and on, as problems in and of themselves. But this story from Russia shows how they're all inextricably linked.

The United States has been unable to pass a climate bill and factions of this country are in deep denial about the reality of climate change and how it will impact business, society, and our day-to-day lives. These real-life impacts in Russia are a stark reminder that nature, and the physics and chemistry of planetary change, don't care about our political battles.

But how do we draw these connections for everyone? The environmental movement, and even the growing business lobby that's behind climate legislation and action, have not done a great job showing people how our prosperity is threatened by inaction.

I know it's difficult for the average person to believe, but how we use energy and what we drive actually connects directly to the price of bread. And it doesn't really take that many "degrees of Kevin Bacon" to connect the dots.

We drive energy-inefficient vehicles which spew carbon dioxide...which captures heat in the atmosphere...which greatly increases the odds of record droughts and heat waves...which destroys crops and reduces grain supply...which raises the price of wheat and thus bread.

Part of the problem with the discussion on climate change is that it doesn't feel as tangible as other environmental challenges such as water and air pollution. It feels remote and not part of our daily lives. Somehow we need to make these seemingly bizarre connections between what we drive to the store and what's available once we get there.

If we don't start seeing the systematic challenges and tackling them, the system will come crashing down on us.

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.)

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September 16, 2010

The Competing Black Swans of Climate Change

According the metaphorical story that opens Nassim Nicholas Taleb's The Black Swan, until the discovery of Australia, everyone in the Old World knew that all swans were white. Years of empirical evidence proved it — nobody had ever seen anything but a white swan.

It came as a shock then when the sighting of a single black swan destroyed such a simple theory. All it took was one example to overthrow the status quo.

The world faces some big shocks in the realms of sustainability and climate change, and the ways of thinking about the future described in Taleb's book will come in handy. In Taleb's view, a Black Swan event...

  • Lies way outside the realm of regular expectations — it's an outlier
  • Carries extreme impact
  • Seems explainable after the fact

The event that perfectly fits this bill, and the reason Taleb's book is so vital today, is the financial meltdown of 2008. It fits all three definitions.

The subprime mortgage market was predicated on the idea that housing prices nationally would continue to go up; after all, they always had. This conclusion represents one of the logical fallacies Taleb shows we all fall into where we "preselect segments of the seen and generalize from it to the unseen: the error of confirmation." Falling housing prices and subprime mortgage defaults certainly lived up to the "extreme impact" test, since they brought down the world economy. In retrospect, many pundits and analysts provide some explanations for the mass delusion that swept the financial world, the government, and homebuyers (see Michael Lewis' amazing The Big Short for a look at the few people who saw the collapse coming).

When I think about the challenges of sustainability, I see Taleb's principles and dynamics all over the place. From this point forward, two Black Swans will shape our world. First, we face an extreme outlier with unimaginable impact in the reality of climate change — it's the ultimate Black Swan. But we will require the appearance of another Black Swan to get us out of the hole we've dug.

Black Swan 1: Climate change itself. What really makes for a Black Swan is the fact that massive numbers of people are sure it can't be true. Even in the face of overwhelming evidence of climate change and resource constraints — the two heavy-hitter forces driving sustainability — many people struggle with believing any of it.

And it's not a big surprise that it's hard to believe. In our entire human history since the last Ice Age, our climate has not changed enough to threaten the viability of the species. So we make the error of confirmation and assume that it won't change that much going forward. We also make another of the logical errors that create problems: the narrative fallacy. We look for a story that makes sense of the facts in front of us. Look at this from a skeptic's point of view. The resource-constraint doomsayers throughout history, such as Thomas Malthus in the late 1700s and many in the modern environmental movement, have, it seems, been wrong. So the predictions of devastation will be wrong again, right?

Unfortunately, we're feeling the effects of the climate change Black Swan today. Russia burns, Pakistan and Nashville flood, and 2010 is the hottest year in recorded history. (Every climate scientist would, at this point, give the caveat that no single weather event can be ascribed to climate change, but the pattern is bad. Personally, I'm getting tired of the caveat, since it's useless — of course long-range climate models don't predict the weather, but the climate is changing before our eyes.)

So what will get us out of this mess?

Black Swan 2: Worldwide action. We'll need to change so much about the way the world works as to make it nearly unrecognizable. Imagine companies creating radically new energy supplies, entirely electric transportation systems, and non-toxic and completely recyclable products. Picture massive increases in resource efficiency, waterless manufacturing and agriculture, and everyone engaging in tough, heretical conversations about our consumption and what it means to live a good quality life.

The kind of collective will and action we'll need to create not only new markets and products, but also new lifestyles, is unprecedented. In human history, when has any group faced limits and made the changes necessary to survive and thrive? I'd be happy to hear an example, but if you follow to the work of Jared Diamond of Guns, Germs, and Steel and Collapse fame, the answer is basically never (think Easter Island).

Taleb addresses climate change in the second edition of his book and answers those who want to use his theories to do nothing: "The skepticism about models I propose does not lead to the conclusion endorsed by anti-environmentalists and pro-market fundamentalists. Quite the contrary: we need to be hyper-conservationists ecologically, since we do not know what we are harming with now. That's the sound policy under conditions of ignorance and epistemic opacity." That's his fancy way of saying that the Black Swan of climate change has so much downside, we need to be very careful. But to handle this challenge, we'll need to do something we've never done and it thus seems impossible as well. That's the second Black Swan here.

In that sense, though, Taleb's work gives me hope — the unexpected not only can happen, he says, it's really the only thing that ever changes history. Which Black Swan will hit first? Will it be climate devastation and resource shortages ... or collective action to create more profitable, healthy, and sustainable companies, communities, and countries?

The first Swan has left the gate and we have some catching up to do, but I'm betting on the second.

(This post first appeared at Harvard Business Online.)

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.

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November 10, 2010

Reality is Overrated as a Motivator

Right before the big election last week, I found myself thinking about beliefs and what people are absolutely sure they know, regardless of the facts. Two stories that appeared on the front page of the New York Times on the same day, demonstrated Americans' remarkable ability to kid ourselves.

- First, a story about how virtually everyone in America — and especially the anti-tax advocates — thinks their taxes have gone up or stayed flat under President Obama. They don't realize that taxes actually went down for, as the article says, "95% of working families." That cut to nearly everyone's withholding tax was a pivotal part of the stimulus bill.

- Second, a story titled, "In Kansas, Climate Skeptics Embrace Cleaner Energy," about a Midwestern non-profit, the Climate and Energy Project, that has gotten people to reduce energy use and emissions...by not mentioning climate at all.

The first story is a microcosm of every accomplishment the Democrats managed to keep hidden from the American public, but I'll leave real comment on that phenomenon to the politicians and economists.

But the second story is right up my alley — it's about how to motivate people to pursue the societal and economic benefits of going green. The Climate and Energy Project is cleverly avoiding the climate debate and thus any discussion at all that triggers arguments about the really bad misinformation out there (the article, for example, points out the shocking statistic that only 48% of people in the Midwest agree that there is actually warming going on — whether you think it's human-caused or not, temperature measurements are clear on this point).

Instead, Nancy Jackson, Chairman of the Climate and Energy Project, has hit on three alternative arguments to going green: personal thrift, the benefit to the community of promoting green jobs, and a religious appeal to "creation care." The program has targeted everything from home weatherization to getting the community to lobby Siemens to build a wind plant in the region. They've also gotten towns to compete with each other to save energy.

Their success has been remarkable; according to the Times, "energy use in the towns declined as much as 5 percent relative to other areas — a giant step in the world of energy conservation, where a program that yields a 1.5 percent decline is considered successful."

This group's work goes to the heart of a critical debate moving through the climate policy world. I recently took part in a meeting of green thought leaders to discuss why the climate bill in the U.S. failed this summer and what we can learn. We all asked ourselves, what's the right messaging to reach Americans? The only real divide in the room was over the question of whether to talk directly about climate change.

On the one hand were respected thinkers who said, "You can't solve climate without talking climate." On the other side came the argument that talking about saving money, jobs, the economy, and other drivers of action would do the job. Although I think that we probably have to talk climate change to policy makers, when it comes to reaching everyday Americans, I tend to fall into the latter group (see "8 Reasons You Should Cut Carbon (Aside from Climate Change)").

The lesson in Kansas is clear to me: it does not really matter if you believe in climate change. The logic of decoupling our country, our businesses, our communities, and even our homes from carbon, and from oil in particular, remains incredibly strong. At the macro level it's about national competitiveness, national security, and not relying on declining, ever-more-expensive resources.

But this applies on the personal level as well. Who doesn't want to save money and use less energy? Who wouldn't want their town to depend on locally-created, free energy?

For businesses wondering how to promote their green initiatives and products, I see lessons in how to talk to both consumers and employees. For employees, the best motivators are proven cost savings, good data, and competition. The Kansas program used all of these to great effect.

When talking to consumers, the lesson seems to be to use whatever combination of these works, plus throw in some values and religious mores, if that fits the audience. A call to save mother earth for purely environmental reasons might work well in Berkeley, but in Kansas make the subtle shift to talk about creation care, or don't go down that road at all.

So even though I titled this piece a bit sarcastically, the Kansas program works so well because it IS based in reality -- the savings you can yield, the jobs you can attract to your town, and the connection to religious values you can feel are all real. It's just not the reality of climate change.

The end result is the same — people are saving money and energy and starting to build a new economy. And if we move down the path to a cleaner world, who really cares how?

(This post first appeared at Harvard Business Online.)

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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.

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2010-11-30-CumulativeCO2Emissions18502002.jpg
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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.

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December 15, 2010

Celebrating Green Business Accomplishments in Cancun

At this year's climate summit in Cancun, Mexico, policy negotiators from all over the world gathered for two weeks to try and salvage global climate negotiations. In short, there were some successes, but mostly in the realm of funding adaptation, rather than actually cutting emissions, which is a bit like funding life boats on the Titanic (as I wrote about a couple weeks ago, there are many important reasons why climate negotiations have failed to accomplish what we need them to for so long).

But, anyway, in parallel to what must have been incredibly frustrating policy meetings, the business community gathered at the same time. I believe that business may be succeeding where policy is failing.

I attended one of the new entrants into the green business event game, the World Climate Summit. A quick background on the players: the Summit was thrown by a new organization dedicated to green business leadership, with events aided mightily by friend and colleague, the uber-connected Aimee Christensen.

I was there mainly to help out with the Gigaton Awards, an event modeled as a mini-Oscars for green business (Note: I was asked to emcee the affair, but I'm not officially linked with any of the organizations behind it). The force behind the Awards was originally Sunil Paul, a clean tech investor and entrepreneur. Sunil created the Gigaton Throwdown, a challenge to the world to find solutions to reducing carbon emissions at the scale of a billion tons (for context, the world emits 48 gigatons, and scientists say we need to cut at least 14 gigatons from business as usual scenarios by 2020 to have a 50/50 shot at keeping temperatures stable). According to Sunil's team, this level of cuts should be the new measure of success for industries and countries alike.

The Awards were an offshoot of Sunil's initiative, but were thrown in conjunction with the Carbon War Room (CWR), an organization founded by Sir Richard Branson and led by solar entrepreneur Jigar Shah. CWR's goal is also to find large-scale technologies and strategies for tackling climate change.

The point of the Awards was to heap praise on companies that are actually cutting emissions in order to inspire others. I won't go into detail on how the companies were nominated and winners selected, but in short it was based at first on concrete emissions reductions.

Not surprisingly for the first year of a green business award show, the nominees were a who's who of green leaders. In the end, Nike, 3M, Suzlon, Vodafone, Reckitt Benckiser Group, and GDF Suez took down prizes for their respective sectors. And 3M, which has been doing pollution prevention for 35 years now, took the end-of-night Gigaton Award for Best in Class.

Frankly, given the challenges of climate change and the policy failures of recent years, it was nice to celebrate business and the work it's doing. This is hard work and many of the executives representing their companies are in fairly thankless positions.

All that said, it's clear that these Awards were just a beginning. We're not at gigaton scale by any stretch. The winners have made cuts on the millions of tons at most. Gigatons have to happen at the industry and value-chain level, and that is the work that the CWR is doing.

There was one industry announcement in Cancun that demonstrated what real scale looks like. Coke's CEO Muhtar Kent, representing the Consumer Goods Forum and its Board of 50 CEOs, announced some monumental goals for the sector. These include...

(1) no net deforestation around the world (think sugar and palm oil plantations)
(2) a phase out of hydrofluorocarbon (HFC) refrigerants which contribute greatly to global warming.

Combined, these goals are in the gigaton scale range.

So when companies get together across value chains, they can think very big. The Awards were about individual achievement, but the whole day at the Summit was geared toward bringing companies together.

And at the end of a long day of meetings, it was great to add a dash of fun and style. The honorary Award winner, Ted Turner, had the best speech of the night. He established that this battle to green the economy and society is in fact a battle. He said that people who are working hard on what they know is right will always beat the people who know in their hearts that what they're doing is wrong. He ended with this rallying cry:

"We're right. They're wrong. We're going to win...BIG...and SOON!"

How refreshing to come out with fighting words so simply. You know, business is nothing if not pragmatic. Driving change and convincing people that green is good for business requires logic, facts, examples...but also passion, emotion, and yes, cheerleading. What's wrong with celebrating every now and then?

(This post first appeared at Harvard Business Online.)

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December 23, 2010

The Top 10 Green Business Stories of 2010

Here's my attempt to capture the most important stories that affected the greening of business in 2010. To keep this to blog length, it's going to be quick, so see the links for more on these stories.

lists.jpg

The first five are macro-level issues that affect the context for business:

1. The climate bill dies in the U.S. Senate. Any hope for a national approach to tackling the largest challenge facing humanity petered out pathetically this year (see the complete, sad tale in a Pulitzer-worthy New Yorker article). Unfortunately for every other country, this is a global story. When the U.S. can't get its act together, the world can't create global policies, and thus the Cancun meeting last week resulted in some nice agreements to raise funds for adaptation -- arranging the deck chairs on the Titanic, anyone? -- but no binding targets on carbon.

2. Nature strikes back/Climate change is real. Ironically, given the rising debate in the U.S. on the science, the world got hotter, a lot hotter, this decade and this year. Russia saw its worst drought in 1,000 years (video), and Pakistan was overcome by flooding (video). Scientists will always give the caveat that you cannot blame climate change for any single weather event, but let's get real - this is what devastating climate change looks like on the ground. These weather events also directly affect resource availability, bringing me to my next point...

3. Resources get very tight. The drought in Russia destroyed 40% of its wheat crop, so Putin pulled wheat -- 1/6 of the global trade in the crop -- off the global market, driving up wheat prices. The floods in Pakistan helped double the price of cotton. And I could write a book on the topic of rare earth metals, those precious elements that make nearly every green technology possible and go into every iPhone. China mines 95% of these metals, and it needs them all now, making the U.S. "vulnerable to rare earth shortages." We're also vulnerable on fossil fuels. We learned from the massive spill in the Gulf of Mexico that readily accessible oil is a thing of the past -- we don't dig one mile under the ocean for the heck of it. So most natural resources are getting more scarce, from oil to metals to crops. Smart companies like Hitachi are trying to find solutions, such as its new plan to develop rare earth recycling technologies.

4. China, China, China. Did I mention rare earth metals? Or the rise of the world's largest solar producer from a manufacturing base of nearly nothing a few years ago? Or how about China's unparalleled (and some would say illegal) support for its renewables companies, which has the World Trade Organization fretting about trade barriers? China is very serious about its green ambitions, with support from the very top, and the business community is taking note.

5. Renewables are for real and moving fast. Ok, there's some good news. The market for renewables is growing fast. About 45% of Portugal's electricity comes from renewables, and this is up from 18% in just five years. Germany, not really the sunniest country in the world, added 1% of its electric needs in solar in 2010 alone (it took 10 years to get the first 1% online, and just 8 months for the second 1%). No wonder HSBC says the market for clean tech and climate change solutions will top $2.2 trillion by 2020.

Now for the company-level stories:

6. Supply chain pressure continues to rise (a.k.a., Wal-Mart doesn't slow down). Even coming out of the recession, this was a big year for green supply chain announcements. In February, Wal-Mart said it would eliminate 20 million metric tons of GHG emissions from its supply chain. Then in October, the retail giant announced it would double the amount of locally-grown produce on its shelves (and former sustainability exec Matt Kistler indicated this year that products getting higher scores in its Sustainability Index would get more shelf space). We also saw big announcements from P&G and Kaiser Permanente on supplier scorecards, IBM greatly increasing its demands on suppliers, and Pepsi using detailed carbon lifecycle data to make suppliers rethink how they grow Tropicana oranges.

7. Zero is the new black. Companies seem to be tripping over themselves on the path to "zero waste." GM announced that 62 of its plants now send zero waste to landfill, and UK retailer Marks & Spencer reached a 92% diversion rate on the way to its zero goals. And Sony one-upped everyone by setting a goal of zero environmental impact across its operations by 2050.

8. Big goals were back. Recession-schmecession. Sony wasn't the only one setting aggressive targets. Panasonic said it wanted its GHG emissions to peak by 2018 and it would greatly increase sales of eco-products. Unilever has probably gone the furthest, announcing it would double sales by 2020, but halve total environmental impact (among other big goals). Unilever's leaders are serious about driving these plans into the operations of the whole company.

9. Electric vehicles storm the market. The Nissan LEAF was just named 2011 European Car of the Year, and GE announced it would buy 25,000 electric cars. Since the auto industry is one of the biggest in the world, there will be ripples from this movement. Enough said.

10. Small guys can do it too. It's easy to get caught up in the tales of giant companies. So one of my favorite stories of the year is a simple example of eco-efficiency and savings from 10-employee Bowman Design with just 2,000 square feet of office space in Southern California (where else?). See founder Tom Bowman's description of his company's path to a 65% reduction in GHG emissions and $9,000 savings annually (ok, I'll admit that I didn't mind that Tom name-checked my book Green to Gold in his article, but I don't know him).

11. (Bonus!) The Military gets serious about green. Honorable mention to the government and military, which is technically not "green business". But they're not kidding around, from plans to greatly reduce reliance on oil and diesel in Army operations, to Navy sustainability plans and test flights of planes running on biofuels. Go military green!

Looking Forward to 2011

No list would be complete without utterly over-confident predictions of the future. It's obvious that the pressures/themes above will continue to get stronger in the coming year. In particular, and in addition...

  • Supply chain pressure will evolve and get more sophisticated (such as retailers who said in August they would not buy fuel from Canadian oil sands). This shift will be partly driven by...
  • A data explosion around green is brewing. Companies will know more than ever about their impacts up and down the value chain.
  • Water will become a very big topic for business (it began this year, but there will be some great stories in my 2011 wrap up a year from now). My first couple of blogs of the New Year will look at water strategy.
  • Biomimicry, the design principle that suggests looking to nature for great ideas, will gain currency
  • Energy innovation will be the order of the day (e.g., the Paris metro station that captures body heat to warm a nearby building)
  • But here's my final, shocking prediction: climate change policy won't matter (much). Even though the failure of the bill was my #1 above, #2 through 10 tells me that for business, the logic of green does not depend on believing in climate change, or in having a law in place. The natural resource, supply chain, innovation, and profit drivers are just too strong.

    Business will be getting a lot greener in every sense of the word, no matter what political battles are waging. We're going to stop debating climate in the business community and just focus on the larger case for prosperity, for companies and countries alike.

    I'm sure I missed many, many great stories. Please share your favorites here, and have a merry green new year!

    (This post first appeared at Harvard Business Online.)

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January 13, 2011

2010 Tied for Hottest Year Ever

The official analysis from NASA and the National Oceanic and Atmospheric Administration (NOAA) is in. The global average surface temperature for 2010 tied the record set in 2005.

Climate%20temp%2C%202011%2C%2013climate-graphic-popup.gif New York Times Graphic

You'd think this hard data might slow some of the most pernicious rumors from the climate denial crowd, particularly the canard about it not getting hotter since 1998 (the previous warmest year). But unfortnately for the discussion in this country, 2010 was not particularly hot HERE. In the contiguous U.S., it was the 4th hottest summer and 23rd hottest year.

It's easy for people to get confused when they hear these numbers or feel some cold winter temperatures in their area. But, to put this in perspective, the 48 states take up about 3.0 million square miles, compared to 57.5 million sq.mi. of global land area and 197 million sq.mi. of total surface area. What i'm saying is that it wasn't a particularly hot year for less than 2% of the area of the globe...but an area that has enormous influence over the global debate.

And the skeptics will still latch onto 1998, even though 9 of the 10 hottest years on record have come since 2001. But the facts will win out...

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April 21, 2011

How Can We Build a Culture of Disruptive, Heretical Innovation?

The forces driving the business world toward sustainability are vast, powerful, systematic…and growing. In recent months, we’ve witnessed massive climate disruptions everywhere from Russia and Pakistan to Brazil and Nashville. Resource constraints are a reality, with serious discussions about peak oil, peak coal, peak coffee, and, well, peak everything. Technology-driven transparency is creating a mad rush to capture product and company sustainability data, and companies continue to push new demands aggressively up their supply chains.

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And the mega-force to beat all – the relentless rise of population and living standards in the developing world – continues unabated. So how will we provide a good quality of life to what will be 9 billion people on a resource-constrained planet?

In short, we need some very large changes to “business as usual,” requiring radically new ways of thinking.

Over the past couple of years, I’ve written frequently (in my last book Green Recovery in particular) about the need for “heretical” innovation – that is, asking very hard questions that challenge the very nature of a business or product. I wrote recently about two companies, Waste Management and Xerox, in the middle of deep transitions. From hauling waste and getting paid by the ton, to managing recycling streams and helping customers achieve zero waste goals. Or from selling as many printers as possible to helping customers reduce the number of devices and do less printing over all. Asking customers to use less of their core products – that’s heretical.

Some will point out that this is similar to the concept of “servicizing”, and of course it is. But I believe there’s a deeper heresy at work than just turning a product into a service. After all, Xerox could offer outsourced printing services and try to print as many pages as possible. It’s the combination of service and talking openly to customers about using less in total that makes it novel.

So I have a paradoxical task in mind: figuring out how to systematically and logically ask illogical, wacky, heretical, leapfrog questions. I’m looking for ideas from the assembled knowledge and experience of the sustainability leaders reading this.

My three main questions are:
1) How do we cultivate a culture of heretical innovation (how do we make it ok to ask wacky questions)?
2) How do we identify and support the true innovators, intrapreneurs, and heretics in even the largest organizations?
3) Is sustainability-driven innovation fundamentally different than ‘regular’ disruptive innovation, and how?

On the first question at least, I have a few broad ideas. Here’s a starting list for budding corporate heretics:

Start with value-chain data to identify big risks and opportunities. With solid data, managers can focus limited resources on tackling the real footprint and drive toward new ideas and questions. For example, Pepsi’s Tropicana brand is experimenting with low-carbon fertilizer after discovering that growing oranges was the biggest part of its GHG footprint. And more famously, P&G launched Tide Coldwater to address the largest (by far) portion of detergent lifecyle emissions, washing clothes in hot water.

Use open innovation. The hottest concept in innovation today is inviting people in to solve your problems. P&G has opened up its innovation pipeline to anyone with a good product idea. A few companies are sharing some of their best ideas (and patents) with the world – as Nike and others do with GreenXChange – and then hoping for reciprocal karma.

Try “co-creation” (the second hottest concept in innovation and a subset of open innovation perhaps). IBM has had great success in recent years with “Innovation Jams” that allow all employees and customers to throw ideas into the mix. Cross-fertilizing people from radically different disciplines, and from outside the organization as well, can lead to some novel questions.

Show personal leadership (walk the talk). Have senior execs take part in jams and brainstorms. Let them publicly generate wacky ideas and support pilot projects to explore them.

Systematize innovation. 3M and Google famously set aside a portion of everyone’s time for whatever strikes their fancy. More companies should emulate this practice, but also make a point of focusing specifically on sustainability pressures.

Award the wackiest ideas, even the ones that don’t pan out. Some public pats on the back and recognition for employees who show bravery and try new things can go a long way.

Create competition. Sharing data on sustainability performance internally can drive real competition and learning across divisions or products. Or utilize public prizes, like the famous X Prize or the $1 million Netflix Prize.

All of these paths can help us regularly ask the toughest, most interesting questions. Only then can we match the scale of innovation to the scale of the sustainability challenge.

These are just a few ideas (after all, this is a blog, not a book). There are many more. So please send me your thoughts on how to drive breakthrough innovation and how to find the heretics in the organization. Finally, any examples of heretical questions within your organizations are very welcome. (andrew@eco-strategies.com).

(This post first appeared on Corporate Eco-Forum's site.)

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April 27, 2011

Birther, Climate Denier...Same Difference

Well, the great national nightmare is over. President Obama released his long-form birth certificate on Thursday. This settles the issue...again. I could go on about how depressing it is that it all came to this.

But my point in this quick blog is just to say that the vigorous discussion about how the media covered this topic sounded eerily familiar to me. For example, here's ABC's Jake Tapper quoted in a Huffington Post story...

“One of the biggest problems is how many reporters have treated this as if it’s a subject for debate and not just a lie,” Tapper said in an interview.

“Instead of covering this the same way you would cover someone saying that the earth is flat -- just a demonstrable untruth -- too many reporters and anchors have allowed this to become ‘critics say X,’” Tapper continued.

Just imagine if Tapper were discussing how the media covers climate change? Wouldn't it ring true? Granted, global climate models are infinitely more complicated than, say, a Certificate of Live Birth. But doesn't that make clarity from the press about how solid the data is -- and how broad the scientific consensus is -- even more important. When the media "debates" whether it's actually getting hotter over the last century -- a fact -- it really makes it hard to discuss more complicated topics.

And when they place thousands of scientists on one side and equate their views with basically a paid spokesperson for a think tank or particular industry on the other, they propagate a lie.

It was good to see a bit of media gut-checking going on today. We do have serious problems (and no, the budget isn't the only one), and we need focus and fact-based discussions. Sustainability is hard enough without false equivalence and lazy journalism mucking up the works.

In my work, I always say it doesn't matter whether you believe in climate change or not. The things businesses and our country would do to tackle carbon are things they should do anyway for both profitability and competitiveness. But not debating climate science all the time doesn't mean we have to accept falsehoods either.

May 26, 2011

The Growing Divide: Climate Adaptation vs. Denial

I recently attended my home association’s annual meeting, a gentle community affair that focused on reviewing our budget. Only one line item was way up this year – after a record winter in Connecticut, snow removal fees rose 30%. No big surprise.

But I was shocked to learn from the association president that the snow levels and fees would be “back down to normal next year.” Apparently all climate changes would be remedied by December of this year. Phew.

I considered chiming in on the true uncertainty about climate “weirding” and how we could get no snow next winter…or a lot more. But since it’s a relatively small part of our budget, I figured I’d just let the chips fall where they may.

In this case, the level of denial about where we’re really headed as a planet is of little consequence. But what happens when large cities or countries make investment and planning decisions based on either science or denial?

The New York Times just reported on Chicago’s impressive plans for climate adaptation. I spoke last year at an event in Chicago and a climate expert from the Union of Concerned Scientists showed one of the more powerful slides I’ve ever seen on climate impacts (see below). Over time, Illinois will find itself feeling more like the 2010 version of east Texas. As the Times pointed out, models indicate that Chicago will see 70 or more days per year over 90 degrees (vs. 15 each year over the last century).

2011-05-26-2009.07climatechangeillinoisUCSUSApic.tiff
Source: Union of Concerned Scientists -- see report here


The Times article is a fascinating look at how one city is grappling with this possible scenario. The city is shifting to more permeable pavement and planting hardier species of trees (over the last 30 years, they’ve already shifted about one growing zone).

In comparison, witness the sad display of lack of leadership from Texas Governor Rick Perry last month. Facing record droughts, the Governor suggested everyone pray for rain. Faith is fine, but not to the exclusion of actual preparedness.

This divide is starting to play out on the national and global scale. As I’ve written about many times, the U.S. is falling behind on clean economy spending and investment versus China, Germany, Britian, and many others. As Yale 360 (a wonderful publication) reported recently, the U.S. ranks 17th on clean tech spending as a percentage of GDP (Denmark is #1).

The global levels are hard to compare of course, but preparedness in our communities? That’s easy to imagine and the differences are tangible. The unprepared will be struggling with heat, floods, water shortages, and much more. Over time, the gap between states and cities that are ready and areas that are in denial could make the country’s current blue/red divide seem quaint.

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June 6, 2011

As Predicted, Weather Weirding Has Begun

Floods%2C%20Australia.jpg

In a powerful essay in The New Yorker that's mainly about President Obama's dismal record on tackling climate change, Elizabeth Kolbert -- one of the best writers on climate science around -- lays out in stark terms what's gone on with the weather of late.

This is the best round-up I've seen. It seemed worth a quick 'check this out' blog. Here's the passage...

"In mid-May, the President met with Memphis residents who had been left homeless by the flooding of the Mississippi River, and, not long before that, he toured sections of Tuscaloosa, Alabama, that had also been flattened by a tornado. Meanwhile, even as the President was consoling the bereaved in Joplin, residents in Vermont were bailing out from record-high water levels around Lake Champlain; Texas was suffering from a near-record drought that could cost the state more than four billion dollars in agricultural losses; and officials at the National Oceanic and Atmospheric Administration were forecasting that the 2011 Atlantic hurricane season, which formally began on June 1st, would once again be “above normal.” (The 2010 season was tied for the third most active on record.) The news from abroad was, if anything, more worrisome. Last week, the Chinese government estimated that more than four million people were having trouble finding drinking water, owing to a drought along the Yangtze River. The French agricultural minister warned that an exceptionally hot, dry spring would reduce that country’s wheat harvest. And in Colombia more than two million acres of land have been submerged after almost a year of nearly continuous rain. “Over the past ten months, we have registered five or six times more rainfall than usual,” the director of Colombia’s meteorological agency, Ricardo Lozano, said."

Just to repeat, that's 5 TIMES more rainfall, not, say, 5% more.
Anyway, for the rest of Kolbert's piece, please go to the New Yorker site here...

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July 6, 2011

A Swedish Burger Chain Says "Minimize Me"

Last week I wrote about how eating less meat was the best way to reduce your food's carbon footprint. But what do you do if you want to be a responsible corporate citizen and you sell fast food? Well, I think your company would look a lot like Max Burgers, based in Sweden.

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I recently spoke to Richard Bergfors, the CEO (and son of the founders) of this unusual 44-year-old "fast" food chain. With 3000 employees and about $200 million in revenue, Max Burgers is a great example of how a midsize company can carve out a profitable niche through a focus on sustainability — even in an unexpected sector.

In 2000, the company set a new strategy focused on the word "fresh." The leaders looked closely at every ingredient and reduced fat, salt, and sugar, and eliminated genetically modified organisms (GMOs) and trans fats. The menu got healthier, with multiple side options besides fries, 10 drinks with no added sugar, and a selection of darker, healthier breads. The company now sources 100% of its beef and chicken — and 90% of all its product — locally.

To explore its broader climate impact, the firm started working with Swedish thought leaders Natural Step, which, not surprisingly, identified beef as the biggest problem for the company (80 to 85 percent of the footprint). Bergfors acknowledges that industry-wide climate-friendly beef is still a long way off, so Max Burgers plants trees in Africa to offset its carbon footprint. New stores also use solar panels for 15 to 20 percent of electric needs.

But perhaps the most surprising thing this company does is try to influence its customers to buy less meat. Quick reminder: the chain is called Max Burgers. This counterintuitive strategy is the kind of heresy I love — asking customers to use less of your core product. Max Burgers accomplishes this by adding more non-meat items to the menu, prominently displaying climate footprint data in store (there's transparency for you), and suggesting customers buy chicken, fish, or veggie sandwiches periodically (a là Meatless Mondays).

In 2004, a golden marketing opportunity came along with the launch of the documentary Supersize Me, which followed director Morgan Spurlock as he ate only McDonald's food for 30 days. Max Burgers decided to launch a tongue-in-cheek "Minimize Me" campaign. A customer, much like Subway's famous Jared, ate only Max Burgers for 90 days and lost 77 pounds. Two years later, the company re-ran the promotion with multiple people competing on the Max-only diet.

The result of all these efforts is a more sustainable burger chain that's telling everyone to eat less meat, and doing so profitably. The mix of non-beef products is 30% higher than it used to be. But the profit margins are very high.

Bergfors reports that his stores are averaging 11 to 15 percent profit margins versus 2 to 5 percent at the big name competitors. He says Max Burgers is the most profitable, fastest growing chain in Sweden, expanding at 20% per year (and 5% same store sales growth) in a flat market. Granted, higher-end niche brands generally do have higher margins, but this is not an overly small company, and it doesn't seem to be sacrificing anything with its "minimize me" strategy — quite the contrary.

Of course a family run company always has more leeway to act on values (see Patagonia, the prime example). As Bergfors told me, "we've always done things a bit differently — the goal is greater than to just maximize profit." But it's still a business, and in the next breath he said, "we're profit driven and like to make a profit like everyone else...but we don't put profit first...we don't have to maximize profit and we can care for people and the planet we're living on."

But given Max Burgers' profit levels, it seems that maximizing all value, not just profits, can be darn good business.

(This post first appeared at Harvard Business Online.)

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July 26, 2011

Innovators, Meet Your Old Friend: Government Regulation

In the midst of the debt ceiling debacle, the House recently found the time to vote on (and fail to pass) a bill that would've repealed the so-called "light bulb law" that raised energy efficiency standards for lighting. The mandate was considered by authors of the repeal attempt — and apparently by 233 House representatives — as a "government intrusion."

Hear, hear! I'm tired of all these higher government standards. I want to retain the "freedom" to buy a refrigerator that uses as much energy as possible (and runs on coal you can shovel into the front), buy clothes and furniture as flammable as possible, purchase food without any safety standards and take my own darn risk of e.coli. Oh, and I want drive my car without that annoying life-saving seatbelt.

Kidding aside, this vote was absurd. If the bill hadn't been brought to the floor under some arcane two-thirds majority rule, it would've passed. The House has continued its attack by trying to defund enforcement of the bill. This is a really bad idea.

It may seem heretical in today's anti-government mindset, but I'll say it: many regulations and standards are very good for business. Here are a few reasons that the continued attack on the light bulb bill makes no sense, and in fact, why we should be passing a lot more laws like it:

1. Government standards, and particularly energy efficiency standards, are, well, standard.

Quick history: President Bush, who I think was a Republican, signed an energy bill in 2008 which raises efficiency standards for all new light bulbs starting in 2012. And the anti-freedom Congressman who put those standards into the bill: Rep. Fred Upton, also a Republican (he has now, as the Times put it, "reversed his position on the standards he authored").

In short, before recent hyper-political times, this country passed bipartisan safety and energy standards for decades on everything from boilers to cars and trucks to heating and cooling systems.

Critics claimed this particular law was the end of the incandescent bulb. But the bill does not pick technologies; it says how much energy the bulbs can use. It's the classic and most effective use of government mandates: set the standards and let the market decide how to meet them.

2. Efficiency standards drive innovation and save lots of money.

To be fair to critics, the standard did effectively rule out most incandescent bulbs at the time it passed. But then something totally expected happened: companies got creative. As the New York Times reported on July 5, "Incandescent Bulbs Return to the Cutting Edge." Apparently, some people didn't get the message that regular bulbs were dead. Instead, companies like Philips — while innovating around the new CFL and LED technologies — took the 100+ year-old bulb and made it 30% more efficient and last three times longer.

This pattern in common in industries affected by efficiency standards. Look no further than the dramatic innovation in refrigerators. Art Rosenfeld, the godfather of California's energy efficiency movement, likes to show the powerful chart shown here (from NRDC's David Goldstein). Due in large part to aggressive efficiency standards, the energy use and price of new refrigerators has plummeted — all while the size more than doubled. The innovation has saved consumers many billions of dollars.

(Note: Rosenfeld's work has been at the core of California's amazing record of holding per capita energy use flat for 40 years while the rest of us increased energy use 50%).

3. The companies most affected by these standards aren't complaining that much anymore. (Hint: higher product quality and efficiency makes companies more competitive)

One of the biggest battles over efficiency is often waged around automobile miles per gallon targets. The creativity of the auto industry over the last decade or two has been driven (sorry) by higher oil prices at times. But high standards on vehicle miles per gallon around the world have been even more effective (see page 18 of this UN report for chart comparing EU, Japan, China, and the trailing US on mpg standards).

2011-07-26-Slide1.jpg

The U.S. is in this game also — the Obama administration is proposing a new rule that would force automakers to raise their fleet average to 56.2 mpg by 2025. The Washington Post reports that this rule could save us 4.7 billion barrels of oil and $705 billion over the next 20 years. Even with these benefits, we'd normally see the auto companies fight hard, and there's always haggling. But this time it's a bit different. GM has broken from the pack and indicated that it would figure out a way to meet the standard. As GM's North America President, Mark Reuss put it recently:

It's our job to [figure out] what it takes to do it. The auto industry does not get easier. It always gets tougher. That's the challenge and that's what our jobs are. If even-stricter guidelines require billions more in investment, so be it. It's not an either/or thing. It's how we get there with cars and trucks that consumers really want to buy at a [price] that doesn't put unreasonable cost on them.

GM, after lagging for many years on product efficiency — a strategy that basically killed the company in 2008 when oil prices spiked — seems to get it now. As Reuss indicates, high standards push companies toward what consumers will demand. And in a world of expensive energy and tight resource supplies, they'll want cars that sip fuel.

In short, those who complain that higher expectations on energy efficiency will "kill jobs" or be destructive to industry aren't giving our business leaders much credit. Companies can and will innovate. It's in their best interest for many reasons, including the fact that the rest of the world continues to raise the bar. Multinational companies need to keep up to stay competitive.

And it's in our vital national interest to continue getting more efficient as quickly as possible. While energy efficiency standards may not be a complete solution, they have represented a rare bright spot in the nearly defunct national energy and climate policy realm. So let's stop the silly votes, move forward, save everyone some money, and help drive innovation.

(This post first appeared at Harvard Business Online.)

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September 13, 2011

Climate Reality

I believe in science and facing facts or, to borrow words from an important awareness-building event today, I believe in “climate reality.” I'm donating my Twitter feed and this blog space to point people to the Climate Reality Project , Vice President Gore's latest attempt to light a fire under everyone about our climate.

In my work, I try to convey the benefits of going green to executives around the world. I generally avoid talking about climate change, at least in the U.S. where it's such a political hot potato. So instead I demonstrate how profitable it is to reduce your footprint (including carbon), regardless of the science on climate change.

My basic logic is this: decoupling our companies and economy from fossil fuels, and oil in particular, is just good business. By reducing energy use and carbon pollution, companies save money, reduce the risk that comes from relying on volatilely-priced fuels, and reap the benefits of taking part in the clean economy, which will drive innovation and generate vast wealth. But it's also a matter of national security (which is why the U.S. Navy is greening itself faster than any company I know). So, no, it doesn't matter if you "believe" in climate change.

But every now and then, I have to state clearly what I believe. Saying "it doesn't matter" is true, but it's not leveling with everyone about the depth of the challenge.

So here's my belief: The scientific evidence that the earth is warming and humans are the primary cause is vast, overwhelming, and very convincing. We are destabilizing our one home, and it's endangering our economies, communities, and even our species. The fundamental change in how the planet works – which has begun already with record droughts, floods, heat waves, and storms – is larger than we realize..

I think a lot about what a "real" approach on climate would mean for business, which will play a pivotal role in finding and spreading solutions to our energy and climate challenges. While many companies have begun the hard work, they need to step up their game.

On the day-to-day level, that means setting much more aggressive carbon reduction goals (80 to 100% reduction by mid-century or sooner). A few leaders, such as Wal-Mart, P&G, and Sony have set 100% renewables (and/or "zero impact") as goals. The rest of the business world needs to follow, and truly lay out a path to get there.

On the larger level, companies need to pursue what I call "heretical" innovation that rethinks business models and provides goods and services with dramatically reduced environmental footprint (see my blogs on this, here and here).

I see a deep parallel in all of this with one of strategy guru Jim Collins' major principles in Good to Great: "Confront the brutal facts." Collins makes a compelling case that businesses won’t succeed if they don’t tell themselves the truth.

The same logic applies to each of us as individuals, and to all of us collectively as a country and planet. It's time to confront our brutal facts -- our climate reality -- and get moving.

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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:

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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)

May 14, 2012

Microsoft Taxes Itself

This week, Microsoft is announcing an unusual initiative that it hopes will change how the company operates: an internal fee on carbon.

Starting July 1st — the beginning of the company's fiscal year 2013 — the software giant will charge all of its 100-plus global offices and datacenters a fee for every ton of carbon they produce (mostly from plugging into the electric grid, so-called "indirect" emissions). The money collected will go to purchase Renewable Energy Certificates (RECs) and carbon offsets, allowing Microsoft to declare itself carbon neutral.

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Although carbon neutrality is a claim that's gotten less credible over the last few years, Microsoft seems well aware of the challenge and is handling it well. Here's the problem with asserting neutrality: it's hard to ensure that any carbon reductions you're paying for — from, say, capturing methane from a landfill or replacing inefficient cook stoves in Africa — would not have happened anyway (this is the problem of "additionality").

So to navigate this tricky terrain and make the most of its efforts, Microsoft is working with a handful of NGOs and a well-respected partner, Sterling Planet, which will buy the RECs and offsets.

Interestingly, however, carbon neutrality doesn't seem to be the real point of Microsoft's initiative. From my conversations with the company, I take away four major reasons they're doing this:

  1. Behavior change. Microsoft seems more interested in lowering overall carbon emissions and energy use, not just neutrality in and of itself. This focus on actual emissions and outcomes is the right way to go. The offsets become a tool, a last resort to be avoided, and both energy efficiency and using renewable energy (onsite or directly purchased) become the paths of least resistance and cost. As Rob Bernard, Microsoft's Chief Environmental Strategist says, "If you run one of our offices, and you choose to use carbon-based power, we'll charge you more for your energy." And this charge will, in theory, move managers to make greener choices. So the point of this fee, like all "taxes," is to change behavior, discouraging some pathways by making them less palatable.

  2. Accountability throughout the organization. Each division is going to own this issue. Let's say NGOs or customers are asking questions about what kind of energy Microsoft uses to power its datacenters. The executives running that facility, not just centrally located sustainability professionals, will be empowered to address any concerns, drive for greater efficiency, and choose greener power. Pricing carbon is an excellent way to raise awareness internally before the external pressure builds.

  3. Risk reduction. Bernard and his colleague who's running the program, TJ DiCaprio, have encouraged the organization to better understand its profound energy-related risks. As Microsoft takes on more of its customers' operations through cloud-based services, reliance on the utility grid creates real operational and price risk (from outages and volatile prices). Cloud service providers are increasingly proxies for utilities — they require 100% uptime, significant quantities of their own power, and predictable variable cost (which for renewables is nearly zero).

  4. Sales/Becoming the Vendor of Choice. The company knows that its customers are increasingly looking for providers that can offer reliable service at low cost — and low carbon emissions. Driving the organization to use more alternative energy helps land large customers concerned about their value-chain footprint.

So how will Microsoft make this initiative a reality? The execution plan has some interesting elements (see a pithy white paper on the full carbon neutrality plan here). The company will measure carbon footprint in different operational buckets such as plug load (electricity used) and business travel, and then offset each category "like for like" (i.e., buying RECs for electricity and offsets for travel). The fees will vary as well; for example, the company will charge employees for all air travel on a per-mile basis, which raises awareness at the individual level.

The program is smart, but I'm left with one major concern: Will the fees be high enough to change behavior? Right now, the market price of carbon is very low, so Microsoft is charging a small amount per ton. Even so, they will collect north of $10 million, which is enough to buy offsets. Over time, by my calculations, given the growth in cloud services the company is banking on, these carbon fees could rise to a more noticeable $50 million by 2020. But let's be honest, these numbers are clearly rounding errors to a company that netted $23 billion last year.

To be fair, as the behavioral psychology gurus (from books like Nudge) will tell you, sometimes just making people aware of a cost is enough to foment change. So the minor nudge here may be good enough. But in the longer run, the price on carbon needs to be more of a sledgehammer than a nudge. It should reflect the full cost to society of health impacts, national security risks, and price volatility, all of which add up to tens of dollars per ton or more.

Pricing carbon on your own, without a real market in place, is hard, which is why there are so few examples of companies doing it. Going back over a decade, BP put in place an internal carbon trading system that used a "shadow" price to encourage divisions to find the cheapest reduction opportunities (others like Shell have also used this tactic). But executives weren't charged real money. And more recently, athletic apparel company Puma (working with my colleagues at PwC and the UK's TruCost) produced an "environmental P&L" which measured the "real" cost of carbon and other environmental inputs like water. The company is exploring how to include the "price" in operations and give ownership to line managers; it currently says the metrics will "inform operational decisions."

So even with important experiments like these that have gone before, Microsoft's program is perhaps the first actual internal fee at this scale (my research isn't turning up anything exactly like this — please send me examples if you have them!). It's innovative and committed, but it also points to a massive global failure of leadership on climate policy. We should put a price on carbon across the entire economy. But as Bernard says, "While governments have an important role to play, we hope there's a benefit in us moving faster than the policy world."

He's absolutely right. Companies cannot wait for the government wheels to turn to price and manage carbon — the cost saving, risk reduction, and brand benefits of leading are too high.

(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)

May 24, 2012

3M's Sustainability Innovation Machine

Planes are now held together by tape, not bolts. It's really, really strong tape, but still. Who knew the maker of Post-It Notes could help keep aircraft aloft?

This somewhat frightening factoid is just one of the fascinating things I learned in a recent visit to the St. Paul, MN, headquarters of the perennial innovation leader, 3M. During my daylong visit, I observed a quiet, longtime sustainability leader plugging away, creating new products that will help the world save energy, water, waste...and lots of money.

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For good reason, the $30-billion company has long been held up as a role model of how to manage innovation. In the sustainability realm, 3M pioneered what now seems like an obvious idea: avoiding pollution before having to clean it up. The company's simply named Pollution Prevention Pays (3P) program has saved many billions of dollars over 36 years.

The environmental results of its near obsession with eco-efficiency are frankly astonishing. In the last two decades, 3M has slashed toxic releases by 99% and greenhouse gas emissions by 72%. It's the only company that has won the EPA's Energy Star Award every year the honor has been bestowed.

3M's sustainability leadership has come mainly from its eco-efficiency success, but these practices are increasingly the norm in business. So I was happy to observe abundant evidence of the company pivoting to make sustainability a driver of business growth as well.

Before my presentation at an employee event, I listened as CEO Inge Thulin and senior execs from each of the major divisions laid out their strategies. Thulin spoke about sustainability being "embedded...in our new vision" of growth and innovation. Other execs bragged about the high percentage of their division's sales coming from sustainability and "energy preservation."

But most importantly, I heard about some great new products and technologies. When you're describing a company that launches an average of 20 new products every week, it's hard to pick favorites. But here are a few examples of what sustainability innovation looks like:

  • The world's highest reflectivity mirror film, which can take sunlight from a roof and carry it deep into a building — the length of a football field, in fact — all while losing less than half of the light. I saw this technology paired seamlessly with some regular fluorescent lighting and working well in an interior conference room. As one exec said, somewhat heretically, "Why build solar panels to convert sun to electricity to then turn on lights if you can do this?" (Note: I'd do both!)

  • Pipe linings: Every year, due in large part to 250,000 water main breaks, our cities lose 1.7 trillion gallons of treated water (equal to the total water use of the 10 largest cities). To help solve this problem, 3M launched a product that sends a machine down into pipes to apply a fast-setting lining which structurally reinforces them, without having to go to the significant expense of digging them up first.

  • An industrial paint application product/service that reduces toxic solvent use by 70% and is saving customers, mostly auto repair shops, $2 billion from simpler paint operations and reduced waste. It's also a sizable business for 3M.

  • 3M's Novec Fluids, which provide cleaning, coating, cooling, and fire suppression for the electronics industry (chip manufacturing, datacenters, and so on) in a non-flammable, non-ozone-depleting way. It's also remarkably safe for users and technology — you can safely dip an iPhone in the stuff.

3M is a refreshingly humble company: every estimate or "boast" is carefully and conservatively calculated to not overstate the case. For 36 years, the company has used only first-year savings to tally the benefits of pollution prevention projects — that's an effective discount rate of, well, infinity. And with the water-pipe-lining technology, the payback calculation for customers includes only labor savings and overall construction efficiency. A more thorough accounting would add in the significant water and energy savings, as well as reduced impacts on local economies (traffic and business disruption).

But there are signs of a feistier attitude brewing. The new CEO is making sustainability, growth, and innovation a powerful trifecta. With Novec Fluids, the team is not only working with key customers and early adopters, but it's also pushing the market toward greener options by advocating for tougher government standards and regulations. This kind of pro-environment lobbying is an advanced sustainability strategy that only real leaders can pull off.

Finally, I toured the company's relatively new innovation demonstration center. It's a customers-only, hands-on science museum that proudly demonstrates all that 3M can do through cool combinations of its 46 base technologies.

Bottom line: sustainability is deeply integrated in 3M's innovation pipeline, which is the engine of the company. The company's core new product development process includes key sustainability questions and criteria for designers to address.

Many companies start talking about sustainability efforts before they've really made significant changes to the company or its products. Although 3M may have the opposite problem — getting too little brand and marketing value out of its efforts — it is usually smarter to execute first, and then tell your story. In 3M's case, it's nice to see the engineers at this quiet company just out there doing it.

(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.

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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)

November 2, 2012

Hurricane Sandy=Climate Change? Some big names are believing it.

[Note: With power out and limited connectivity, I've gotten behind on re-posting blogs that I've written elsewhere like HBR ...I'll put a few in a row up over the next few business days.]

This is just a quick blog to recognize that the devastation from Hurricane Sandy has had one important silver lining -- many mainstream voices, especially in the business community, seem to be waking up to the connection between extreme weather and climate change. (My take on this is on my Harvard Business Review Blog here, and I'll post it here next week.)

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Two news items have given me real hope.

1) Businessweek blares on its cover, "It's Global Warming, Stupid"
After the required caveat that no single storm is "caused" by something as long-term as climate change, the business magazine declares, "Clarity, however, is not beyond reach" and explores how scientists are increasingly willing to draw the connection. Bravo Businessweek.

2) Mayor Bloomberg's titles his endorsement of President Obama, "A Vote for a President to Lead on Climate Change."

In his own words, "The devastation that Hurricane Sandy brought to New York City and much of the Northeast -- in lost lives, lost homes and lost business -- brought the stakes of Tuesday’s presidential election into sharp relief...Our climate is changing. And while the increase in extreme weather we have experienced in New York City and around the world may or may not be the result of it, the risk that it might be -- given this week’s devastation -- should compel all elected leaders to take immediate action."

Bloomberg then cites Obama's work on fuel-efficiency and increased controls on mercury emissions which restricts coal burning...and highlights how Romney has reversed himself on climate change since his days as Governor.

This is clearly noteworthy that a well-respected moderate has made climate change the deciding factor in his vote for President, especially since the topic did not come up in the debates for the first time since 1984.

The media, the business world, politicians...all are waking up to the deep connections that today's events have to longer-term trends and the actions we all take. I have hope that we will mobilize fast enough now.

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

November 5, 2012

Should Companies Care If Hurricane Sandy Was "Caused" By Climate Change?

(Catching up on re-posting pre-storm and storm week posts...happy voting day)

Hurricane Sandy has killed more than 100 people in the U.S. and the Caribbean, and caused billions of dollars in damage. The scene around my Connecticut home is not pretty, with downed trees and power lines everywhere. It's a serious time, and a time for some serious questions. Why did this happen? And from a business (or any) perspective, does it matter whether this megastorm was caused by climate change? I'd say no... and yes.

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First, the "no" part...

Regardless of the cause, the cost to society of extreme weather has been rising for decades. The insurance giant Munich Re recently released a new report on the rapid increase in weather-related losses. In North America, the number of severe events has quintupled over the last 30 years. And while the report does indeed make the climate change connection directly, on some level it doesn't really matter for business. The problems and costs of extreme weather are the same either way.

Take the example of one of my clients, a Fortune 200 consumer products company. As the VP of global risk management told me, the most expensive events in company history in every weather category (flood, earthquake, hail, wind, etc.) occurred in the last few years. After making $50 million in insurance claims in 2011 alone, the company's insurance rates will certainly rise. But that's a side issue; the real problem is the constant threat to business continuity. At one of its large manufacturing plants in Asia, a drought stopped production for 3 weeks.

This kind of disruption is only going to grow. In the Thailand floods of November 2011, both the hard-drive industry and the automotive sector experienced serious supply chain problems. As Edmunds reported, car production dropped by 600,000 units and, in particular, "only a few critical Thai-built parts laid Honda low."

In a deeply unpredictable world, the challenge for multinational businesses is how to build resilient, flexible enterprises that rely on natural resources a great deal less than today (meaning fewer fossil fuels, less water, reduced waste, closed loops on key resources, and so on).

Smart companies will be examining supply chains and operations very closely for risks associated with water shortages, floods, storms, and resource constraints. Risk assessment is going to get much sexier and much more important to global organizations. Their leaders will also seize the opportunity to offer products and services that help other companies and society deal with a world of weird weather. Think drought-resistant crops, new insurance products, distributed energy systems (so homeowners won't care if the power goes out), and perhaps boats for getting around Wall Street.

OK, now on to the "yes" part of the discussion.

First, the necessary disclaimer: Scientists say that no single storm can be tied to something as large-scale and long-term as climate change (see the active debate going on here). But in the words of NASA scientist James Hansen, we're "loading the dice" and increasing the odds of extreme events by heating the oceans and putting more moisture into the atmosphere. The devastation around New York City is exactly what was predicted to happen more frequently.

But let's get real about business impacts. If you're going to really assess risk to your operations now and in the future, you have to understand how climate change will increase the likelihood of severe events and what it will mean for your value chain. Not doing so would be costly, stupid, and irresponsible to your shareholders.

Companies are waking up to the immediate impacts. The most recent report from the Carbon Disclosure Project (CDP), compiled with the help of PwC (full disclosure: my consulting firm has a partnership with the U.S. arm of PwC), shows that most global companies acknolwedge climate-driven risks. Fully 37% of those reporting to the CDP — most of the world's largest companies — say that climate change is already creating business risk (up from 10% in just two years). Another 43% see risk to the business within the next 10 years.

So as companies wake up to this challenge, they are starting to talk about adaptation and the expense of getting ready for a hotter, dryer or wetter (depending on the location), more resource-constrained world. But adapting is just not good enough.

We really have to stop kidding ourselves that we can ride this out. We have to adapt, of course, but we also need to get going on a low-carbon agenda very quickly to mitigate the risk as much as possible. If you really listen to the scientists, the "business as usual" emissions path were facing over the coming decades could seriously destabilize the planet, which, I hate to state the obvious, supports our economy and way of life. The normal curve of expected possible outcomes is starting to include real risk to our species.

If you bring this level of threat down to the industry or company level, it causes you to rethink your business. As one tech executive said to me recently, "nobody's really going to care what operating system they have if they don't have food." Meaning, we better reduce the odds of disaster or our businesses won't matter much.

To those of you who fear that the cost of going low carbon will be too high, I have to ask: how expensive are storms like Sandy to business and society? In reality, tackling climate change is not an expense, but a very smart investment. It's a multitrillion-dollar business opportunity, or what Richard Branson calls "the greatest wealth-generating opportunity of our generation."

In short, this debate is about direction and speed. In terms of what direction your company should head to prepare for a riskier future of extreme weather, it doesn't really matter whether Sandy was caused by climate change or not. But how do we determine how fast we need to move in that direction? To answer that question, climate change does truly matter. It matters a lot.

(This post first appeared at Harvard Business Online.)

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November 16, 2012

The Challenge of Climate Math

A nerd hasn't been this popular since, well, ever. Nate Silver, the creator of the election poll statistical hub FiveThirtyEight was declared the clear winner in the Presidential election. And on Fox News, election math was at the center of one of the most bizarre on-air moments in memory.

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The numbers discussion then seeped over from polls to other politically charged topics such as climate change. David Frum, President George W. Bush's speechwriter, tweeted this gem: "Horrible possibility: if the geeks are right about Ohio, might they also be right about climate?"

This awakening about the math (and physics) of climate change has coincided with climate activist Bill McKibben's "Do the Math" tour, an awareness-raising series of events criss-crossing the country this month. The tour was inspired by McKibben's incredible essay in Rolling Stone magazine, "Global Warming's Terrifying New Math."

In this article, McKibben lays out 3 fundamental climate numbers: to stay below (1) 2°C of warming(the limit the world's scientists have said might help us avoid the worst of climate change), we can only burn (2) 565 more gigatons (a billion tons) of carbon dioxide, which will force a battle with the fossil fuel industry since it has (3) 2,795 gigatons in reserve. These are important numbers to wrap your head around, but what do they really mean for countries and companies? How fast do we have to change?

To answer these tough questions, we can turn to two of the world's best number crunchers, McKinsey and PwC (full disclosure: I have a consulting partnership arrangement with PwC US). Last week PwC released its Low Carbon Economy Index 2012 report, which calculated one simple, powerful number: In order to meet the 2°C warming target, we will need to reduce the global carbon intensity (how much carbon it takes to produce every unit of energy or GDP) by 5.1% every year until 2050. For perspective, in 2011 carbon intensity improved just 0.8%.

This number provided another view on some similar math from McKinsey, which concluded that the ratio of global GDP per ton of CO2 would need to rise tenfold by 2050.

OK, so the math is not pretty, but it is what it is. And it's not like the world is ignoring the challenge entirely. Here are some numbers that make me feel better:

  • $2.2 trillion: The size of the "climate economy" by 2020 according to the bank HSBC
  • $372 billion: China's budget for energy conservation and anti-pollution measures over the next few years
  • $260 billion: Global clean energy investment in 2011
  • $109 billion: Saudi Arabia's planned investment in its solar industry over 20 years
  • 50%: the portion of Germany's entire electric demand satisfied by solar energy during one sunny day in May, a world record
  • These are great macro stats. But the brutal logic of the McKibben, PwC, and McKinsey numbers applies at the microeconomic level as well. Meaning, I believe, companies need to acknowledge the math and shoot for a 5% reduction in carbon per year.

    It's not so crazy. The early leaders have a good start. Dow Chemical has reduced energy costs $9 billion since 1994. Walmart has improved the fuel efficiency of its distribution fleet by 69% since 2005. A large consumer products company — which tells me it will be going public with this story very soon — has already cut carbon in its own operations by 80%.

    Of course, the entire private sector will not achieve these results on its own. We will need strong global policies and a price on carbon. But given how profitable many organizations are finding the low carbon quest to be, they shouldn't wait.

    While it's a myth that companies make all decisions on ROI calculations (what was the exact return on that Super Bowl ad?), we do claim to love hard-nosed numbers. Let's not let politics or fear of the size of the task ahead get in the way of today's climate math.

    Climate data has trumped politics in the past. According to Sunday's op-ed by Cass Sunstein, the Harvard professor and co-author of the great book Nudge, Ronald Reagan embraced aggressive action to solve the problem of ozone depletion because he believed the cost-benefit analysis. Basically, it was cheaper to act than not to. Similarly, the math on climate action is getting better every day as the costs of inaction rise. As Sunstein points out, Hurricane Sandy will likely cost the country $50 billion (New York's Governor Cuomo has already asked for $35 billion in federal aid).

    Climate math is simply a constraint on the imaginary formula that is business as usual. But constraints drive innovation. We in the business community respect numbers and the best companies love challenges. Let's prove it.

    (This post first appeared on Harvard Business Online.)

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    December 22, 2012

    Top 10 Sustainable Business Stories of 2012

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    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.)

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    February 24, 2013

    The Inside Story of Diageo's Stunning Carbon Achievement

    This is the exclusive, short story of how Diageo North America, with creativity and guts, both in operations and in the senior ranks, achieved the holy grail of carbon emissions reductions. They did it without using carbon offsets — and about 38 years earlier than they had to.

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    Here's what scientists are telling us: the world must cut carbon emissions by at least 80 percent from 1990 levels by 2050 to (we hope) avoid the worst of climate change. This level of change seemed like a pipe dream to many, including me... until I spoke last fall to Roberta Barbieri, the global manager for environmental sustainability for Diageo, the $17 billion spirits company. Imagine my shock, as we talked about setting aggressive goals on carbon emissions, when she casually mentioned that Diageo's North American division — a group with $5.58 billion in sales and 14 production and manufacturing facilities — had already cut emissions 80 percent.

    The first thing I said was, "Excuse me?!," followed quickly by, "when can I come and talk to you?"

    It all started in 2008, she told me later, when top Diageo execs had their minds set on doing something big. First, for perspective, they ran the numbers on what it might cost to go entirely carbon free. The back-of-the-envelope calculation was daunting (hundreds of millions of dollars) and included ideas like building bioenergy plants to power some of their largest distilleries — an option that would achieve large reductions, but was in no way cheap. They settled on a still-aggressive goal of 50%, made it public, and, remarkably, crossed their fingers.

    At about this time, Richard Dunne, an environmental exec, entered the picture and took responsibility for meeting the target in North America. He had a strong suspicion that building an expensive bioenergy plant was not the only way to get there. His team implemented a rigorous process of collecting ideas for emissions cuts and estimating the costs. Then they sorted the results on a massive spreadsheet, ranking ideas by net gain on environmental improvement and then by financial investment. By looking at the largest carbon reduction options first, they could group ideas into three big buckets: 1) low/no cost (the no-brainers); 2) some operating expense increase; and 3) more significant capital expenditures (like the bioenergy plant).

    Executives initially thought that only major capital projects would reduce emissions significantly. But Dunne's process revealed a surprising number of no-brainers. As a result, Diageo North America achieved a 50% carbon reduction by 2012, mainly with a mix of no- and low-cost initiatives. These project range from easy efficiency efforts like lighting retrofits, boiler upgrades, and installing variable speed drives; to larger, but still economical, changes, such as switching fuels (from oil to natural gas) and cutting back from two boilers to one in a small distillery.

    Reaching the 50% reduction in North America years ahead of schedule was a pleasant surprise. But Diageo still needed to go further: the economics on reductions in other regions were not nearly as good, so North America needed to close the gap to help the global organization reach its 50% goal by 2015. But even with the expensive bioenergy plant beckoning as a solution, something even more unusual happened at a Canadian distillery, one of the company's largest.

    Gene Ruminski, Diageo's North American sustainability manager, proposed that the Canadian distillery contract with its utility to supply natural gas harvested from a landfill - a net zero carbon solution that would reduce the carbon footprint for North America by another whopping 30%. But there was a big catch: energy costs would go up more than $1 million per year. This expense was more than the single plant could justify.

    But then a senior exec, the president of Global Supply and Procurement, got wind of the idea (important point here: this exec sits on the company's internal sustainability council). With his global perspective, he realized that even though the landfill gas solution would increase operating costs for this one plant, it was actually a relatively cheap way to deliver a large reduction in emissions. So he gave the go-ahead and some financial leeway to the plant manager who had to take the annual million-plus hit to his bottom line. As it turns out, the plant's ongoing cost-cutting initiatives had already identified many millions of savings, so Diageo reduced the plant's target for total cost savings to allow for this massive carbon-reducing project.

    This is an amazing story, with a few important lessons:

    1) Companies still have much more room to cut energy, water, and waste than they realize. Even a well-run company can find enormous savings from easy, low-cost stuff.

    2) Big goals force you to look for big ideas, meaning you can, as Diageo's Roberta Barbieri says, "do more than just turning off the lights."

    3) Leadership matters. With a more strategic attitude, you can invest in longer-term value, both tangible and intangible. Flexibility is crucial, as the top exec had to give the plant manager leeway on his savings targets to meet the environmental goal.

    This last point is really critical. Shifting subtly away from an attitude of "maximize profits this quarter at all costs" does not mean you leap right from capitalism to communism; it just means you take into account a broader definition of value to the organization and community. Flexible thinking about value frees you up to find unique solutions. As a clean tech and impact investor Charles Ewald said to me recently, "the gap between 'capitalism' and so-called 'philanthropy' leaves a lot of room for creativity."

    I congratulate Diageo for getting creative, finding that chasm, and driving a spirits truck right through it.

    (This post first appeared at Harvard Business Online.)

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    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."

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    (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.)

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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.)

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

    November 3, 2013

    Correction: Fixing an Error in my Last Blog on Carbon Budgets

    Hi all. I goofed a bit in my last blog about carbon budgets and made one erroneous comparison. First, thanks to reader James Newberry for catching this.

    The problem came when I said the following about the remaining carbon budget globally:

    "So to boil this down, if we want a 66% probability, we have about 469 GtC left, which is much less than the 565 GtC McKibben outlined last year."

    The 469 GtC number is accurate based on the latest IPCC report, but by comparing it to Bill McKibben's 565, I erred. His number was referring to gigatons of carbon dioxide, NOT carbon, which is how the IPCC calculates budget (for the chemically inclined CO2 is 3.67 times as heavy as Carbon alone). Also, Bill's 565 GtCO2 was the budget until mid-century, 2050. The IPCC numbers are calculated as what we have remaining until the year 2100. Thus I was comparing apples and oranges.

    But, I've been talking to both Carbon Tracker -- the smart guys behind McKibben's analysis -- and my colleagues at PWC UK to check my math. They've been recalculating the budgets based on the new IPCC numbers and came to the same conclusion I tried to when comparing 469 to 565 -- our budget is getting smaller. So the point is the same, but I used the wrong number to show it.

    Anyway, PwC just released in the last couple of days their latest Low Carbon Economy Index. This year, they calculate that we need to decarbonize at a rate of 6% per year until 2100, which is a significant increase from their estimate last year of 5.1% per year. The higher decarbonization rate is due to a reduced underlying budget.

    For additional numbers, please see Carbon Tracker's latest calculations. Their site makes the budget issue as clear as you can.

    As you can tell, the numbers can get a bit complicated with you are talking about a variety of scenarios that play with probability of holding our global temperature increase to 2 degrees Celsius, and work with different endpoints in the calendar. But the conclusion is the same. We have to move much, much faster than we are.

    January 21, 2014

    If We Don't Tackle Climate Change, Our Other Problems Will Be Moot

    When Bill de Blasio took the oath of office as mayor of New York City on 1 January, his inauguration address focused heavily on inequality. In a speech four weeks earlier, President Obama made reducing economic inequality a core mission, saying: "For the rest of my presidency, that's where you should expect my administration to focus all our efforts." Inequality is a critical issue globally. A society where the gains of economic growth go only to the already wealthy is not stable. That said, I believe that when we look back on the priorities set by presidents and mayors at this time in history, people will be astonished at what our leaders didn't prioritise. We should focus our energies on building general societal resilience (of which efforts to address inequality are a part), but more specifically, the first priority needs to be fighting and preparing for climate change.

    The latest analyses on the likely outcomes of our continuing use of the atmosphere as a carbon dumping ground are not optimistic. A study published in Nature has suggested we're heading towards a 4C (7.2F) increase by 2100. This would not just be inconvenient: it could make the world uninhabitable for humans. The majority of scientists are not painting a picture this extreme, but the message is clear from those the Nation calls "thoughtful outliers".

    Imagine a probability curve of possible outcomes from our planet-baking experiment. According to some sane, smart people, now showing up a few standard deviations out on the curve is the possibility of humanity's demise.

    I know the doom-and-gloom approach doesn't work well. But this isn't really about extreme scenarios and fear, but about logic and prudence. You can treat something as if it's serious and stay calm, and even remain optimistic. We buy insurance on our homes and our lives, even though the odds of the worst-case scenarios happening are low.

    And yet, when it comes to making the pitch for action on climate, particularly with the business community, we tend to focus on the upside. It's good for business, we say. Or we point out that there are trillion-dollar markets in play for the companies that can help the world make the transition.

    All true, but it's absurd to completely avoid the subject of how serious the situation is, or how fast we need to go to deal with it. It's like convincing people to join a bucket brigade to put out the fire consuming your house by telling them how much exercise they'll get. Can't something be good for you and also be an emergency? When people have near-fatal heart attacks, they often stop smoking, change their diet, and exercise more. Those actions make their lives richer and more resilient and tackle a life-threatening problem.

    But to be clear on one thing: climate and all "green" priorities do not need to trump all social issues. I care deeply about inequality and many topics on the social sustainability agenda, for example supply-chain conditions – it should be a moral absolute that nobody ever dies making a T-shirt. But two points matter on this question of priorities.

    First, the divide between environmental and social is mostly artificial, and that's especially true with climate change. Our changing planet is the ultimate social issue, since those with the fewest resources are least able to adapt. Remember the Titanic? When the ship went down, the people in steerage were hit hardest. In climate terms, the increase in flooding and sea-level rise will have the greatest impact on many of the poorest regions, such as Bangladesh. And the outcomes from a changing climate, including droughts that destroy crops and raise food prices, are hardest on those who can least afford it.

    Second, we need to walk and chew gum. We can pivot and make operating in a way that drastically reduces carbon, which mitigates and prepares for climate change, the core focus of our institutions and address critical issues like income inequality. Many of the things we need to do address both issues anyway.

    On the demand side, energy and resource efficiency saves money. And those who spend a high percentage of their income on energy will benefit the most. Huge public-private investments in clean technologies, which raise production levels dramatically and bring down costs, make clean energy cheaper. That helps the developed world make the transition and helps solve energy poverty around the world.

    OK, so I've reverted back to "it's good for you" to make the argument. I can't help it – it does pay. But that doesn't make the situation any less serious. Nor does it make it any less pressing to put climate change at the top of our personal, business and societal priorities.

    (This post first appeared on the Guardian Sustainable Business blog network.)

    (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.

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    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)

    February 12, 2014

    How Exactly Will We Move Away from Fossil Fuels?

    Investors who have significant money tied up in the fossil fuel industry — every pension and market fund, essentially — are facing a massive risk. The logic, according to the International Energy Agency (IEA) and banks like HSBC, is this: as the world migrates away from carbon-based fuels, trillions of barrels of oil and billions of tons of coal — the assets sitting on the books of energy companies — will become “stranded,” or worthless.

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    It’s a compelling argument, but only if we can answer a key question: How exactly will those assets become stranded? That is, what will prompt a fast enough migration from fossil fuels to cause their value to plummet? I see a few plausible paths: government regulation, straight economics (when cleaner energy crowds out fossil fuel investment because the returns are better), or a social movement that propels voluntary action. Let’s quickly look at each.

    1. The Stick: Regulation

    The organizations talking about stranded assets seem to assume that governments will price carbon at some point. As a recent report on the subject from the NGO Ceres said, “According to the IEA, more than two-thirds of the world’s proven reserves of fossil fuels will be unusable prior to 2050 if necessary carbon regulations are enacted [emphasis added].”

    That’s a mighty big “if.” While some regions are experimenting with carbon taxes, and Clean Air Act regulations in the U.S. are making coal plants more expensive, regulation is not truly impeding global fossil fuel use.

    Ultimately, the political will for fundamental change is lacking. In the State of the Union speech last Tuesday, President Obama said that climate change was a fact and touted the growth of solar energy in America. But he also bragged about increased production of natural gas and oil. Very few politicians will take on those powerful lobbies, so a price on carbon is likely a fantasy in the U.S. for now. And partly because of America’s intransigence, 19 years of global negotiations on binding limits on carbon have led nearly nowhere.

    2. The Carrot: Money

    On this path, we choose renewables because they’re cheaper, which is far more plausible every day. In significant swaths of the world, wind or solar power is more than competitive with fossil fuels. About half of the new energy capacity put on the grid globally is now renewables, and the picture going forward is even better. Bloomberg New Energy Finance has estimated that between now and 2030, around 70% of the power generation the world will add will be renewables.

    This level of investment is happening because the economics work. But it doesn’t mean we’ll be stranding many assets any time soon – the installed base of carbon-based energy systems is really large. Renewable energy does provide 21% of electricity globally, but modern renewables (like solar and wind, not hydro), which would really displace coal and natural gas, only provide 5%. Renewables are a long way from dominating electricity enough to make fossil fuel energy a bad investment.

    And when you look at mobile energy use (that is, cars), the story is even clearer. To strand oil assets, we’d need to drive mostly electric vehicles or use a lot more public transportation. And while the new electrified vehicles market is growing fast, it’ll be many years until those technologies dominate.

    3. The Guilt or Enlightenment: Moral Suasion

    We could, in theory, see a vast voluntary movement toward clean energy by companies and individuals — even faster than what they’re purchasing already where the economics do work. But it is tough for public companies in particular to spend money when they think it doesn’t pay back in traditional ROI terms.

    That said, organizations could recognize that the additional benefits from a larger, quicker move to onsite renewables — including having a hedge on fuel prices, inspiring employees and customers, and building resilience to extreme weather and grid outages — adds up to real value, even if it’s hard to measure. Companies and consumers could also decide it’s cool to use clean power. The Toyota Prius sold millions of units not because it saved money on fuel, but because of what detractors noticed was a certain smugness or pride in driving it (I’m guilty as charged).

    We could also see moral pressure to move away from fossil fuels. The growing divestment movement, led by the NGO 350.org, is an attempt to make investing in fossil fuel companies morally equivalent to investing in South Africa during the anti-apartheid movement. The next generation — the students leading the campaign now — may never work for or buy from the old energy industry.

    But moral campaigns are highly unpredictable and we can’t count on this path to get us there.

    Ultimately, the second path is clearly the most likely, and the clean economy will dominate over time on purely economic terms — a variable cost of basically zero for renewable energy will win out. But will it be fast enough to turn fossil fuels into stranded assets any time soon? I doubt it, since companies and countries aren’t even doing all the clean energy projects that pay back quickly, or don’t require any money down. It’s not just about economics.

    That’s why we need all of these efforts to work in conjunction — movement on any one of them will give momentum and credibility to the others. The social and government pressures will accelerate investment and thus improve the economics. And in return, if companies start buying a lot more renewable energy, they will help build the market, improve the economics, and give cover to politicians to take action.

    In short, all three paths are valid and tough, but together, they should do the trick. They’d better.

    (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)