[Posted at Huffington here]

It's pretty clear that the business world is facing dramatic change driven by environmental concerns. Over the coming years and decades, we're going to change the entire energy system and find new ways to design, make, ship, sell, and consume things. While it's uncertain if quality of life will suffer (and I hope not), the quantity of resources used will change dramatically - e.g., using a lot less energy, or at least carbon-driven energy, to power our lives.

And this change is becoming a business imperative regardless of whether you buy the climate change argument (and I really don't want to open that can of worms from my last post ). Just looking at the high price of everything from metals to food to fuels, the case for being radically more resource efficient is getting clearer every day. What's also clear is that the world can't currently provide for what will be nine or ten billion people who all want our lifestyle (the government of China has set a goal of moving half its population into the middle class by 2020 - that's 600 million people; if they all use oil at our rate, China alone will need more than the world produces by 2030 or so). At current technologies and modes of production, there isn't enough stuff. So there's a business need and a system overload requirement that we innovate and do more with less.

But don't just take my word for it.

The Wall Street Journal ran a stunning article recently that I've been mulling over for awhile and needed to get my head around. It was titled, "New Limits to Growth Revive Malthusian Fears." The shocking part of this article was the fact that it didn't malign the idea that we may run out of things, which Milton Friedman-esque business people have been laughing at for 200 years (since Thomas Malthus first drew an exponential population chart plotted against a geometric resource growth chart and said we'd all starve). Yes, those doomsayers have been very wrong in critical ways, mainly related to our ability to innovate and substitute out of products when we found new options (like from whale oil to kerosene to oil).

But the Journal was deadly serious, talking about resources like water that we can't substitute our way out of. The related point was that there's really nothing left to substitute to -- we know where pretty much everything is. Two quotes were fascinating: "Record highs in the prices for oil, wheat, copper...are signs of a lasting shift in demand as yet unmatched by supply". The "as yet" is a big qualifier, but it feels a bit like wishful thinking, especially given the second quote from ConocoPhillips CEO James Mulva: "I don't think we are going to see the [oil] supply going over 100 million barrels a day, and the reason is: Where is all that going to come from?" So even the oil CEOs are telling us there's not enough stuff.

So what does this mean for business and how is it connected to the green movement? First, rising prices for nearly everything mean we're entering the big leagues. Whether you call it "green" or "eco-efficiency" doesn't matter; either way, all the efficiency tools we have - such as total quality, lean manufacturing, six sigma - are going to be put to the test. If your company has a knack for cutting out waste and reducing resource use, it will survive and thrive. If you can't reduce your reliance on fossil fuels in your whole value chain - from sourcing to manufacturing to distribution - you may be in trouble.

Second, if you can offer a new "supply" to help bolster that side of the Econ 101 curves, you will have a giant market to satisfy (those billions of consumers). And I'm talking about smart supply growth, not the corn ethanol kind that actually exacerbates all of our problems. I'm talking new low-carbon energy, water saving technologies and processes, good design principles, building efficiency, and on and on.

The mad race for renewable energy technologies and the dramatic shift in car offerings are good examples. The venture capital money flowing to new technologies easily recalls the Internet boom. But is this one a bubble? It might be, but these entrepreneurs are working to satisfy existing multi-trillion dollar energy and resource markets, not trying to create new markets or needs. So money from the biggest, smartest names in Silicon Valley is flowing freely. This is a very good thing. There will be a shakeout, but some winners will win big.

As demand for resources outstrips supply, the Journal worried, what if countries just try to grab what's left in a big resource fight? Companies might go down a biggest is best path as well. But won't the best companies profit much more if they just find a way to need less? And won't the competitors that help their customers use less do extremely well?

Everybody in the world should read a new Fortune article about Matt Simmons, the oil analyst turned peak-oil prophet. As a lifelong Republican, Bush campaign and energy policy contributor, and Houston-based oil guy, he's an unusual leader of the peak oil theorists. Simmons has become convinced that Saudi Arabia and others don't have as much in reserve as they say.

Simmons is not alone. T. Boone Pickens, oil billionaire, has been making a lot of noise about how we can't drill our way out of this...and he's building the world's largest wind farm to demonstrate his commitment. Not a commitment to the environment, but to making money and enhancing national security.

Just to clarify: peak oil doesn't mean we've run out. It means we've hit the peak of production. There's still a lot in the ground, but it's harder and harder to get out. It's not just analysts warning about this. We're at 85 million barrels per day now globally, but clearly the world is growing. So can we supply the 100 million barrels and more we'll need in short order? Well, let's listen to James Mulva, CEO of Conoco Phillips earlier this year: "I don't think we are going to see supply going over 100MM barrels a day...Where is all that going to come from?"

So supply is a problem, but it's not actually the biggest one. My college days, when not spent on other pursuits, included a degree in economics. I can't claim to remember that much, but I do know one Econ 101 basic fact. If demand grows, and supply is "inelastic" (meaning it's really hard to change the amount), the price will rise, and sometimes very, very fast.

As much as supply is certainly inelastic - you know how hard it is to get oil from Canadian oil sands or from 5 miles under water? - the real story is demand. It's almost trite to say, but the growth of India and China is impossible to grasp and will drive prices of everything up and up. The highly respected business strategist, CK Prahalad, recently talked about some trends in India. Every minute 30 people move to the city, meaning India will need hundreds of new cities over the next 20-30 years. As these people desire more middle class lifestyles, consumption will rise. Just one example: If they all add a bit of chicken protein to their diet, Prahalad says, we'll need to double current global agricultural output to feed them. A lot of oil goes into agriculture, and that's just to satisfy India. China statistics are just as crazy (another Fortune article recently described a nice little Cleveland-sized community going up outside of Shanghai - and it's one of ten suburbs being built).

But in the end, the debate is almost moot. The problem is not just that it's harder to get oil - it's that we're all in deep trouble if we do actually get it and burn it all. Climate change and environmental damage are going to push us away from fossil fuels long before we get through it all. This is a hard reality for an industry to take, but we're going to have to leave a trillion barrels in the ground - or at least only take it out to make stuff from it (those molecules are really useful for chemicals, plastics, etc). Burning it is the problem.

Peter Schwartz, the futurist (a job that I absolutely love -- but how do you really know if you're good at it?), says some very wise things along these lines. He says the peak oil guys are wrong and couldn't possibly know how much is left, but he says it doesn't really matter:

"We are not going to run out of oil before the issue of climate change drives change. It'll be costly oil. But it'll be climate change catastrophes [such as sudden, unexpected displacement of large numbers of people, and massive property damage], and more expensive oil, not the fact that we're running out of oil, that will drive change."

I agree. But take your pick - constrained supply, rising demand, and climate change. All are pretty good indications of one fundamental reality: Energy will never be cheap again. There will be some incredible pain coming for people, companies, and countries that don't use energy wisely. Getting lean will not be only one element of a good, sustainable business - it may be the only thing that matters.

[This first appeared on Huffington Post]

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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It's very easy to pile onto BP right now. The "accident," which may be due more to negligence, is bad enough. The company lost 11 employees — after losing 15 in a high-profile explosion at a refinery 5 years ago. The damage to the Gulf, its species, and the people who depend on it is almost incalculable. But surprisingly, it's even easier to criticize BP's behavior since the explosion — the company has tried hard to downplay the scale of the tragedy and it has moved slowly to stop the torrent of oil pouring into the Gulf.

The nightmare is not over and the repercussions in terms of regulations and the future of BP are far from certain. But it's high time to start sifting through the wreckage for some learning so we can avoid similar catastrophes. I'm sure there are literally dozens of good lessons (please post yours), and I think many companies already have a solid understanding of the key principles of good behavior. But why do we need to wait for each fresh disaster to relearn the lessons we already know?

Here are my top five lessons, running from geopolitical and philosophical to corporate-level branding and strategy.

1. Our reliance on old, fossil-fuel based technologies is devastating for the planet, for society, and for business. This spill is in many ways an expected result of the path we have chosen. Given the declining stocks of easy-access oil, our addiction is forcing us to dig up extremely remote oil — something very, very hard to do that comes with enormous complexity and myriad risks of catastrophic failure.

The assumption that we will continue to dig up more carbon-emitting fossil fuels may be called into question in a serious way by the Gulf oilpocalypse. Governments may very well ask for companies to invest far more in safety. It's a reasonable outcome that regulators demand that companies invest not only in the technologies to dig oil up, but also in cutting edge ways to greatly reduce the risk of it going all over the place. So far, the oil giants seem to be pursuing only the first part. Which brings me to...

2. Preparing for a world where things only go right is extremely dangerous. To hearken back to the recession for a moment, one of my favorite tidbits about the financial meltdown was something I read about the ratings agencies (you know, the groups that gave horribly risky investments triple-A ratings). In the spreadsheet models they used to estimate the value of mortgage-backed securities, analysts could only plug in a positive number in the "growth" cell. That is, they could not predict the value of those derivatives if housing prices actually went down. You have to wear very large blinders to build a model like that.

But the oil companies have done the same thing. They've invested heavily in exploration technologies, finding ways to do things — like dig a mile under water — that were only space-age fantasies until recently. But where are the technologies to avoid spills, contain them, and clean them up?

3. Downplaying your mistakes is, well, a big mistake. It's gospel in business schools that Johnson & Johnson set the bar on handling a disaster when it dealt with the poisoning of Tylenol (and thus murder of some of its customers) in 1982. The massive, and immediate, recall was unprecedented and set the standard for corporate behavior in the face of existential threats to a business.

Cut to 2010 where BP leaders apparently never read the J&J case study. CEO Tony Hayward infamously said that the spill was "relatively tiny" compared to the "very big ocean." That statement is both scientifically baseless and beside the point - the amount of leakage that the CEO should accept from his operations is approximately zero. Unfortunately, Hayward hasn't learned much in the way of media training as he told a reporter this week that he wants to end this disaster because, "I'd like my life back." Wow.

And the response has seemed awfully slow. Why, for example, has each attempt to stop the leak been done in a serial fashion? Meaning, when the "top kill" failed, why didn't BP have the next containment dome in position already instead of waiting a few more days? BP has been acting like a child that doesn't want to clean up its mess and drags its feet, which is strange, given the monumental risk to the company.

4. Environmental risks can threaten the viability of a business. Reducing risk was the core focus of environmental efforts for many years so it got a bit passé as a forward-looking argument for sustainability. But it certainly is making a comeback now. As someone who's written for years about how going green can drive profits and growth, I've probably also downplayed the role of risk reduction in creating green value. So let me make the very easy case for BP's poor risk management.

As of today, BP has lost over 40% of its market value, worth about $75 billion. The New York Times went so far as to suggest that BP could be vulnerable to takeover once all its liabilities for this spill are accounted for.

Of course for most companies, sustainability-related, enterprise-threatening risks are not quite as tangible as miles and miles of your product killing an entire ocean. But even harder-to-measure threats can destroy a business model. Think of the "stroke of the pen" risk from regulations that outlaw a component of a product due to toxicity (one recent candidate: plastics chemical BPA). Or consider at the risk to companies that do not meet the new sustainability-themed supply-chain demands from business customers. Or look at a company's ability to attract and retain talent based on how well the company manages its environmental and social performance. Ironically, BP leaders have told me in the past that their reputation as a green leader was making recruiting the best engineers far easier. But that reputation is shattered.

5. Companies can lose the reputation as a sustainability leader very fast. Warren Buffett famously said, "It takes 20 years to build a reputation and five minutes to ruin it." Having a reputation as a sustainability leader is valuable, but it's a tenuous thing, and it can be lost very fast. In the book I coauthored, Green to Gold, we open with two stories: one about Sony and environmental risk and the other about the money BP saved through carbon reductions. For years, the sustainability community has praised BP as best-in-class. In the 1990s, the CEO at the time, Lord John Browne, set BP on a path to go "beyond petroleum."

But over the last few years, BP has quietly reduced its investment in renewable energy to a negligible percentage of sales and profits. Under Hayward the focus has been on cutting costs, and the company has explicitly avoided talking about "green" initiatives in the media (give them credit at least for trying to reduce greenwash). Given the explosion of 2005 and this spill, it doesn't seem like much of a stretch to guess that the company has under-spent on safety.

BP nets about $20 billion a year. How much do you think BP should have spent on extra precautions and new clean-up technologies? Imagine if every well had a second, relief well nearly dug at all times. Expensive, yes, but so is the destruction of your reputation and business, not to mention an entire ecosystem.

The answer to how much BP, or any company, should spend to avoid these problems is somewhere between zero and how much the company is worth. Unfortunately for BP, that latter number is far smaller than it used to be.

[This post first appeared at Harvard Business Review Online]

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