Prosperity Archives

July 6, 2010

A True Declaration of Independence

After a long weekend of family and sun, centered around our annual rite of Americana, I've been thinking about what a modern declaration of independence would look like. What is the modern tyranny that controls our lives?

I looked back at the actual Declaration of Independence to spark my thinking. After laying out our "unalienable Rights" to life, liberty, and the pursuit of happiness, our founders declared...

"That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government..."

I can think of no greater form of control and "destructive" practice than our utter dependence as a country and species on fossil fuels for our energy. We rely on fuels which come, in large part, from parts of the world that fund actual tyranny (of women in particular) and religious fundamentalism that creates a true security threat (see this report from retired generals and admirals about how climate change and energy dependence threaten our security).

Substitute our dependence on these fuels for "government" in the Declaration. Reliance on fossil fuels dirties our air and threatens our health and life (and those of our soldiers forced to defend oil stocks around the world), it reduces our liberty, and let me ask this: how happy are we with this dependence?

Consider also this passage from the Declaration that appears during the litany of complaints against the King.

"He has plundered our seas, ravaged our coasts, burnt our towns, and destroyed the lives of our people."

What is the BP oil spill if not a "plundering" of seas and destruction of coasts and economies? If we were not dependent on these fuels, we would not need to dig in such hard-to-reach places with such high risk of failure.

Energy is not the enemy. Energy is the foundation of our lives. And just as the colonization and support of the British empire allowed the formation of a new nation, we have used fossil fuels to build our society and raise the standard of living for literally billions of people. And we should respect that.

But it's time for us to throw off our bonds and pursue new, cleaner forms of energy as fast as possible. The same companies that have helped create our modern energy-rich society can play a critical role...or not. It's their choice.

Imagine how it would feel for an individual, home, or business to get all the energy it needs from local, free sources -- the sun, wind, wave, and heat of the ground below us.

That's a form of freedom and prosperity we have not known...but we will.

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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 29, 2010

China Leads the Clean Economy Race

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

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

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

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

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

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

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

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

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

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

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

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

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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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October 28, 2010

Google Is Doing What the Government Can't

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

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

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

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

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

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

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

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

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

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

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

(This post first appeared at Harvard Business Online.)

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November 3, 2010

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

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

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

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

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

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

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

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

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

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

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

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

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November 5, 2010

A Better Idea on High-Speed Rail? From Republicans?

On the heels of the big election, we're all wondering what it means for the issues that matter most to each of us. I'm of course watching closely for signs of what this means for sustainability and the green agenda (see my last post on this).

One of the first specific things I saw on Republican intentions (outside of their non-stop attack on cap and trade for many months) was this headline on HuffPo:
"John Mica: GOP Lawmaker Poised To Head House Transportation Committee Wants To Re-Examine Obama's $10 Billion High-Speed Train Grants."

My first thought was, uh-oh, here they go again, cutting investment in critical (green) infrastructure that will create jobs and build a 21st century infrastructure for our economy to grow on (an infrastructure that China is not shy about investing in while our government seems stymied) .

But I'll admit to being really surprised at what Rep. Mica is actually saying -- his views, as presented in this article at least, made sense to me. His point apparently is not that the $10 Billion in federal stimulus for high-speed rail is a bad investment (which puts him WAY left of many of his new compatriots who want all government action to cease). But, he says, the investment plans so far haven't been logical. As is the Washington way, the stimulus funds aimed at high-speed rail were sprinkled on multiple states, including money to California (to build a line between San Francisco and San Diego), Florida (Tampa to Orlando), Missouri and Illinois (Chicago to St. Louis), and even Wisconsin (Madison to Milwaukee).

The problem, as Mica sees it, is that some of these projects won't result in real high-speed rail, and the population density doesn't always warrant the investment today. Why not start with the Northeast corridor, where the rail system might actually make money?

I'm skeptical that any major infrastructure can make money since that's not what it's for; we built railroads, roads, airports, and even the Internet to facilitate economic and population growth -- they're public goods that rarely make money. But we still should start with the most dense areas and make one region really work before sprinkling it everywhere. Granted, San Fran and Chicago are not rural outposts, but Madison, WI? I was just there this week -- it's lovely, but probably doesn't need a high speed rail line yet.

And as it turns out, many of the newly minted Republican Governors don't want the money anyway. They want to spend on roads instead, which is insane, but these funds can't be used for roads anyway.

So let's hope that when Rep. Mica says, "I am a strong advocate of high-speed rail," he means it. Let's hope this isn't some twisted, cynical bait-and-switch to eliminate needed investment.

Call me naive, but I'm still holding out hope for rational discourse in Washington -- at least about investing in the country's future.

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November 23, 2010

Big Infrastructure Projects Are Nothing New in China

I'll have a few posts on China over the coming week since I spent a few days in Beijing last week. I had a free afternoon on this trip, so I got the chance to visit the Great Wall.

It's hard to convey what it's like to see this amazing feat of engineering...and folly. When has a big wall ever worked? Maginot Line anyone? Here's me on the Wall -- the haze is pollution of course. (Thanks to colleague Dr. Rhoda Davidson from e3 Associates for taking this!).

DSC02514.JPG

I had some fun imagining that first meeting with an emperor in 220 BC when he said, "Hey I have this idea..." But what really struck me was that China seems to love big projects.

We can marvel at the speed of China's growth, especially in the green sphere where the country is building 16,000 miles of high-speed rail and became the largest solar panel maker in the world in just a few years.

But what I learned standing on the Great Wall is that China has done it all before.

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November 28, 2010

The Buzz on Green Business in China

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

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

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

Of these 5 articles, some were self-explanatory:

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

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

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

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

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

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

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

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

(This post first appeared at Harvard Business Online.)

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September 12, 2011

Weak Environmental Regulations Show Little Faith in U.S. Business

Before the big job speech, President Obama made an important decision about the economy and public health. About 10 days ago he reversed himself and his own EPA to stop a regulation that would've reduced smog-causing pollution. The U.S. Chamber of Commerce and the Republican Congressional leadership quickly declared this a major victory for "job creators" and business in general.

It's anything but.

Coal%20plant%202.jpg

I'll give a major concession on this argument and put aside for the moment the danger of ignoring solid science and what it tells about public health (which is that, in the words of NRDC Director Frances Beinecke, "strong smog standards would have saved up to 4,300 lives and avoid as many as 2,200 heart attacks every year...[and] made breathing easier for the 24 million Americans living with ashthma...").

Ok, let's imagine those health benefits don't matter. Even from a business perspective these laws make sense and it's ridiculous to keep them weaker than they should be.

Choosing weaker environmental regulations actually makes our country less competitive and shows amazingly little faith in our business community to innovate.

Just because something may be difficult doesn't mean it will be expensive as well. For decades now, every major environmental regulation has met significant resistance from the industries most affected. That should be expected, but let's deal in reality, not hyperbole.

This time, industry opponents say it will cost enormous sums of money to comply with a regulation that moves the standard from 75 parts per billion to 60 to 70 ppb. We've heard this argument before. The claims of economic destruction, outrageous costs, and lost jobs are almost always seriously overblown.

Every now and then, a business leader admits the falseness of these Chicken Little cries. Former BP CEO John Browne once told Fortune, "Every time there's a new piece of regulation, we say it's the end of our industry...[we have] an appalling track record in this regard."

The most famous example, though, is the battle over the Clean Air Act Amendments of 1990, ultimately signed into law by the first President Bush. This law established the first major "cap and trade" system; it didn't restrict carbon dioxide as current iterations propose, but mandated reductions in acid-rain-causing sulfur dioxide. At the time, industry claimed compliance would cost up to $1,500 per ton of SO2 reduced. For the next decade, the industry never spent more than $200 per ton, and usually far less, as Dan Esty and I discussed in Green to Gold (see p. 75). So business was off on cost estimates by a factor of 10.

But it gets better every time. Friday's laughable assertion from Representative Eric Cantor that changing the smog standard would cost the economy $1 trillion and millions of jobs makes the acid rain cost claims seem quaint.

Granted, the fiscal logic for stricter pollution standards doesn't seem as clear as the cost-saving potential of energy efficiency standards such as those for light bulbs and cars. (Of course politicos are fighting those as well, even though the fact that they truly drive innovation and save everyone money has already been demonstrated repeatedly). But this seeming lack of economic logic applies if you only consider one side of the ledger, the cost to companies most affected. But on the other side we have public health savings, which are estimated at $37 billion per year, and the benefits to other industries.

What about the companies and entrepreneurs that create cleaner ways of operating or provide the pollution-reducing technologies? Those are real jobs too, aren't they? And our companies will be more competitive globally as every country struggles with pollution. Or just consider the productivity benefits to all companies of having their asthmatic employees breathe easier.

But here's what really galls me: saying that stricter pollution standards will cost enormous sums of money shows a staggering disregard for our capacity to innovate.

If American business is the engine of growth that our politicians make it out to be, why can't we find new ways to do things that save money, cut pollution, and make our companies more competitive. When given constraints, the tough and smart get going and innovate (and, by the way, the new standard wouldn't go into effect until 2013, giving us some time).

I have faith in our businesses.

Why don't our industry and political leaders?

(This post first appeared at Harvard Business Online.)

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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)

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.)

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

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)