Imagine this: You live in beautiful house with the best of everything. However, when you turn on your faucets, only one-fifth of the water you pay for comes out. The rest leaks from bad plumbing onto your basement floor.
That describes America's situation with energy. Only 13 percent of the energy we burn results in useful work. The rest is wasted by inefficiencies in buildings, power plants, infrastructure, transportation systems and equipment. Much of it ends up as pollution.
Just as a responsible householder would fix his plumbing, a responsible nation would fix the leaks in its energy economy. Responsible businesses are figuring this out and are saving money with green energy, including greater efforts to get more work out of every energy dollar, cutting their greenhouse gas emissions in the process.
I discussed this recently with Hunter Lovins, one of the world's leading experts on the business case for sustainable energy.
Hunter, who Newsweek has called "the green business icon," co-authored Brittle Power: Energy Strategy for National Security in 1982; Natural Capitalism: The Next Industrial Revolution in 2010; and Climate Capitalism: Capitalism in the Age of Climate Change with Boyd Cohen in 2011, now available in paperback as The Way Out: Kick-Starting Capitalism to Save Our Economic Ass.
In her latest book, Hunter writes:
Believe in climate change. Or don't. It doesn't matter. But you'd better understand this: the best route to rebuilding our economy, our cities, and our job markets, as well as assuring national security, is doing precisely what you would do if you were scared to death about climate change. Whether you're the head of a household or the CEO of a multinational corporation, embracing efficiency, innovation, renewables, carbon markets, and new technologies is the smartest decision you can make. It's the most profitable, too. And, oh yes -- you'll help save the planet.
This post is the first in the two-part interview.
Q: In his first news conference after the election, President Obama said he'd like a national conversation on combating global climate change. However, he suggested -- and I'll paraphrase him here -- that the conversation needs to address the job and economic benefits of climate action, because that's foremost on the minds of the American people. You've worked with companies around the world on the business case for reducing their carbon emissions. What kind of reception have you found?
A: A warm one. Smart companies recognize that the best way to cut their carbon emissions is to cut their use of energy through implementing cost-effective energy efficiency, because this cuts their costs.
Mr. Obama is right, but he doesn't go far enough. Americans are concerned about the economy, but as my latest book describes, the way out of our recession is to unleash the green economy. Green jobs tend to be created here in our communities. You don't fix up a building by putting it on a boat and sending it to China for retrofit. You buy insulation at local hardware stores; guys in pickup trucks who live in your town come to your house to install solar panels; farmers in Iowa get the revenues from leasing their land for wind farms.
There are already 9,000 more solar workers than steel workers in the U.S., and if we had decent federal and state policies, we'd have a lot more. Doesn't it make sense to stop buying imported oil from parts of the world that don't like us, and invest instead in meeting our energy needs from fuel that is free once the capital cost to install the wind turbine or solar panel is paid? Any national conversation on climate protection should put jobs and local prosperity at the center, because protecting the climate is GOOD for our economy.
Often in such talks business gets forgotten. Far too many people still subscribe to that old myth that doing anything to protect the environment cuts jobs and is bad for business. Nothing could be further from the truth, and there are now more than 45 studies from the likes of those wild-eyed environmentalists at Goldman Sachs showing that the companies that are the leaders in environmental, social and good governance policies have 25 percent higher stock value and the fastest growing stock value, while delivering superior financial performance and better investment risks than their less sustainable competitors. Companies like Puma, Novo Nordisk, Baxter and many others are counting the costs and risks of unsustainability in financial reports. They find that behaving more responsibly enhances every aspect of core business value.
It would be good to have a national summit to make such findings more public. The iMatter Campaign (young people working to raise awareness that unchecked global warming means that they do not have a future) is calling for Mr. Obama to convene a national summit on climate change in the first 100 days of his new term. I'm helping them involve business leaders who understand that cutting emissions is just better business.
DuPont was one of the first to prove this; in the late 1990s the company pledged to cut its emissions of greenhouse gasses 65 percent below its 1990 levels, and do it by 2010. That's a bit more ambitious than the United States, which still refuses to ratify the Kyoto protocol agreeing to cut emissions 7 percent below 1990 levels by 2010.
Did DuPont join Greenpeace? No. The company made its announcement in the name of increasing shareholder value, estimating that every ton of carbon it no longer emits saves its shareholders $6 in operating costs. Implementing energy-saving measures cost less than buying and burning fuel or engaging in processes that emit other greenhouse gasses. In short, DuPont was solving the climate crisis at a profit.
In a 2005 speech at the Conference Board, Gary Pfeiffer, the company's chief financial officer, described how DuPont had enjoyed a 340 percent increase in share value paralleling a 60 percent reduction in its environmental footprint. By 2007 DuPont's program had cut the company's emissions 80 percent below 1990 levels. Doing this created a financial savings for the company of $3 billion between 2000 and 2005. By 2007, DuPont's efforts to squeeze out waste were saving the company $2.2 billion a year. The company's profits that year? $2.2 billion.
In a recent report Power Forward noted that more than half of the Fortune and Global 100 companies, including AT&T, DuPont, General Motors, Google, HP, Sprint, and Walmart have set carbon reduction goals; Walmart has pledged to become 100 percent powered by renewable energy, although it does not say when. Ford Motor Company has taken the leadership step of setting "science based goals," committing to cut its emissions in line with what scientists say is necessary to stabilize the climate. Their target -- stabilization at 450 parts per million (ppm) CO2 concentration in the atmosphere -- is still too high. Leading scientists now say that 350 ppm is the highest "safe level" -- meaning there is only a 50/50 chance of global catastrophe at that level. But setting any goal is better than the sort of handwringing preferred by national politicians, who set tepid goals for 50 years from now when they are safely dead.
What's a good science-based goal? At least a 4 percent reduction per year is a good start. Regardless of targets, companies are recognizing that they need to start measuring their emissions and implementing programs to cut them. The Carbon Disclosure Project (CDP) receives annual reports from more than 4,000 companies, cities and other organizations detailing their carbon footprints. Why? Initially because CDP was backed by institutional investors with assets totaling more that $78 trillion. If your company intends to go to the capital marketplace, it had better have a report on file with CDP.
More important, companies are finding that using these reports as a basis for cutting their emissions is a route to enhanced profitability. The companies in CDP's Carbon Disclosure and Performance Leadership indices had nearly twice the average total return compared to Fortune's Global 500 from 2005 to 2011. Around two-thirds of emissions reduction projects reported by companies to CDP this year exceeded a 30 percent return on investment and 88 percent of projects exceed firm level return on invested capital.
And we've only begun to achieve the cost effective savings. CDP reckons an average sized company reporting to it has $30 to $40 million of cost effective energy efficiency opportunities that remain uncaptured.
The United States has energy saving opportunities worth $130 billion annually that remain unrealized due to the various market barriers, according to the consulting firm, McKinsey. It calculated that cutting energy waste a mere 23 percent a year by 2020 would save the U.S. economy $1.2 trillion. The investment to achieve this is only $520 billion, a deal even conservative businesspeople ought to jump at. If they did, we'd cut 1.1 gigatons of greenhouse gas emissions annually--the equivalent of taking the entire U.S. fleet of passenger vehicles and light trucks off the roads.
Q: In your book, The Way Out, you list scores of case studies where corporations and small businesses are profiting from energy efficiency and renewable energy. On the other side of the equation, what have you found about why more companies aren't doing it?
A: CPD asked companies this question and found that many executives had no idea where to start. It seemed a daunting prospect to them.
Similarly a 2010 survey of nearly 2,000 company executives by McKinsey found that although more than 50 percent of those surveyed stated that implementing more sustainable practices was very or extremely important to the future of their company and delivered immediate value, fewer than 30 percent were acting on this recognition. They reported lacking clarity about what actions were expected of them and how to begin. To counter that, Natural Capitalism works with companies, communities and countries to help them design strategies to capture their opportunities in ways that drive their profitability.
But here's what I think is the real problem: lack of attention. In the midst all of the pressures on corporate management, prime among them staying alive in the worst economic recession since the Great Depression, cutting carbon seems low on the list of priorities. We've walked into companies that are wasting hundreds of thousands of dollars every year just from leaving lights on. Nationally, unnecessary lighting wastes as much as $10 billion every year. Other companies leave computers and monitors on after everybody's gone home, apparently thinking, "Oh, it's not that much energy... " In one company we pointed out that just posting a policy to turn the dern things off when no one's sitting in from of them would save $700,000 the first year. Nationally $2.8 billion dollars a year is wasted this way. In 2010 Ford Motor Company posted such a policy and saved themselves a million dollars.
Good for Ford, but thousands of other companies, large and small are still wasting billions, buying and burning energy they do not need to make the products we desire and the services they provide. A Presidential Summit could sure help bring attention to the enormous economic benefits we would all gain from a commitment to protect the climate. So would one of the recommendations of the Presidential Climate Action Project, where I serve as an advisor: President Obama should issue an nationwide challenge to make the United States the most energy-efficient industrial economy in the world. According to the American Council for an Energy Efficient Economy, we now waste 86 percent of the energy we burn. We should declare a war on waste. Unless we do, our economy cannot become the vibrant, competitive, clean job engine we want it to be.
Q: It seems clear that with their enormous economic and political power, corporations have a major role to play in leading America's transition to a clean energy economy. Yet, collaboration between the corporate world and the environmental movement seems to be the exception rather than the rule. Do you believe there is potential for greater alliances between companies and environmental groups? If so, how do we achieve it?
A: I believe that the climate crisis will be solved faster by businesses doing the right thing because it is in their interest to implement climate protection than by legislators finally figuring out that going over the climate cliff is already hurting our economy, costing us jobs and endangering and impoverishing us all. The failure of global governmental negotiations to implement a climate protection treaty is mirrored at each failed global summit by corporate commitments.
But I'm not sure that the old environmental movement versus business myth is true. My work with companies began more than 30 years ago at the little environmental group, Tree People, in Los Angeles. It spread internationally with Friends of the Earth, and continues to this day. Just as the smart companies are taking the lead in implementing more sustainable practices because they understand that it cuts costs, the smart environmental groups are working with companies to help them find cost-effective ways of implementing more sustainable practices.
There is a great talk by Google Chair Eric Schmidt at a meeting of the Natural Resources Defense Council, one of the big environmental groups, in which he outlines how Google has worked with NRDC, and how the company's actions to save energy, implement renewable energy and cut the company's carbon footprint meet every criterion of a of a profit-maximizing capitalist. His conclusion, "It's a no-brainer from a shareholder perspective... When you actually do the math you discover that doing the right thing is also the right thing for business."
Environmental Defense Fund was one of the first groups to use market mechanisms for climate protection. Following on an article I helped write that set forth the business case for climate protection, EDF argued for a market-based solution at the Kyoto climate negotiations, one of the few environmental groups at the time to understand that business is the engine that will implement good policy. EDF continues this leadership with its Climate Corps, training graduate students in how to work with companies and the public sector to build the business case for energy efficiency. Climate Corps fellows identify and prioritize cost-effective investments that result in energy savings for building owners or leaseholders. They create plans to fund and implement those projects, relieving executives of this chore.
From World Resources Institute, to World Wildlife Fund, to the World Business Council for Sustainable Development partnering with Greenpeace, environmental groups are working effectively with companies to solve this crisis.
Q: A few years ago, members of the Rockefeller family tried to push ExxonMobil into investing more in green energy. The argument was, I believe, that Exxon should be putting money into the development of the resources and technologies that will run our economy in the future. Some of us hoped it would be the start of a revolution in which stockholders began exerting real pressure on oil companies to join the transition to clean energy rather than opposing it. It didn't happen. Should it?
A. It's a good idea, and the oil majors have dabbled over the years with investments in alternative energy. Royal Dutch Shell, under the leadership of Sir Mark Moody-Stuart, once found it plausible that by 2050 Europe would be half powered by renewable energy. BP probably now wishes it had stuck with its Beyond Petroleum approach -- abandoned when Lord John Brown was removed as its CEO. Exxon remains a major investor in algae biofuels. But all of these investments are rounding errors compared to their fossil commitments.
Until Exxon and the other companies whose entire business model rests on roasting the planet understand that they have become an illegitimate industry, little will change. Bill McKibben's 2012 article in Rolling Stone laid out the math: To prevent the 2 degree Celsius rise in temperature that even the most conservative governments on earth have committed to avoiding, scientists tell us we can burn enough coal and oil and gas to produce 565 gigatons of CO2. Unfortunately, the planet's fossil-fuel companies, and the countries that operate like fossil-fuel companies (think Venezuela and Kuwait), have five times that much in their reserves. It's what their share prices are based on. They obviously plan to burn it; indeed, they spend hundreds of millions of dollars daily looking for more. If their business plan is carried out, the planet tanks. McKibben calls them "Public Enemy Number One to the survival of our planetary civilization."
Several things must happen.
First, those of us who are inadvertent investors in the oil companies should put a stop to the unaffordable tax subsidies that we continue to pay to the fossil industries, estimated by the International Energy Agency at over $550 billion every year. The same idiots who wring their hands over unaffordable help for the wind industry and refuse year after year to cut the far greater subsidies to the oil, gas, coal and nuclear lobbies should be ashamed of themselves.
Second, all of us who use their products must make it clear through our behavior that we "demand" that they change their business models. Companies respond to, and through their lobbyists, and campaign contributions (more than $150 million in 2012) shape the market.
How do I change my behavior? My next car will be a plug-in hybrid electric that I will run off the solar panels at my ranch.
Third, the investment community can make it clear that corporate investments in fossil fuel have a cost. Bill McKibben and 350.org are campaigning on college campuses to have university endowments divest of ownership in fossil companies. So far, students on more than 190 campuses with $400 billion in fossil investments have joined the campaign, the largest student movement in decades. Unity College in Maine and Hampshire College in Massachusetts have already committed to divest. The Mayor of Seattle and various religious organizations have also directed their financial managers to divest.
Will such a campaign bankrupt the fossil industry? Clearly not. They make their obscene profits -- Exxon was making $104 million dollars a day in 2012 according to one report -- selling gasoline to us.
But no company can long withstand delegitimization. Bishop Desmond Tutu likens the 350.org student campaign to the efforts to end racial discrimination, saying "Climate change is the great moral issue since apartheid, and we need the same kind of tools to bring it to people's attention."
If we can make it sufficiently uncomfortable for the fossil companies, they will begin to make alternative investments. They won't want to: They will be able to make more money incinerating the planet, but in the end what the Rockefellers started will make a difference.
Q: As you know, the Securities and Exchange Commission issued guidance to publicly traded companies a couple of years ago, urging them to assess and report their climate risks each year. That kind of transparency seems critical in helping investors learn which companies recognize and are managing climate risks. But the number of companies filing these reports is falling. It seems as though the companies you've worked with -- those that are doing a good job at climate risk management -- would like the public to know about it. Do you have any ideas about how to get more companies to comply?
A: It would help if the SEC enforced its own guidance. The pension funds and leaders such as Mindy Lubber at CERES and Russell Read when he was Chief Investment Officer at the big pension fund CalPERS, who began the pressure on companies that enabled the Carbon Disclosure Project to get its initial traction, can only do so much. There is a real need for good policy.
For example, business leaders and investors brought together last year by the Pew Charitable Trusts issued a statement that the lack of a clear national energy policy is inhibiting their investments in renewable energy. If President Obama wants to stimulate capital investment in a clean energy economy, creating a coherent national energy policy is one way to do it. This is another issue the Presidential Climate Action Project has addressed. We've been encouraging the president to create a commission that engages governors, mayors, economists, national laboratory experts, utility executives and key people in his Administration in framing a national energy strategy. That strategy would put us on the trajectory to meet the President's greenhouse gas reduction goals; guide future research; encourage greater coordination between state, local and federal policies; and guide the federal budget. President Obama has the opportunity to make America's transition to clean energy his legacy issue over the next four years, and to move us far enough down the road that we won't reverse course.
William Becker is executive director of the Presidential Climate Action Project and a senior associate at Natural Capitalism Solutions, the non-profit think-and-do tank founded by Hunter Lovins. In Part 2, Hunter discusses the role of federal policy in the business sector's use of green energy, and whether the best energy choices cost least.